Written put option accounting


Gary Berchowitz, follow him on LinkedIn. Comments are moderated before being posted. Company A will potentially acquire the shares for fair value after 3 years, so there is no economic risk to Company A, no problem, right? So is the rest of the world. The way I see it, this is where the tension lies:. The answer to this written put option accounting drumroll, wait for it…. Why not recognize the liability gross, but take movements in the liability through equity?

That way, the tension is resolved. But it does seem that we could solve this with a simple clarification that IFRS 10 applies to the remeasurement of the liability. Or we could call on the collective intelligence of the world to reconsider the debt equity debate…and then just sit and wait. TrackBack URL for this entry: Listed below are links to weblogs that reference Written put options on non-controlling interests — read this for the answer! So your 'solution' violates a main principle of the changes to IAS 1.

IFRS 3 already requires that contingent consideration is at fair value through profit or loss. Allowing changes to go to equity when the contingent consideration is in the form of an NCI put overrides this, and results in the legal form an NCI put overriding the accounting for the economic form contingent consideration.

A Reader 02 February at Does the problem not originate from the fact that 'minority shareholders' are considered part of equity? However when these 'minorities' become third party debt holders because they can force written put option accounting entity to pay them out, then written put option accounting trouble starts as a liability has to be recognised. It can become even more confusing when the accounting of this debt is done versus the majority shareholders interest leaving written put option accounting minority shareholders interest presented written put option accounting a non controlling written put option accounting unaffected put is at the then current fair value at exercise date leaving the fair value risk to the NCI shareholder.

In this scenario the minority interest is twice presented: This presentation written put option accounting be justified by the two roles the minorities play but I am afraid that this is understandable only for the 'happy few' who have written the related IFRS standards and those who have spent a major part of their professional life time trying to understand what the written put option accounting setters have tried to achieve.

I think it would have been easier to written put option accounting when the NCI would not have been part of equity and thus part of the debts. Unfortunately the Boards have decided differently and consequently introduced a high level of complexity.

May be they reconsider as part of the post implementation review of IFRS 3. Herwig Opsomer 12 Written put option accounting at Lets assume that "Company A" and the "target company" are both banks in a Basel III jurisdiction, and, in line with your suggestion, Company A recognizes the the liability gross and takes movements in the liability through equity.

What would the treatment be for CET1 purposes - I assume that there would be no adjustment to neutralize the negative equity reserve? A Complicator 14 May at Ideally the fair value of the deferred consideration should not vary too much if the acquirer did a good job of estimating the amount that it expected to pay in 3 years. The acquirer is allowed to factor in its wonderful yet reasonable growth plans resulting from synergies for the target in the calculation of the fair value of the amount that will be paid in 3 years.

Any deviation from this discounted amount will be knock on wood minimal. Any gain on the liability because synergies did not happen will likely be offset by a impairment on the written put option accounting or other assets. This is more of a failure to estimate what will be paid in three years. The written put option accounting and numbers you entered did not match the image. As a final step before posting your comment, enter the letters and numbers you see in the image below.

This prevents automated programs from posting comments. Having trouble reading this image? Comments are moderated, and will not appear until the author has approved them. Name is required to post a comment. Please enter a valid email address. Written put options on non-controlling interests — read this for the answer! The way I see it, this is where the tension lies: This is because, if the minority shareholders exercise their right to sell their shares back written put option accounting the company, the group needs to have sufficient cash reserves on hand to settle the repurchase of shares; However, from an economic or shareholder value perspective, the majority shareholders are indifferent if the cash leaves the group.

Their value per share will remain unchanged if the group buys the shares back for fair value. Therefore it makes no sense that remeasurements written put option accounting the liability are recognised in the income statement. What do you think about a simple answer to a not-so-simple problem? Comments Two obvious reasons spring to mind: Gary, Does the problem not originate from the fact that 'minority shareholders' are considered part of equity? Good afternoon Gary Ideally the fair value of the deferred consideration should not vary too much if the acquirer did a good job of estimating the amount that it expected to pay in 3 years.

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