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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
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
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