consolidation contingent consideration

Yes, it's because the decrease occurred in the post acquisition period Nothing different if it had happened in the next year (nor the one after that!)

okk.i understood that.thank you!! does the same rule apply for negative goodwill as well, the timing doesn't affect it?

The only thing likely to affect negative goodwill is the first anniversary review of fair values. They may confirm the bargain purchase or may reduce the value of the negative goodwill, but can't increase the negative goodwill

ok,you mean the negative goodwill is adjusted in the year of acquisition as an income and any subsequent decrease in later year is adjusted in the year it occurs? does the decrease occur due to impairment? how will the decrease be recorded? is it deducted as an expense?

The decrease can occur for any reason - it doesn't need to be an impairment If the decrease is due to an impairment then, yes, credit the asset and debit statement of profit or loss

what do you mean by credit the asset? the negative goodwill is treated as an income.not shown as an asset

Negative goodwill arose because the fair value of the net assets at date of acquisition was greater than the consideration paid to acquire control. If the assets were greater and that gave rise to negative goodwill (which was then credited to statement os profit or loss) and you're asking ho we deal with a decrease in the value of the negative goodwill, then clearly we must reduce the value of the assets that we acquired So.....debit impairment / fall in value / call it what you will and credit the asset OK?

ok.ok.now i got it.THANKS A LOT :)

You're welcome

Dear Mike, At d.o.a parent has a contingent consideration of 4.2m and it was provided for future action After 1year, the fv of this contingent is reduced to 2.7m Can u tell me double entry (soci/sofp) for this consideration??? Dr RE/ contingent exp Cr provision Over provision Dr provision Cr RE/ contingent exp Or Dr contingent consideration Cr provision Over provision Dr provision Cr contingent consideration (RE in this double entry have not affected ???)

It has to go back into Retained Earnings as an over-provision no longer required so debit provision for contingent consideration, credit retained earnings

@mikelittle said: It has to go back into Retained Earnings as an over-provision no longer required so debit provision for contingent consideration, credit retained earnings

Do we adjust the cost of investment? decrease to 2.7m

Only if the re-assessment was part of the first anniversary review of fair values. In that case the double entry would be .... Dr Contingent Consideration 1,500 Cr Goodwill 1,500 But the examiner would make it clear that it was a part of the anniversary review

@mikelittle said: Only if the re-assessment was part of the first anniversary review of fair values. In that case the double entry would be .... Dr Contingent Consideration 1,500 Cr Goodwill 1,500 But the examiner would make it clear that it was a part of the anniversary review

Sorry but it seems unclearly for me :( And it's a picant question The question says: "by 31/03/2010 it was clear that the actual amount to be paid would be only $2.7m... Picant has recorded the share exchange and provided for the initial estimate of $4.2" I'm wondering about the 1st entry for contingent consideration, Like you said "It has to go back into Retained Earnings as an over-provision no longer required so debit provision for contingent consideration, credit retained earnings" I think i will be like this Provision Dr C.O.I 4,200 Cr Provision for contingent consideration 4,200 Actual Dr Provision for contingent consideration 1,500 Cr RE 1,500 Subsequently why does it not affected into C.O.I?? And i don't quite understand this one: Dr Contingent Consideration 1,500 Cr Goodwill 1,500

"Provision Dr C.O.I 4,200 Cr Provision for contingent consideration 4,200" - agreed, so goodwill is increased because cost of investment is higher But then, subsequent to acquisition, we decide that it's not going to be as high as $4.2 - it's only going to be around $2.7 - so we can debit the provision and credit retained earnings "Subsequently why does it not affected into C.O.I?" - it doesn't affect cost of investment (nor, therefore, Goodwill) because the amount is re-assessed as a result of events taking place AFTER acquisition. As at date of acquisition the estimate was justifiable but afterwards the contingency should be reduced. It's the same therefore as any other provision movement. At the time the provision is created, it was estimated according to best information available AT THAT TIME Now, subsequently, there is a re-assessment as at reporting date. And there could well be another as at the following year end too The suggested solution tells you about it! Here: Consolidated retained earnings Picant’s retained earnings 27,200 Sander’s post-acquisition losses (2,400 x 75% see below) ( 1,800) Gain from reduction of contingent consideration (4,200 – 2,700 see below) 1,500 URP in inventory (w (iii)) ( 600) Adler’s post-acquisition profits (6,000 x 6/12 x 40%) 1,200 total 27,500 The adjustment to the provision for contingent consideration due to events occurring after the acquisition is reported in income (goodwill is not recalculated). Is that better?