USA Deferred Consideration


Joined
Jul 17, 2018
Messages
1
Reaction score
0
Country
United States
Hello!

This is my first time posting on the forum and I need some help with Journal Entries for a specific transaction I am working on for a client.

Company A is acquiring Company B for a total purchase price of $25 million which will close 8/1/18 (not exact date but wanting to keep clients confidentiality). Client B is owned by an investment firm, Company C.

$13 Million of the purchase price will be cash paid at closing to Company C and the remaining $12 Million will be deferred consideration. New company will be called AB post close.

Company B is currently completing a large 2 year/$100 Million manufacturing project for Company C and is still owed $12M as the final payment upon delivery. This project is expected to be completed in May'19.

In May, Company C will pay $12M to Company AB for the completion of the project. Company AB will then deliver the finished product and pay the $12M deferred consideration to Company C.

From what I can tell, since this is not a contingent consideration or earn out it shouldn't be classified as a liability. What I have found so far in FASB ASC 805 is that it should be treated as equity. The journal entries below are my best guess but I'm unsure of the exact accounts to use etc. Any help on these Journal entries necessary at close of acquisition and at delivery of the product would be extremely helpful. Hopefully this makes sense as I don't want to violate my clients privacy so I am keeping it as vague as possible.

8//18 Dr. Deferred Consideration $12,000,000
Cr. Equity (Retained Earnings or APIC?) $12,000,000
5/19 Dr. Cash (received as payment for finishing project) $12,000,000
Cr. Revenue $12,000,000
5/19 Dr. ????? $12,000,000
Cr. Cash $12,000,000
 
Ad

Advertisements

kirby

VIP Member
Joined
May 12, 2011
Messages
2,199
Reaction score
297
Country
United States
At 8/18 you have to record the purchase of the whole company, not just what you paid for in cash
so
8/18
DR Investment in Sub $25
CR Cash <13>
CR Note Payable <12>
At 5/19 there should have been a receivable for the $12M but if not , ok, then record the revenue
5/19
Cash $12
Revenue <$12>
Next you pay your note
5/19
Note Payable $12
Cash <$12>
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top