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contingent payment arrangements that are an element of consideration transferred are recognized as part of the fair value transferred in exchange for the acquired business. Subsequent changes in the fair value of a contingent consideration arrangement are considered to relate to post-combination events and changes, in circumstances of the combined entity and should not affect the acquisition-date fair value of the consideration transferred to the seller.
When Kellogg acquired substantially all of the equity interests of United Bakers, a contingent consideration was negotiated. Such payment will be recognized as additional purchase price when the contingency is resolved. did not follow the FAS requirements, as K did not recognize the fair value of contingent consideration at the acquisition date.
classified its financial assets and liabilities into a three-level fair value hierarchy
nature of their fair value measurement inputs
Level 3 assets and liabilities have the lowest priority
significant unobservable inputs
reflect actuarial assumptions a market participant would use in pricing the asset or liability
associated reporting risks might be an overstatement or understatement of fair value of the Level 3 items
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