Put options accounting treatment

The amendments clarify which steps are required when assessing whether the economic characteristics and risks of call put options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call put option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call put option is related to interest rates or credit risks.

The amendments promise to eliminate the diversity in practice in assessing embedded contingent call put options in debt instruments. For public business entities, the amendments take effect for financial statements issued for fiscal years beginning after Dec.

For entities other than public business entities, the amendments are effective for financial statements issued for fiscal years beginning after Dec.

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Log In Don't have an account? But it can be quite simple—even as simple as depreciating a fixed asset. With the right software that manages seamless billing processes all the way through revenue recognition, businesses can ease compliance with ASC Partner Insights Sponsor Content From: 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 the entity to pay them out, then the 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 the minority shareholders interest presented as a non controlling interest 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 can 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 standard setters have tried to achieve.

I think it would have been easier to understand 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 March 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 goodwill or other assets.

This is more of a failure to estimate what will be paid in three years. The letters 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: