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Q) Bush Ltd acquired all the shares of Beach Ltd on 1 July 2018. Due diligence...

Q) Bush Ltd acquired all the shares of Beach Ltd on 1 July 2018. Due diligence work conducted by Bush Ltd revealed that all the assets and liabilities of Beach Ltd were carried at fair value at the date of acquisition, except for a contingent liability that has been assessed as a present obligation having a fair value of $80,000. The contingent liability was settled by Beach Ltd for $90,000 on 1 July 2019.

Which of the following consolidation adjusting entries is required as at 30 June 2019?

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Answer #1

Current GAAP requires that all contractual contingencies, as well as non contractual liabilities for which it is more likely than not that asset or liability exists, be measured and recognised at fair value on the acquisition date hence Bush Ltd has to recognise contingent liability of $80,000 on the acquisition date on 1July 2018

Goodwill a/c Dr 80,000

To Liability for Contingent Consideration 80,000

Following entry needs to be posted on 30 June 2019

Expenses a/c Dr 10,000

To Liability for Contingent Consideration 10,000  

Being entry posted for  $10,000 to match with the fair value

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