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please i want to know when do you charge the percentage difference when a company made deferred payments. how do we charge the difference to the group retained earnings
I’m not totally sure that I understand the question. However, I’ll try!
When a parent takes on a subsidiary and part of the purchase consideration is by way of a deferred cash payment, we need to discount that future payment to find its “today” value. Then, as time passes, we need to unroll that discount. This is achieved by applying the parent company’s cost of capital to the discounted “today” value. That calculated figure is accounted for by debitting finance charges / finance expenses in the statement of income and crediting the liability which represents the amount of the deferred payment.
This increased liability is shown in the consolidated statement of financial position as either a deferred long term liability ( more likely) or as a current liability (less likely) dependent upon how many months into the future the payment is due to be settled
Ok?
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