In a business combination, share-based payment awards held by employees of the acquiree are often exchanged for share-based payment awards of the acquirer. ASC 805 refers to the new awards as “replacement awards.” This exchange may or not be required as part of the acquisition or as part of the acquiree’s stock compensation plan. When the exchange is required as part of the acquisition, the acquirer must analyze the terms of both the preexisting and the replacement awards to determine what portion of the replacement awards is related to past service and therefore part of the consideration transferred in the business combination. The portion of replacement awards that is related to future services should be recognized as compensation cost in the postcombination period. Additional complexities arise when the terms of the replacement awards are different from those of the original rewards. See Deloitte’s Roadmap Share-Based Payment Awards for additional discussion about the accounting for equity awards issued in connection with a business combination.
This guidance uses the term “fair-value-based measure”; however, ASC 718 also permits the use of “calculated value” or “intrinsic value” in specified circumstances. This guidance would also apply in situations in which calculated value or intrinsic value is permitted.