contingent consideration

This topic has 3 replies, 2 voices, and was last updated 7 years ago by Kim Smith.

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May 31, 2019 at 4:31 pm #518088
dennis98
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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% ?
May 31, 2019 at 5:22 pm #518093
Kim Smith
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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.
May 31, 2019 at 8:29 pm #518118
dennis98
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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.
June 1, 2019 at 7:59 am #518158
Kim Smith
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Contingent just means “dependent on” or “occurring or existing only if (certain circumstances)”. Contingent assets/liabilities/consideration are different things – the word doesn’t make them the same thing.
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