M&A Disputes. Biemans A. Vincent

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СКАЧАТЬ net working capital. Notwithstanding, that formula certainly does not eliminate all potential issues. There are a variety of issues and ambiguities that can occur and lead to disputes between the parties when utilizing past practices in accordance with GAAP. We discuss the concept of past practices in accordance with GAAP and some of its potential limitations more extensively in Part 2 of this book.

      THE DEMARCATION AND QUANTIFICATION OF NET WORKING CAPITAL

      Net working capital is comprised of a set of balance sheet accounts, namely current assets minus current liabilities. In considering each potential component of net working capital, there are three questions to be answered:

      1. Should a particular item be included on the balance sheet or not? In accounting terms, this question relates to “recognition.”

      2. If it is to be included on the balance sheet, should a particular item be considered a current or a non‐current asset or liability? In accounting terms, this question relates to “classification.”

      3. If an item is to be included as a current asset or current liability on the balance sheet, the remaining question is: for what amount? In accounting terms, this question relates to “measurement.”

      In addition, there is often a fourth question that needs to be asked in the context of a purchase price adjustment:

      4. Are there any (partial) contractual exceptions or customizations to the determination of net working capital that deviate from past practices in accordance with GAAP? The purchase agreement can provide for a variety of customizations and contractual limitations. For example, the purchase agreement can provide for items to be included with or excluded from net working capital that would otherwise be treated differently under GAAP.

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      1

      See John C. Coates IV, “Managing Disputes through Contract: Evidence from M&A,” Harvard Business Law Review, Vol. 2, 2012, p. 333.

      2

      See FASB ASC Master Glossary, at Current Assets.

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1

See John C. Coates IV, “Managing Disputes through Contract: Evidence from M&A,” Harvard Business Law Review, Vol. 2, 2012, p. 333.

2

See FASB ASC Master Glossary, at Current Assets.

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