The second case study involves a business combination between two companies aptly named “Buyco” and “Sellco.” Buyco is purchasing some assets and liabilities from Sellco. This transaction involves three forms of consideration: cash, shares, and something called “contingent consideration.” What makes this transaction a bit tricky is the fact that there is a “liquidity event period” starting with the date of acquisition and ending on the last day of the year. In the event that Buyco undergoes an IPO during the liquidity event period, Buyco might be required to give some additional stock to Sellco.
In working this case I would suggest reviewing the following pronouncements:
ASC 805 – Business Combinations
ASC 805-10 – Business Combinations: Overall
ASC 805-20 – Business Combinations: Identifiable Assets and Liabilities, and any Noncontrolling Interest
ASC 805-30 – Business Combinations: Goodwill or Gain from Bargain Purchase, Including Consideration Transferred.
ASC 815 – Derivatives and Hedging
ASC 480 – Distinguishing Liabilities from Equity.
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