Assume the same facts as in P3.11 with the exception that in this case, Company X exchanges
Question:
Assume the same facts as in P3.11 with the exception that in this case, Company X exchanges replacement awards for the share-based payment awards of Company Y, for which employees had yet to render all the services before the date of acquisition. As at 1 January 20x6, the employees had rendered three out of a five-year vesting period.
No post-combination service is required from the employees in return for the replacement awards.
Calculate the portion of the market-based measure of the replacement award at the date of acquisition to be allocated to the pre-combination and post-combination services and prepare the accounting entries for the transaction. Ignore the tax effects for the question.
Data from P3.11
On 1 January 20x6, Company X acquires the entire share capital of \($500\),000 comprising of 500,000 ordinary shares in Company Y. Retained earnings as that date amounted to \($100\),000. In previous years, Company Y has issued employee share awards for which the balance in the employee share option reserve stands at \($80\),000 as at 1 January 20x6. The purchase consideration is \($950\),000 in cash. Net assets of Company Y as at 1 January 20x6 amounted to \($680\),000. The fair value of the net identifiable assets as at 1 January 20x6 is \($820\),000.
As part of the business combination, Company X exchanges replacement awards for the share-based payment awards of Company Y, for which employees had completed the vesting period of 5 years before the business combination. No post-combination service is required from the employees in return for the replacement awards.
The market-based measure of the replacement and Company Y’s awards at the acquisition date amounted to \($300\),000 and \($200\),000 respectively.
Calculate the portion of the market-based measure of the replacement award at the date of acquisition to be allocated to the pre-combination and post combination services and prepare the accounting entries for the transaction. Ignore the tax effects for the question.
Step by Step Answer:
Advanced Financial Accounting An IFRS Standards Approach
ISBN: 9781285428765
4th Edition
Authors: Pearl Tan, Chu Yeong Lim, Ee Wen Kuah