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Is contingent consideration always included in the goodwill calculation even if it assessed as unlikely? ie you just use a lower percentage in the calculation eg 30% ?
Yes – you would include it as expected value – i.e. applying the probability to the present value of the contingent cash – the other side of the entry is liability. This was examined I think in the S18 SRB exam (Q1) – but I don’t have it to hand to check.
Thanks, so is it true to say that the term “contingent consideration” is a misnomer because even if the probability is very low it is always treated as a provision and never as a contingent liability? Whereas normally if a future payment is considered to not be probable, it is not treated as a provision but as a contingent liability.
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