- November 26, 2019 at 8:26 am
How can I account for deferred consideration of £20000 payable in 3 years,for shares acquired on 1.1.2019 with the reporting date being 30.9.21019? Please explain the annual treatment for 3 years including the unwinding and also the reporting on the SoFP for 30.9.2019.
Please also explain the treatment for contingent consideration of £15000 where there is an 80% favourable probability of the condition being satisfied for acquisition on 1.1 .2019 and reporting on 30.9.2019.
AmritashNovember 27, 2019 at 11:22 am
Deferred consideration – you discount the £20,000 to present value at 1.1.2019 and record the amount. This cannot be done here as you have not given a discount rate but you would DR Investment CR Deferred consideration. The present value is then unwound each year by applying the discount rate to the present value of the liability. This is treated as a finance cost with no adjustment to the value of the investment/goodwill and an entry posted as follows DR Finance costs CR Deferred consideration. Page 102 of the notes include an example on this.
Contingent consideration – The contingent consideration is recorded at its fair value, so here it would be 80% of the £15,000 if we aren’t given and further information.
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