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While calculation Goodwill on acquisition we also need to take in account any contingent consideration i.e a payment need to make in future if the subsidiary achieve some defined target. So while calculating goodwill should we take full present value of that contingent consideration or we should take on probability basis. Please advise. Thanks
I don’t think the two factors are mutually exclusive – I think management must make a best estimate – so certainly to take into account the time value of money and discount if cash flows will be more than a year away but also to take into account probability. But, as for a “one-off” provision, an expected value is unlikely to be a best estimate. To management might take the “most likely” scenario (i.e. outcome with highest probability).
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