Question 1

SECTION B

CASE SCENARIO: Quantum Logistics Group acquired 100% of the equity of a foreign subsidiary, Velocity Trans, on 1 January 20X9. Quantum paid $5,000,000 in cash and agreed to pay further contingent consideration in two years. The present value of this contingent consideration at acquisition was $1,000,000. At acquisition, Velocity Trans had an internally generated brand not recognized in its financial statements, with an estimated fair value of $2,000,000. The applicable tax rate is 20%. Velocity Trans is currently defending a legal claim from a customer. Quantum's legal team estimates a 60% probability of losing and paying $3,000,000, and a 40% probability of losing and paying $1,000,000. Velocity Trans's functional currency is the Dinar, while Quantum's is the Dollar.

QUESTION: What is the total consideration transferred by Quantum for the acquisition of Velocity Trans?

Accepted Answer

Add the cash paid to the present value (fair value) of the contingent consideration at the acquisition date.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Excluding contingent consideration because it hasn't been paid yet, or waiting until the contingency is resolved.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 3

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