Recognition And Measurement Of Contingent Consideration In Business Combination

In recent years,China's gross domestic product(GDP)growth rate has slowed down significantly,and China's economy has entered a new normal.Facing the optimization of industrial structure,rapid transformation and fierce competition in the industry,the phenomenon of business combination has increased significantly.As a form of valuation adjustment mechanism,contingent consideration arrangement is widely used in business combination transactions or matters.Contingent consideration is a part of the cost of business combination.Whether it can be properly recognized and measured directly affects the quality of accounting information.In practice,the accounting treatment of the consideration of the contingent consideration is also arbitrary,which affects the comparability of accounting information.Therefore,it has a certain theoretical and practical significance to discuss the recognition and measurement of contingent consideration in business combination.This paper adopts normative research method.Firstly by reviewing the related literature both at home and abroad,the paper defines the concept of contingent consideration,determines its connotation and extension.Secondly,from Initial recognition,subsequent measurement and termination confirmation three aspects,according to the logic of analysis of the domestic and foreign current accounting standards,accounting practice and existing studies,the paper summed up the existing research views and differences on recognition and measurement of contingent consideration in business combination.Then the paper explored the reason for the differences.Finally,combined with the causes of differences and related theories,the author puts forward the point of recognition and measurement of contingent consideration in business combination,and gives some proposals on the accounting standard about the recognition and measurement of contingent consideration in business combination.This paper argues that the acquirer cannot affirm or deny to confirm the contingent consideration,but needs to consider the possibility of events in contingent consideration arrangements,and then according to the probability interval possibility to determine whether to confirm contingent consideration.In the initial recognition,contingent consideration can be recognized as financial asset designated to be measured by fair value and which change is recorded in current incomes and derivative and financial liabilities designated to be measured by fair value and which change is recorded in current incomes,provision for liabilities and other equity instruments.In the initial measurement,the acquirer shall predict specific matters,including the performance level,the profitability index,stock price level,the progress of special items,reasonably predict the amount of financial assets,financial liabilities,equity instruments and the option price by using Black-Scholes option pricing model.Considering uncertainties and risks of contingent consideration,the acquirer should refer to the method in China Accounting Standard No.13-Contingencies,to estimate the expected liabilities or equity instruments amount.The followed measurement in measurement period,when getting the existing or new environmental matters information after the combining day,the acquirer should see the information as it has been known at combining day.The followed measurement in nonmeasurement period,which are recognized as tools need not to deal with the changes,other conditions the changes should influence current profits and losses.In the termination confirmation,when contingent consideration arrangements are at term,the acquirer should write off recognized financial assets,liabilities and derivatives,comparising the actual charge or pay the price to adjust the long-term equity investment or capital reserve.If it belongs to the equity instruments,the acquirer compares the fair value of the other equity instruments in the period of measurement and the date of the termination of the agreement to adjust the long-term equity investment or capital reserve.