I had a question about how to account for a change in the value of a liability during the measurement period (post business combination period). We recorded a taxes payable to the seller as acquisition consideration on the acquisition date at fair value using discounted cash flows (DCF), with the offset being goodwill. During the subsequent period, we remeasured the payable using DCF and recorded accreted interest expense, which increased the payable.
My understanding is that the typical measurement period adjustment is to increase/decrease goodwill and the liability for the change in the provisional amount recorded at the acquisition date, as well as true up the corresponding amortization expense. I don't see examples where you adjust the P&L as well. The final payable amount ended up being lower than the provisional amount, so in order to correct the payable (and goodwill), I have to reverse the accretion expense. Can someone please confirm that is the correct thing to do. Thanks for your help.
My understanding is that the typical measurement period adjustment is to increase/decrease goodwill and the liability for the change in the provisional amount recorded at the acquisition date, as well as true up the corresponding amortization expense. I don't see examples where you adjust the P&L as well. The final payable amount ended up being lower than the provisional amount, so in order to correct the payable (and goodwill), I have to reverse the accretion expense. Can someone please confirm that is the correct thing to do. Thanks for your help.