Positive Ltd ("Positive") acquired an 80% stake in Strong Ltd ("Strong") on 1 January 20x1. The purchase consideration consisted of
- $2,600,000 cash paid immediately,
- 500,000 shares in Positive (worth $900,000)
- $1,505,200 payable on 31 December 20x1 should Strong increase its sales by 40% in the year ending on the same day. It was estimated that there was a 50% possibility of Strong attaining the required level of sales. The relevant rate of return is 6% per annum. (From this, contingent Liability/consideration is calculated to amount to $710,000)