What is the purpose of the business combination valuation entries?

When Scotch Ltd secured ownership of all of the shares of McGraw Ltd, McGraw Ltd was involved in a court case with a former employee. McGraw Ltd disclosed this information as a contingent liability, and the company's solicitor determined the fair value of the probable payout to settle the case to be $50 000.

Discuss with the class if an adjustment is required on consolidation for a contingent liability and why? Explain the journal entry line by line to the class at acquisition date, and then if the court case is won by McGraw Ltd.