ACTG 2011 Lecture Notes - Lecture 4: Earnout
Document Summary
Role: advise ms. kellett on the earneout arrangement between mr. jones and te buyer. Jones - maximize net income so that the payement received for the sale of inuvik is maximized. Buyer minimize net income so that the purchase price of inuvik is minimized (current negotiated arrangement: fized payment + a share of ni for one/two yrs after sale) Aspe stipulation of the proposed earnout payment with th buyer (statements will in accordance with. Buyer can manipulate the price of goods sold by inuvik to their other businesses. Can sell at cost / low prices, which will decrease ni significantly. Inventory valued at lower of fifo and nrv. Old equipment residual value changed? (if so, higher deprecition, lower ni) Under aspe, the buyer can choose to recognize revenue upon receipt of payment (if they argue that bad debts are no longer predictable i. e due to new products, etc)
