Contingent consideration should be valued at:
A) the fair value of the consideration on the date of acquisition.
B) the book value of the consideration at the date of acquisition.
C) the acquirer's pro-rata share of the subsidiary's net assets at book value at the date of acquisition.
D) the acquirer's pro-rata share of the subsidiary's net assets at fair value at the date of acquisition.

Question

Quizplus · Accepted Answer

Contingent consideration should be valued at the fair value of the consideration on the date of acquisition. This is because the acquirer has to estimate the amount of consideration to be paid in a future period based on certain contingencies or events. The fair value of the contingent consideration reflects the probability-weighted expected value of the future cash flows that the acquirer expects to obtain from the contingency. It is not based on book value or pro-rata share of net assets.

Contingent Consideration Should Be Valued At