Accounting standards require that a portion of the cost of an acquired company b

Question

Accounting standards require that a portion of the cost of an acquired company be allocated to investee liabilities. However, often in the case of pre-existing contingent liabilities, the amounts may be unknown at the acquisition date. What are the general financial reporting requirements for the consolidated statements at date of acquisition?

Select one:

a. If the fair value of a pre-existing contingent liability is unknown, the liability should not be recognized.

b. A contingent liability would not be recognized unless the loss was "probable."

c. Contingencies meeting the "possible" threshold would be disclosed, not accrued.

d. All of the above statements are true.

Explanation / Answer

correct option is "B"- A contingent liability would not be recognized unless the loss was "probable."

A contingent liability is recignised only when it is proable that it is likely to result in outflow of resources .

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