Research On Accounting Treatment Of Performance Awards In Mergers And Acquisitions Of Listed Companies

In 2014, mergers and acquisitions business of Chinese A-share market had a blowout, as the demand of two sides of merger and acquisition continues to diversify, the design of M & A program has become increasingly rich and complex, in order to fully take into account the target company’s actual operating performance may exceed the profit promised after the completion of the transaction and the possibility that the current valuation of the target company is less than its real value, as well as to encourage the both sides of transaction to further expand the target company’s business after achieving the promised net profit, to achieve good performance, a number of listed companies put forward performance awards arrangements in the compensation agreement when they are making merger and acquisition scheme. In 2014, The Mergers and Acquisitions Committee of China Securities Regulatory Commission reviewed 195 projects of great restructuring of assets, approved 184 projects, and 60 projects arranged performance awards in trading scheme,34 of them disclosed corresponding accounting treatment in performance awards scheme, divided by time, from January to June in 2014,62 projects were approved, in which 14 projects arranged performance awards in trading scheme, accounting for 23%; from July to December,122 projects were approved, in which 46 projects arranged performance awards in trading scheme, accounting for 38%. Thus, the introduction of performance awards in the design of trading scheme has gradually become a consensus of both sides of mergers and acquisitions.This paper takes the identification of performance awards as the breakthrough point, at first, this paper summarizes the related policy and market situation of current A-share market performance awards, then combined with the true purpose of the payment and the payment terms and other recognized standards, performance awards will be divided into "contingent consideration" and "bonus" two affirmative way, in 34 companies which disclosed accounting treatment in performance awards scheme,13 listed companies’ performance awards were identified as contingent consideration, and 21 listed companies’ performance awards were identified as bonus. Afterwards, from the two cases to discuss about the listed company’s performance awards’ the payers, reward objects, the initial confirmation of the merger date, follow-up measurement after the merger date, form of payment at maturity, tax obligations of both sides and other aspects. "Contingent consideration" is in the form of financial liabilities and "bonus" is in the form of workers’ compensation. Subsequent accounting treatment will be carried out on these bases. Finally, through the analysis of the current listed companies performance awards case, this paper will conduct in-depth detailed analysis about the involved accounting treatment and the impact on listed companies. Through research, analysis and summary, this paper aims to provide help for listed companies to design merger and acquisition scheme.