Anonymised, illustrative composite. A closing-date inventory count double-counted 6,200 units of one SKU mid-transfer between two warehouses. The error surfaced inside the objection window and was corrected dollar-for-dollar, without ever needing the indemnity basket.
At a glance
A buyer’s post-closing finance team reconciling the target’s closing-date physical inventory count against the closing statement noticed the two-warehouse operation’s count sheets did not tie out cleanly for one high-volume SKU — a routine reconciliation step, not a response to any known problem.
On the count date, a truckload of 6,200 units of one SKU was in transit between the target’s two warehouses, part of a routine stock rebalancing. The origin warehouse’s count team, working from a pre-transfer manifest, counted the units as still on-site. The destination warehouse’s count team, working from the delivery receipt that had already been logged, counted the same units as received. Both counts were individually accurate for what each team could see; combined, the units existed twice on the closing inventory ledger.
At $14.35 per unit, the double-counted 6,200 units overstated closing inventory by $88,970 — from $1,450,000 as filed down to a corrected $1,361,030. The closing statement’s net working capital, filed at $2,180,000 against a $2,100,000 target, revised down to $2,091,030 once the correction was applied, an $8,970 shortfall against target. Treadstone Law’s description of what typically drives a true-up dispute is that “the fights are about accounting policy: whether a receivable is collectible, how inventory is valued, whether an accrual should have been booked.” This one sat in that third category only nominally: nothing about the policy was in dispute, and the cause was mechanical rather than a judgment call.
Because the discrepancy was caught inside the deal’s 30-day objection window (identified on day 24), it stayed inside the closing-statement mechanism rather than requiring an indemnity claim. Under the mechanism Treadstone Law describes — a closing statement, a written objection inside a set window, and unresolved items to “an independent accountant acting as an expert rather than an arbitrator” — an agreed factual correction never reaches the expert at all. There was no judgment call to refer, because a unit either physically existed once or it did not, and the transfer manifest and delivery receipt together made that unambiguous. It is worth naming what is not doing the work here: no statute governs a closing-date physical count or a contractual true-up. The one place a statute fixes an inventory value is ITA section 10(1), marginal note Valuation of inventory, which requires inventory to be valued at year end at the lower of cost and fair market value for income-tax purposes — a different question, on a different date, answered for a different reader. The $8,970 adjustment sat below the deal’s $36,500 indemnity basket, which meant the indemnity mechanism was never triggered or even relevant: a true-up correction is not subject to the basket the way an indemnity claim is, because it is adjusting the closing statement’s own numbers to what they should have said, not compensating for a breach.
The parties’ accountants agreed the correction in a single reconciliation call once the transfer manifest and delivery receipt were compared side by side — per Treadstone Law’s own recommendation to get “both accountants and both principals in a room without prejudice” before escalating, which is exactly what happened here rather than a formal independent-accountant referral. The $8,970 adjustment was reflected in the final closing statement and settled with the next scheduled payment under the purchase agreement. See a different closing-statement dispute from the same deal type that did require an independent accountant, and how a completion-accounts mechanism differs from a locked-box structure for the broader mechanics.
An $8,970 overstatement is small in absolute terms, but the same mechanical error at a different transfer volume — a larger SKU batch, or several transfers in flight simultaneously on the count date — would scale linearly with unit count and unit cost, and a business running frequent inter-warehouse transfers is structurally exposed to this exact failure mode every time a count date happens to land mid-transfer. Catching it as a routine reconciliation step, rather than assuming the count sheets were correct because both individually looked clean, is what kept this a same-week correction instead of a dispute discovered months later outside any adjustment window.
Two count sheets that are each individually internally consistent can still be jointly wrong if the thing being counted moved between the two counts. Any multi-location physical count taken on a closing date should specifically reconcile in-transit inventory against transfer manifests and delivery receipts, not just total each location’s count and add them together. The standard advice covers the near miss but not this one: Treadstone Law’s first step is to “freeze inventory movement…so the numbers reflect a single point in time rather than a moving target”, which stops new movement but says nothing about stock already on a truck when the freeze begins.
A 30-minute call is enough to tell you whether AI pays for itself here.
