Remuneration of former owners who become employees

Learning objectives

• Justify, using the indicators, whether a contingent payment to former owners who become employees is additional consideration or remuneration.L3, L4

Normative references

• IFRS 3 §B55Indicators to consider when it is not clear whether an arrangement for payments to employees or selling shareholders is part of the exchange: (a) continuing employment — contingent payments that are automatically forfeited if employment terminates are remuneration for post-combination services, whereas payments not affected by termination of employment may indicate additional consideration; (b) duration of continuing employment; (c) level of remuneration; (d) incremental payments to employees; (e) number of shares owned; (f) linkage to the valuation; (g) formula for determining consideration; (h) other agreements and issues, including taxes.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• In the acquisition of Alpage SA, additional consideration of 500,000 is due to two former owners who become employees of the acquiree. The additional amount is automatically forfeited if they leave the company before the end of the second year. Write a short note concluding on the nature of this amount, distinguishing facts of the case, rule and professional judgement.L3