assess whether c is a related party in b s financial statements and whether b is a r 613364

Replacement award requiring post-combination service replacing unvested acquiree award

Entity A acquires Entity B and issues replacement awards with a fair value at the acquisition date of €1.0 million for awards of Entity B also with a fair value at the acquisition date of €1.0 million. The replacement awards require one year of post-combination service. When originally granted, the awards of Entity B being replaced had a vesting period of four years and, as of the acquisition date, the employees had rendered two years’ service.

The replacement awards require one year of post-combination service. Because employees have already rendered two years of service, the total vesting period is three years. The portion attributable to pre-combination services equals the fair value of the award of Entity B being replaced (€1 million) multiplied by the ratio of the pre-combination vesting period (two years) to the greater of the total vesting period (three years) or the original vesting period of Entity B’s award (four years). Thus, €0.5 million (€1.0 million × 2/4 years) is attributable to pre-combination service and therefore included in the consideration transferred for the acquiree. The remaining €0.5 million is attributable to post-combination service and therefore recognised as remuneration cost in Entity A’s post-combination financial statements, over the remaining one year vesting period.