When a contingent consideration arising from a business combination is classified as a liability, how is any change in its fair value as a result of new information about the facts and circumstances that existed at the acquisition date accounted for if identified and measured within one year subsequent to the acquisition date?
A) As an adjustment to the consideration paid for the subsidiary.
B) As an adjustment to an estimate included in the determination of net income.
C) As a direct adjustment to consolidated retained earnings.
D) As an adjustment to consolidated contributed surplus.

Question

Quizplus · Accepted Answer

Changes in the fair value of a contingent consideration classified as a liability, due to new information about facts and circumstances that existed at the acquisition date and identified within one year of the acquisition, are accounted for as an adjustment to the consideration paid for the subsidiary. This reflects the adjustment of the acquisition cost rather than affecting the income statement or equity items directly.

When a Contingent Consideration Arising from a Business Combination Is