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Dear Mike,
From chapter 9, comprehensive example, I have one particular concept which I am struggling the understand.
What is the purpose of unrolling the discount?
I didn’t quite understand why you take 10% of 30,000.
Also, the reason you multiply 3000 by 7/12, is it because it hasn’t been 2 years yet and thus not discounted as much?Also, why is this figure, 30+1.75 included in non current liability?
I am guessing 30 is included as this part of consideration, calculated in W2, hasn’t been actually paid yet.
However, why is 1.75 included?Thank you.
The 1.75 inclusion is the amount by which the discounted consideration has now unrolled.
As we get closer and closer to payment date (1 year and 5 months away as at the year end) the discounted consideration is unrolled and unrolled until, immediately before the due date for payment, the liability will then be shown as $36,300 and then, ‘tomorrow’, that will be paid to the former shareholders of Danute
The reason it’s shown as a non-current liability is because that $36,300 is not payable within the next 12 months – it’s not due to be paid until 1 April, 2013 and that’s 17 months after the year end
OK?
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