IFRScommunity.com

Hi

An entity X has entered a Business combination acquiring the 70% of a Group Y. The NCI has a put option to sell the 30% shares.

Which discount rate I must use to calculate the NPV of the put? Risk free or kd? Why?

Does the Entity X have to post the put option in his separate Financial statement?

Thanks

wow, that's a complex issue! how do you plan to account for this option?

and out of interest what was the commercial reason? Why not sell 100% in this case?

We plan to book the put option using the risk free. The amount is due. Non other risk must be considered. Is it correct?

The company does not buy 100% because wants to understand the performance of the Group acquired and the expected synergy.

Should be kd or incremental borrowing rate because the put is just one of financial liabilities of X, maybe?

I'm interested too in how you would account for the put, in concrete debits and credits.

NCI may not want to sell in the future, so a call option for acquirer would better match your needs it seems.
So you plan to recognise the put option as a liability in the amount representing the exercise price? and where does the debit go? give us your debits and credits

PS If you've got access to EY International GAAP (their manual) - they cover this matter in Chapter 7 para 6

Thank you, Marek. Yes, I have access.
The auditor (big four) is in the opinion to use risk free for the put. They say it is just a matter of time.
Where can I find a table with the discount rate to use for each item?

what is the measurement basis? fair value?

Marek Muc wrote: ↑18 Jan 2021, 15:52 what is the measurement basis? fair value?

yes

so I would go for cost of debt rather than risk-free, fair value should take credit risk of the borrower into account

Makes sense! Thank you Marek!

Sorry, what was the conclusion? For X, who might be forced to buy the remaining 30% at the other party's option?