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How do we calculate the worth of the company if NCI fv is $4m and cash payment is $16m and contingent of $10m due for 2 years to be paid . The subsidiary retained earning at acquisition $7.8m and share capital 10m of $1 each .
The contingent consideration is being valued by specialist at the beginning of acquisition to be $8m however, it’s fair value at the end of the year was valued $7m!
This is a question that paralyzed my attempt to even want to try do the quation but I left it completely !
the contigent was assesed that there is chance it will be paid and was accounted for in the FS as investment of $26m but in the NCL , the $10m was also written down .
Hi,
Well done in leaving it completely, that is very good exam technique!
I’m not sure why you’d want to calculate the wort of the company, but looking at the information you would use the fair value of the contingent consideration at the acquisition date of $8m in the goodwill calculation and then the movement in the fair value would be a post-acquisition event and would impact the profit or loss.
Thanks
Yes we asked to calculate the goodwill and under the section of NCL in the SFF, the $10m was accounted for.
Why i intend to calculate the worth of the company , is to enable me calculate the goodwill
Please, correct me if i made a mistake ,
cash payment = $16m
NCL = $4total worth $20 million
Fv of SNA
Share capital = $10m
R.E = $7.8M
fv adj contingent = $8m if ignoredGoodwill = $20m – $17.8m = $2.2m
if not ignored = $20m – $25.8 = – $5.8
Sir, if this is correct what happens to the contingent consideration of the 10$ that is to be paid in 2 years time and which was also accounted of the underline question Financial statement?
Continent consideration is recognised initially at fair value as a liability and as part of the cost of the investment, so it will form part of the goodwill. The goodwill calculation is not then subsequently adjusted regardless of whether we do or don’t pay it in the future.
Don’t get confused with contingent consideration in P’s books and a contingent liability in S’s books, which is where I think you are going wrong.
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