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On 1 April 20×0 P acquired 75% of S’s equity shares by means of a share exchange and an additional payable on 1 April 20×1 that was contingent upon the post acquisition performance of S. At that date of acquisition P assessed the fair value of this contingent consideration at $4.2 M but at 31 March it was clear that the amount to be paid would be only $2.7M
How would P account for this $1.5M adjustment in the FP as at 31 March 20×1?
-Could you briefly explain what is meant by ” At that date of acquisition P assessed the fair value of this contingent consideration at $4.2 M but at 31 March it was clear that the amount to be paid would be only $2.7M”
-What is the answer.
Thanks.
“Could you briefly explain what is meant by “At that date of acquisition P assessed the fair value of this contingent consideration at $4.2 M but at 31 March it was clear that the amount to be paid would be only $2.7M””
On 1 April, 2010, the date of acquisition, P determined in their own minds that the fair value of the amount to be paid one year after acquisition would probably be $4.2 million
P couldn’t be certain of the amount because it was to be calculated based on the performance of S for the year after acquisition
However, when that year had passed, instead of having to pay $4.2 million, S performance was not as good as had been anticipated so P was only liable to pay
$2.7 millionOK – I believe that that answers your question?
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