Contingent consideration is an obligation of the acquiring entity to transfer additional assets or equity interests to the former owners of an acquiree. The amount of this consideration can be significant, depending on the subsequent performance of the acquiree.
The terms under which this consideration will be calculated and paid is part of the acquisition agreement. The consideration will only be paid if specified future events occur or conditions are met. The amount of contingent consideration paid is recorded at its fair value in the accounting records of the acquiring entity.