ACCA · Question 12 · Business Combinations
Section A
When acquiring SubCo, ParentCo agreed to pay an additional $1 million to the former owners if SubCo's profits exceed a certain target in the first year. At the acquisition date, the fair value of this contingent consideration was estimated at $600,000 and recorded as a liability. At the year-end, SubCo performed exceptionally well, and it is now certain the $1 million will be paid. How should the $400,000 increase in the liability be recorded?
Answer options:
As an increase to Goodwill
As a deduction from Retained Earnings
As an expense in profit or loss
As an item of Other Comprehensive Income
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