Capitalising earn-out payments?
We acquired a one-man business last year with an agreement to pay an extra amount based on a percentage of 'extra' profit in the two years following the acquisition. A payment was made in April 01 based on the results in the financial year to March. This amt was capitalised as an acquisition cost & is still on the balance sheet. Another payment may be due in about 10 months time depending on results this year.
What's the correct accounting treatment for this? Write off the b/s amount over the year or over a longer period (e.g. the total earn out period)? Or, as the payment related to result last year, should it have been written off then.
Also, presumably if it's OK to capitalise as an acqn cost, the second payment should also have been accounted for at the time of acquistion. As it wasn't, I assume I accrue for that over this financial year.
Suggestions / ideas / gifts of money all welcome.
- Anyone using BTC Accounts Production yet? 113 4
- Accounting for cash put into Ltd 171 3
- Allocation of Receipt from DWP 174 2
- Solicitors now, Accountants next 820 11
- Depression - HMRC penalties case won because of this illness. 534 19
- How come if you claim benefits you are not entitled to you either have to pay a 50% penalty or are sent to court and either fined or sent to prison (sometimes suspended) and end up with a criminal record. 692 13
- How do you find shareholders of a Cyprus Company ? 301 16
- Personal pension 435 9
- Business rates consultancy 265 4
- Wrong tax code 177 6
- Benefit in Kind 256 5
- SELLING A PROPERTY at LOSS/PROFIT - CAP GAINS ALLOWANCE 89 2
- Am I getting Soft?? 288 10
- Accountancy practices - are you closed over Christmas or do you let your staff take it off? 1,058 31
- Deferred Tax 474 8
- Mutual Trading - Exempt CT Income - Do I need clearance? 207 1
- You know its over 491 6
- Co. limited by Guarantee now closed 246 1
- Foreign pension tax credit relief 143 1
- Petrol expenses for self-employed 238 3
- Hive up 512
- Accounting referance change & deficient accounts. 474
- corporate hierarchy 453
- Advice - 294
- Anyone had HMRC refusing to act on EPS database glitch? 238
- WWOOFers 232
- Art Gallery - Splitting a property between business and personal use 217
- Tax liabilities in USA for warehoused products 194
- The booking.com con 173
- UK State pension paid in NZ 165