How items should be dealt with in the financial statements

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Point 1: ABC is public limited company, operates a national chain of supermarkets. In order to diversify, in the previous financial year they acquired all of the equity shares of a small family run retailer on July 2010. the purchase contract included a clause whereby the purchase consideration would be increased proportionately if certain pre-agreed targets were met within the first year of acquisition date.

Point 2: Goodwill of £5m was recognised on the initial acquisition. This included contingent consideration with a fair value of £0.7m based on expectations at the time of the acquisition of the likelihood and amount of the future payment. The same estimate was maintained at 30 September 2010 year end as expectations had not changed by 30 June 2011 a lower target was actually met and paid on 30 June 2011 was £0.2m.

Required:

Question 1: Discuss how the above items should be dealt with in the financial statements of ABC for the year ended 30 September 2011.

Reference no: EM132522636

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