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An acquirer offers contingent consideration of 'higher of ₹35 lakh AND 25% of any excess profits over previous year'. The acquiree expects profits to be flat. Identify the correct split for accounting:
ABoth elements are post-acquisition employee compensation
BEntire ₹35 lakh + estimated upside is contingent consideration measured at fair value
CBoth elements go to goodwill at face value with no discounting
D₹35 lakh is DEFERRED consideration (minimum certain) recognised at PV; the upside element is CONTINGENT consideration at FV — possibly nil if upside is not expected
Answer & Solution
Correct answer: D. ₹35 lakh is DEFERRED consideration (minimum certain) recognised at PV; the upside element is CONTINGENT consideration at FV — possibly nil if upside is not expected
When the payment has a minimum certain component, that floor is DEFERRED consideration (discount to PV under Ind AS) and only the variable upside is CONTINGENT consideration. The latter is FV at acquisition — possibly nil if probability-weighted expectation is nil.
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