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Hi Mike!
I actually have some issues with deferred consideration.
If for example, there is a cash payment of $1 per share(24 M shares in total) payable after 3 years.Therefore the deferred consideration is 24M x$1 x $0.75= $18M
-My issue is that when calculating the goodwill which should figure should be taken and why?
“Therefore the deferred consideration is 24M x$1 x $0.75= $18M”
You really should indicate for me that the entity’s cost of capital is 10%!
And although the examiner will typically say “The value of $1 in 3 years’ time is 75 cents” the more accurate rate would be 75.1315 cents, but that level of ‘accuracy’ will never appear in the exam room
“My issue is that when calculating the goodwill which should figure should be taken and why?”
We take the present value Why? Because fair values are taken throughout the goodwill calculation – fair values of consideration, fair values of assets and liabilities acquired
OK?
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