If a Parent company purchases a stake in a subsidiary, partly with deferred consideration what is the accounting treatment?
I know we take the Present Value using the costs of capital given, and use it in the cost of combination for the Goodwill working e.g.
Def Consid = 108m in 1 years time. Cost of Capital = 8%. P.V. = 100m.
The “discount” of 8m is unwound by charging to the P&L right?
The Def Cons is a Current Liability since it is due within 1 year. So it would be entered on the SFP CL as 108m (both P.V + discount)
If it is due in more than one year? Would the PV be a Non Current Liability? What about the discount how do we “unwind”, would it be a current liability?
Discount unwound through Statement of Income? – correct
As we unwind the discount, the double entry will be Dr Finance Charges Cr Obligations.
Whether it’s a current liability or deferred depends on the due date of payment to settle the obligation
You must be logged in to reply to this topic.