Company X purchased 100% of the issued capital of Company S on 1 January Year 4. The purchase agreement required Company X to pay Rs. 300,000 in cash immediately and an additional sum of Rs. 100,000 on 31 December Year 6 if the earnings of Company S increase at an annual rate of 25% per year in each of the three years following the acquisition. How should the contingent payment be recognised in calculating the goodwill arising at the date of acquisition?

Company X purchased 100% of the issued capital of Company S on 1 January Year 4. The purchase agreement required Company X to pay Rs. 300,000 in cash immediately and an additional sum of Rs. 100,000 on 31 December Year 6 if the earnings of Company S increase at an annual rate of 25% per year in each of the three years following the acquisition. How should the contingent payment be recognised in calculating the goodwill arising at the date of acquisition?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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