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its own equity. The balance of 2.5 will be recorded as employee expense in the books of D Ltd. over the
remaining life, which is 1 year in this scenario.
c. There is a difference between contingent consideration and deferred consideration. In the given case 35 is

the minimum payment to be paid after 2 years and accordingly will be considered as deferred
consideration. The other element is if a company meets a certain target then they will get 25% of that
or 35 whichever is higher. In the given case since the minimum what is expected to be paid the fair
value of the contingent consideration has been considered as zero. The impact of time value on deferred
consideration has been given @ 10%.

d. The additional consideration of Rs. 20 lakhs to be paid to the founder shareholder is contingent to
him/her continuing in employment and hence this will be considered as employee compensation and will
be recorded as post combination expenses in the income statement of D Ltd.

Working for Purchase consideration Rs. in lakhs

Particulars Amount
Share capital of D Ltd 400,00,000
Number of shares 4,00,000
Shares to be issued 2:1 2,00,000
Fair value per share 40
PC (2,00,000 x 70% x Rs. 40 per share) (A) 56.00
Deferred consideration after discounting Rs. 35 lakhs for 2 years
@ 10% (B) 28.93

Replacement award Market based measure of the acquiree award
(5) x ratio of the portion of the vesting period completed (2) /
greater of the total vesting period (3) or the original vesting period
(4) of the acquiree award ie (5 x 2 / 4) (C) 2.50
PC in lakhs (A+B+C) 87.43

Purchase price allocation workings
Particulars Book Fair FV adjustment
value value (A-B)
(A) (B)
Property, plant and equipment 500 350 (150)
Investment 100 100 -
Inventories 150 150 -
Financial assets: -
Trade receivables 300 300 -
Cash and cash equivalents 100 100 -
Others 230 230
Less: Long term borrowings (200) (200) -
Long term provisions -

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