Problem:
On 1 July 2021, YEL Ltd acquired all the issued shares of LOW Ltd. At acquisition date, the identifiable assets and liabilities of LOW Ltd included an unrecognised liability for unsettled dispute with a fair value of $40 000 and an unrecognised asset for research and development (R&D) projects with a fair value of $90 000. Assume the consolidation of YEL Ltd and LOW Ltd is being prepared at the acquisition date of 1 July 2021. What is the business combination valuation entry for unrecognised liability?
a. DR. BCVR $28 000 DR. Deferred Tax Asset $12 000 CR. Provision for Dispute $40 000
b. DR. Loss on Legal Action $40 000 CR. Income Tax Expense $12 000 CR. Contingent Liability $28 000
c. DR. BCVR $40 000 CR. Contingent Liability $40 000
d. No entry is required because AASB 137 Provisions, Contingent Liabilities and Contingent Assets does not permit a contingent liability to be recognised as a liability.