FRCONSOLIDATION: DIFFERENCE BETWEEN DEFERRED CONSIDERATION & CONTINGENT CONSIDERAT

Deferred Consideration is the payment that is to be paid by the buyer after a pre-defined time period. Contingent Deferred Consideration is the payment that is to be paid by the buyer ONLY if some events, which are specified in the contract occur within a pre-defined time period. For example, Cost of capital = 10% P buys S for $300,000 on 1-1-15 and Case 1: Deferred payment of $500,000 on 31-12-15, Then $500,000 will be converted into Present Value i.e Present Value of deferred consideration $500,000 x 1.1^(-1) = $454545 The unwinding of discount will be 454545 x 10% = $45455 Case 2: Contingent Deferred payment of $500,000 on 31-12-15 ONLY if Profit < $1000000, Then $500,000 will be converted into Present Value i.e Present Value of deferred consideration $500,000 x 1.1^(-1) = $454545 The unwinding of discount will be 454545 x 10% = $45455 (same so far) BUT if condition is not met, Gain will be recorded then DEBIT Contingent Constructive Obligation 500,000 CREDIT Profit and Loss/Retained Earnings 500,000 No impact on goodwill if condition not met though. I hope it helps.

Please do confirm this with your teacher. I am student myself and shared my workings. I do not represent Opentuition and not a teacher so there is a chance I might be wrong. I am unsure if I was allowed to answer the queries. There is no edit or delete button so now I think I just have to stick with it. I am not sure exactly how it works. Anyways, best of luck for your exams.