I need some guidance with the following issue:
In August 2000, Company A bought Company B.
Company A hired an Advisor to help it in obtaining financial resources to buy Company B. The advisor fees will be paid by Company A with a 3% of the future dividends to be distributed by Company B. To me it seems that this fees are attributable to the business combination.
In November 2000, Company A – Company B and the Advisor signed off an arrangement which established that the advisory fees will be assumed by Company B.
So, I’m pretty much complicated with the accounting treatment of this transaction.
If someone could give mi light about this I would really appreciate that,
This is just an opinion, I didn’t do much research on the subject.
It seems to me that company A should consider evey fee paid (initial fee + 3% for however long) as an expense incurred for this aquisition.
The adviser will invoice that amount to company A, with whom it has the contract. To me these look like the fees you would pay a broker.
I know that this is an over-simplified way of seeing this transaction but I do believe that this is the substance of it.
The recovery of the fees from the profit of company B is simply a commercial arrangement. It only says that the price agreed is higher that initial estimates. It is just the result of the negociations regarding the price of Company B.