b'92 Mercia Asset Management PLC Annual Report and Accounts 2021Notes to the consolidated financial statements continued2. Critical accounting judgements and key sources of estimation uncertainty continuedFair value measurements and valuation processes continuedThe recent macroeconomic uncertainty has created uncertainty in the fair value of the direct investment portfolio. The Directors believe that they have reflected this uncertainty in a balanced way through the assumptions used in the valuation of each investee company. The Directors have assessed the estimates made in relation to each individual valuation and do not believe that a reasonable possible change in estimate would result in a material change in the value of each investment.Accounting for the acquisition of the VCT fund management business of NVM Private Equity LLPOn 23 December 2019 Mercia completed the acquisition of the venture capital trust (VCT) fund management business of NVM Private Equity LLP (NVM), which comprised the acquisition of three fund management contracts (the Northern VCT contracts) and the transfer of NVMs VCT investment team. Further details are included in note 14 to these consolidated financial statements. The fund management contracts acquired in the transaction have been fair valued at acquisition with reference to the forecast cash revenues from each contract, less the forecast costs associated with servicing those contracts, over an expected useful life of 10 years for each of the Northern VCT contracts, discounted at the rate of 15%. The discount applied is reflective of, inter alia, the risk profile of the contracts acquired and is considered a significant assumption. Should the discount rate be increased by 1%, the value of the fund management contracts would reduce by 800,000 with goodwill increasing by a corresponding amount. The expected useful life is considered a significant assumption. Should it be increased by one year, the value of the fund management contracts would increase by 1,300,000 with goodwill decreasing by a corresponding amount. Should the cash revenues from each contract less the costs associated with servicing those contracts increase by 1%, the value of the fund management contracts would increase by 200,000 with goodwill decreasing by a corresponding amount. Goodwill has been recognised as the difference between the fair value of consideration paid and the fair value of the fund management contracts acquired. Further details are included in note 14 to these consolidated financial statements. Valuation of deferred considerationThe fair value of the deferred consideration payable to NVM in respect of the acquisition of its VCT fund management business, which is contingent upon certain conditions being met, has been estimated with reference to the contractual obligations as at 31 March 2021. The conditions upon which payment of the deferred consideration is contingent are outlined below and included in note 24 to these consolidated financial statements. The first condition is that no termination notice is served by any of the three Northern VCT boards before the first, second or third anniversaries of completion. In December 2020 the first deferred consideration payment of 2,100,000 was paid in cash by the Group. There have been no indications to date that notice will be given before the second or third anniversaries.The second condition is that the Group receives at least 16,000,000 of fees in respect of the VCT fund management contracts (excluding performance fees) during the three years post completion. The third condition is that, during the same three-year period, the Northern VCTs collectively raise at least 60,000,000 in new capital. The fair value of the deferred consideration in respect of these conditions has been based on a weighted probability of outcomes over the remaining period discounted by 10%.The discount applied is reflective of the risk profile of the conditions being met and is considered a significant assumption. Should the discount rate be increased by 1%, the discounted value of the deferred consideration would reduce by 200,000 with goodwill decreasing by a corresponding amount.'