The acquisition of subsidiaries results in Goodwill calculation and also records net assets of the subsidiary at fair value on the date of acquisition. Let’s get answers to all the questions related to Goodwill, valuation of NCI, and impairment relating to them.
Q1 – What are the ways in which an entity can make payment for purchase consideration?
ANS:
– Cash
– Share exchange
– Deferred payment
– Contingent consideration
Q2 – How is deferred payment dealt, when it forms part of purchase consideration?
ANS: The deferred payment is discounted to present value and included in the cost of consideration. At the end of each year, the liability is increased by unwinding the discount, until the payment is settled. For example,
An amount of Rs. 108,000 was deferred to be paid after 2 years. The discount rate applicable is 8%. The net present value today of Rs. 108,000 is equal to (108,000 * 1) / (1.08) ^2)= Rs. 92,593 included in purchase consideration.
A liability of Rs. 92,593 is recorded on the same day.
At the end of the year, the unwinding of discount (8%*92593) results in a charge of Rs. 7,407 to profit & loss a/c for the unwinding of discount, increasing the Liability to Rs. 100,000 (92,593 + 8%*92593 = Rs. 100,000).
Learn more Goodwill Calculation – IFRS 3 Business Combinations questions here....
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