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I am having problems with then to record a contingetnt consideration and calculate it with the purchase consideration,
Following are two cases:
1.) The Parent agrees to pay the sub 2m after two years after it achieves some profit %
2.) The parent agrees to pay the sub 2m at the end of this year if it achieves profits greater than or equal to 1000 and the sub does not do so, and we find that out only after making the calculations for Retained Earnings.My question in which case will the Cont. Consid. become a part of the Purchase Consid and if it does where all will it come in the SOFP ?
See BPP revision kit, page 195, top 2 lines and also page 192, in the box, the three line paragraph. “The contingent consideration is recognised at the acquisition date per IFRS3 ( revised ).”
Dear Mike,
kindly can you clarify for me the deferred consideration & unwiding with small examle I didn’t got it ok.
many thanks in advance & best regards,
Naglaa
Cont considn should be included as the present value of the deferred conting considn.
Unwinding of the discount? $110 payable in one year’s time is the equivalent of 4100 payable today at a cost of capital of 10%. It’s calculated by multiplying the future sum by 1 / (1 + the discount rate ) so $110 * 1 / 1.10 = 100 now.
If it’s payable two years ahead, that calculation becomes:
$110 * (1 / 1.10 ) ( 1 / 1.10 ) = $90.91 today
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