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Contingency Consideration- Applyling probability

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Contingency Consideration- Applyling probability

  • This topic has 4 replies, 3 voices, and was last updated 8 years ago by duybachhpvn.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • May 26, 2017 at 7:45 pm #388317
    satheesh90
    Member
    • Topics: 36
    • Replies: 25
    • ☆☆

    Relevant Part of a question

    On 1 October 20X4, Kutchen acquired 70% of the equity interests of House, a public limited company. The purchase consideration comprised 20 million shares of $1 of Kutchen at the acquisition date and 5 million shares on 31 March 20X6 if House’s net profit after taxation was at least $4 million for the year ending on th hat date. The market price of Kutchen’s shares on 1 October 20X4 was $2 per share and that of House was $4·20 per share. It is felt that there is a 20% chance of the profit target being met.

    In BPP, for the above , the contingency consideration is being calculated as (5*4.2*.2)
    Which apply the 20% of chance.. Is it correct ? I have not seen in any part of the text applying such type of calculation .

    As per my understanding the Contingency consideration shoud be 5*402= 21

    Kindly coment

    Thanks

    Satheesh

    May 30, 2017 at 11:10 am #388984
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7228
    • ☆☆☆☆☆

    Hi,

    This question was set in June 2015 and I believe that the accounting standard (IFRS 3) has been revised since then so that this is no longer the case.

    Thanks

    May 30, 2017 at 1:48 pm #389009
    satheesh90
    Member
    • Topics: 36
    • Replies: 25
    • ☆☆

    Thnks

    May 30, 2017 at 4:09 pm #389044
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7228
    • ☆☆☆☆☆

    You’re welcome.

    June 1, 2017 at 10:57 pm #389593
    duybachhpvn
    Member
    • Topics: 48
    • Replies: 34
    • ☆☆

    Hi,

    I thought that the BPP is applying the latest IFRS versions so that the 20% applied to the contingent consideration should be correct? I dont know where to check this so not sure as well… but the latest BPP revision kit applied 20% so should we apply it as well?

    Thanks

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