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Hello Mike ,kindly help me out with this contingent consideration problem .the question says
On 1st April 2007 palavi purchased 56m shares in Sean for an immediate cash payment of $90 m the retained earnings at 1st April 2007 were $30m.the terms of business combination provide for the payment of an additional$12 m on 31 March 2009. The directors of palvi estimate that the fair value of contingent consideration at 1april 2007was 10m.this was unchanged at 30 sept 2008(ignore discounting ).mike my question is while calculating the purchase consideration for the purpose of calculating Goodwill should that 12m be included as the purchase consideration and where will this contingent consideration appear in the statement of finincial position
*All the calculation are for the year end 30 sept 2008You haven’t indicated anything in your post about the contingency upon which the $12 million depends! So far as I can see, there is no contingency … just a deferred payment
However, on the assumption that the $12 million payment is contingent upon some substantially uncertain future event, yes, it is included in the calculation of goodwill as though it were not contingent but is, in fact, a certain obligation
It is included at an amount that represents its fair value as at the date of acquisition … in the case above that would be $10 million
Where is it shown? In liabilities. In the above case, current liabilities, because it’s payable within the next 12 months (6 months in this case)
OK?
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