Accounting for Contingent Considerations in Business Combinations

• Author: Gurgen Kalashyan
• Position: Ivane Javakhishvili Tbilisi State University, Tbilisi, Georgia
• Pages: 53-56

Law, Society & Organisations

Volume II, Issue 2 (1 / 2017)

53

Gurgen KALASHYAN

Ivane Javakhishvili Tbilisi State University

Tbilisi, Georgia

ACCOUNTING FOR CONTINGENT

CONSIDERATIONS IN BUSINESS

COMBINATIONS

K

eywords

Business combinations

Contingent consideration

IFRS 3

Abstract

According to IFRS 3 Business Combinations contingent considerations must be included in the total

consideration given for the acquired entity along with cash, other assets, ordinary or preference equity

instruments, options, warrants. The contingent consideration is the determined amount which acquiring

entity has to pay to acquired entity provided, that certain conditions will be fulfilled in the future. In case

the provisions are not satisfied, we will get the situation when the amount of contingent consideration has

been included in the total consideration given in the business combination, but in fact, the acquirer has

not paid that amount. In its turn, the acquired entity will recognize the contingent consideration as a

financial asset according to IFRS 9 Financial Instruments. In that case, it would be appropriately to

recognize the contingent consideration as a contingent asset applying IAS 37. In the Article the author

will explore the challenges of contingent consideration accounting and suggest the ways of solving the above

mentioned problems.

JEL Classification: M41