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In the bpp kit, there is a question in which it is mentioned that on 1 October 20X4 the parent company paid an initial cash amount of 92 million and agreed to pay the owners of the subsidiary company a further 28million on 1 October 20X6. The accountant has recorded the full amounts of both elements of the consideration in investments. Cost of capital is 8%. The appropriate discount rate is 0.857. The investment is included in the parent company’s balance sheet at 120000. Is it correct because the present value of deferred consideration is what is included in the cost of investment so it should be 23996
No, it is not correct as the deferred consideration needs to be at present value. You therefore need to correct it.
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