12-11-2009, 07:17 AM
I have just passed through this post.
Dear Mr. Abubakar
You are mixing two concepts which are quite different inter-se. According to my understanding, all contingent considerations are deferred considerations but all deferred considerations are not contingent considerations.
Anyway,
===1] Deferred Consideration.
===2] Contingent Consideration.
Deferred Consideration is something that <b>you have to pay</b> to original share holders of the Subsidiary, irrespective of any future performance.
Whereas,
Contingent Consideration is something that <b>you might need to pay</b> to original share holders of the Subsidiary, conditional upon the future targets met by the subsidiary.
In case of Deferred Consideration, there is no question of whether this will be payable or not because you have to pay it. So, you have to record it as a liability in your books and if the period of settelement of liability is material then you should discount it by using approprate discount rate.
In case of Contingent Consideration, there is a question to ask whether this amount will be payable or not? According to previous version of IFRS-3, it should be recorded if it is probable that financial resources will be required to settle it in future and the cost can be measured reliably and so on. However, this practice has been abandoned by IFRS-3 Revised, which requires contingent consideration to be recorded at fair value. Moreover, IFRS-3 states that if there is an ammendmend in future regarding contingent consideration, it might be due to two reasons;
====1] Additional information obtained which pertains to pre-acquisition events and if it had been foreseen at that time, it will result in the changes made to the fair value of contingent consideration.
====2] The change is due to the events occured after acquisition which did not exist at acquisition date.
Changes in Fair value of contingent consideration resulted due to reason # 1 should be dealt as pre-acquisition event and the goodwill should be remeasured.
Changes in Fair value of contingent consideration resulted due to reason # 2 should be dealt as follows;
=====A] If the contingent liability is to be setelled in Equity then it should not be remeasured.
=====B] If the contingent liability is to be setelled by issuing debt instrument then it should be dealt under IAS-39.
I hope, seniors will correct me if I am wrong anywhere.
Best Regards,
Muhammad Amir
Dear Mr. Abubakar
You are mixing two concepts which are quite different inter-se. According to my understanding, all contingent considerations are deferred considerations but all deferred considerations are not contingent considerations.
Anyway,
===1] Deferred Consideration.
===2] Contingent Consideration.
Deferred Consideration is something that <b>you have to pay</b> to original share holders of the Subsidiary, irrespective of any future performance.
Whereas,
Contingent Consideration is something that <b>you might need to pay</b> to original share holders of the Subsidiary, conditional upon the future targets met by the subsidiary.
In case of Deferred Consideration, there is no question of whether this will be payable or not because you have to pay it. So, you have to record it as a liability in your books and if the period of settelement of liability is material then you should discount it by using approprate discount rate.
In case of Contingent Consideration, there is a question to ask whether this amount will be payable or not? According to previous version of IFRS-3, it should be recorded if it is probable that financial resources will be required to settle it in future and the cost can be measured reliably and so on. However, this practice has been abandoned by IFRS-3 Revised, which requires contingent consideration to be recorded at fair value. Moreover, IFRS-3 states that if there is an ammendmend in future regarding contingent consideration, it might be due to two reasons;
====1] Additional information obtained which pertains to pre-acquisition events and if it had been foreseen at that time, it will result in the changes made to the fair value of contingent consideration.
====2] The change is due to the events occured after acquisition which did not exist at acquisition date.
Changes in Fair value of contingent consideration resulted due to reason # 1 should be dealt as pre-acquisition event and the goodwill should be remeasured.
Changes in Fair value of contingent consideration resulted due to reason # 2 should be dealt as follows;
=====A] If the contingent liability is to be setelled in Equity then it should not be remeasured.
=====B] If the contingent liability is to be setelled by issuing debt instrument then it should be dealt under IAS-39.
I hope, seniors will correct me if I am wrong anywhere.
Best Regards,
Muhammad Amir
