Looking to get answers for Man U Case Study – Financial Accounting
This section uses the information provided here as well as the some of the information in financial statements for 2012, but don’t use your forecasted numbers for 2013.
1. In June 2003, ManU sold Beckham’s registration to Real Madrid. The selling price of 27.5 million Euro had two main components (based on the ManU’s Press Release). ManU had the choice between an unconditional 17.5 million Euro divided equally over the next four years or 16.3 million Euro in September 2003, the difference reflecting the time value of money. In addition, ManU is to receive 10 million Euroconditional on Real Madrid’s performances in the UEFA Champions League, 1.25 million Euro of it payable in each of the next four seasons if Real Madrid qualifies for the Champions League, and a further 1.25 million Euro each season if Real Madrid reaches the quarter-finals.
Should Real Madrid record any liability to ManU in June 2003 related to the purchase of Beckham? Explain (briefly) your reasoning.
Assuming a liability is recorded for some portion of the 27.5 million Euro total potential payment, what amount (if any) should Real Madrid record for the unconditional portion of the payment? Explain your reasoning.
Assuming a liability is recorded for some portion of the 27.5 million Euro total potential payment, what amount (if any) do you think Real Madrid should record for the conditional portion? Why? (I’m not sure there is a clear right answer here, but I am looking for your reasoning.