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NaviNow will pay $8 million to the four former owners of TrafficEye if revenues from the combined system exceed $100 million over the next 3 years. NaviNow estimates this contingent payment to have a probability adjusted present value of $4million. According to down said formula (http://www.ey.com/Global/assets.nsf/United%20Accounting/ATG_FRD_BB1616/$file/ATG_FRD_BB1616.pdf) the $8million is consideration transferred in the acquisition.

B6.4.4.7 Factors involving a formula for determining contingent consideration Excerpt from Accounting Standards Codification
Business Combinations — Overall
Implementation Guidance and Illustrations
805-10-55-25
g. Formula for determining consideration. The formula used to determine the contingent payment may be helpful in assessing the substance of the arrangement. For example, if a contingent payment is determined on the basis of a multiple of earnings that might suggest that the obligation is contingent consideration in the business combination and that the formula is intended to establish or verify the fair value of the acquiree. In contrast, a contingent payment that is a specified percentage of earnings might suggest that the obligation to employees is a profit-sharing arrangement to compensate employees for services rendered.

The four former owners have also been offered employment contracts with NaviNow to help with system integration and performance enhancement issues. The profit sharing component over the next 3 years that NaviNow estimates to have a current fair value of $2 million. NaviNow should account the profit sharing component as compensation expense to employees. Furthermore, the following rule suggests that the former owners would be able to participate in profit sharing component provided they remain with the company.

B6.4.4.1 Continuing employment
Excerpt from Accounting Standards Codification
Business Combinations — Overall
Implementation Guidance and Illustrations
805-10-55-25
If it is not clear whether an arrangement for payments to employees or selling shareholders is part of the exchange for the acquiree or is a transaction separate from the business combination, the acquirer should consider the following indicators: a. Continuing employment. The terms of continuing employment by the selling shareholders who become key employees may be an indicator of the substance of a contingent consideration arrangement. The relevant terms of continuing employment may be included in an employment agreement, acquisition agreement, or some other document. A contingent consideration arrangement in which the payments are automatically forfeited if employment terminates is compensation for postcombination services. Arrangements in which the contingent payments are not affected by employment termination may indicate that the contingent payments are additional consideration rather than compensation.

B6.4.4 Contingent payments to employees or selling shareholders Excerpt from Accounting Standards Codification
Business Combinations — Overall
Implementation Guidance and Illustrations
805-10-55-24
Whether arrangements for contingent payments to employees or selling shareholders are contingent consideration in the business combination or are separate transactions depends on the nature of the arrangements. Understanding the reasons why the acquisition agreement includes a provision for contingent payments, who initiated the arrangement, and when the parties entered into the arrangement may be helpful in assessing the nature of the arrangement. An acquirer should evaluate all contingent consideration arrangements to determine if the arrangements are compensatory in nature. If the acquirer determines that a contingent consideration arrangement is compensatory, the acquirer does not recognize a liability at the acquisition date. The acquirer recognizes compensation expense for the arrangement based on other applicable GAAP (e.g., ASC 710-10-25-9). EITF...
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