Contigent consideration in business combination

Former user9y ago

Hi Mike, Just need some clarification on how contigent consideration is dealt with in goodwill. 1)Do we work out the amount at the start when the aquisition is occuring based on the current value of the share(assuming the consideration is equity based)? 2)also could it also be cash based if so will the working be any different? 3)Also say the value of the share changes do we reajust goodwill? Or the criteria for the contigent consideration is not met? What then? Not sure how complicated they would make it in P7 the above questions seem more relevant for P2 but will be helpfull to understand. Thank you

MikeLittleTutor9y ago#1

1) - share value as at date of acquisition 2) - no difference 3) - no, no change to goodwill calculation I've never come across the situation where the contingent date has now passed and the consideration becomes no longer a possible payment - because it's lapsed I imagine that it would be credited to other comprehensive income ... but I'm not 100% Are you really from GC? Spent a year there >40 years ago - loved it!

Former user9y ago#2

Hi Mike, Yepp im from GC. 40 years ago wow island must have been very different!!! Thanks for your reply. Just one last point with a contingent cash consideration, do we discount it and the discounted figure is what we use in the goodwill calculation and also create liability(each year this will increase based on the interst rate)?

MikeLittleTutor9y ago#3

"do we discount it and the discounted figure is what we use in the goodwill calculation" It's a bit difficult to discount a sum of money when we know neither the amount nor the date it will be due so ... no We can estimate the amount (examiner will do that for you) and set up a provision in the consolidated figures The provision amount will change as new information comes to light that may give greater certainty to the amount or probability but we won't change the goodwill figure

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