On the buy-side, assume bonus liability is included in NWC (seller would not accepts debt like treatment), and Management only books a bonus accrual annually, how would you get the mid year bonus accrual into the SPA and NWC? Would you write an accounting principle for handling this with the close?

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Depends how sophisticated the sellers are. The “fair” middle ground is for peg purposes you’d have a normalization adjustment to accrue the bonus ratably throughout the periods with payouts happening whenever they normally do. For closing you could have a specific policy on bonus that it will be accrued pro rata consistent with year end accounting - but you’d probably be better served to make sure that you have a general policy dictating full accrual accounting for the closing balance sheet to catch all the other similar situations that probably exist on this balance sheet.

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And if you don’t have a normalization the peg with be higher in buyers favor. So long as GAAP is first in the hierarchy you don’t even need to specify the pro rata treatment in the principles.

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Argue a peg based on when close is expected that assumes the accrual is booked? You can also just leave it and use the accrual to buyers advantage if peg is set with no bonus liability but closing will be after it's booked. Liability will reduce working capital delivered at close, so seller effectively pays for that through the true up.

There should be some type of normalization on the QoE and NWC should be adjusted to add in an adjusted monthly bonus accrual.

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