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Article: "It ain't over 'til it's over".(purchase price adjustments)
- Article from:
- Strategic Finance
- Article date:
- January 1, 2001
- Author:
CopyrightCOPYRIGHT 2001 Institute of Management Accountants. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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AVOIDING PROTRACTED--AND COSTLY--PURCHASE PRICE ADJUSTMENT DISPUTES AFTER A BUSINESS IS SOLD TAKES METICULOUS PLANNING.
There is a scenario that every CFO and controller should seek to avoid when their company buys or sells a business. The problem arises when the purchase price takes into account the net asset value of the business, but months are expected to pass before the sale actually closes, and the net assets may change in the interim. In such cases the parties might agree on an initial purchase price based on a benchmark net asset number, typically taken from historic or projected financial statements of the business. To account for any change in net asset ...