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Hi Mike,
I wish you could help me on the below issue:A parent acquires a subsidiary company on 1 Jan 2006. She has to pay $108m on 1 Jan 2007 (deferred consideration). The cost of capital of parent company is 8%. How is it accounted for in Statement of Financial Position at 31 Dec 2006 and Statement of Profit or Loss for the yr ended 31 Dec 2006?
In BPP it says,
deferred consideration is 108/1.08 = $100m at 31 Dec 2006 in SFPand in SPL,
Finance cost is $8m.Shouldn’t the deferred consideration amount in SFP be $108m at 31 Dec 2006?
Hi
If what you have written is correct with particular reference to the dates, I believe that you are correct. The double entry to record the unwinding of the discount is to debit Finance Charges in the Statement of Income and to credit Deferred Consideration in the Statement of Financial Position. And (again, if your dates are correct) the $108 is now a current liability
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