Each month, experts at PwC consider
the accounting implications of key IFRS changes
Non-compete arrangements in a business combination
ABC plc has acquired DEF Ltd for (currency unit) CU35m. The
share purchase agreement (SPA) stipulates that included within the
consideration is a premium of CU5m paid to the vendors of DEF Ltd
for not competing in the same industry for two years after the acquisition.
In addition to this, the employment contracts for the key directors
of DEF Ltd already included clauses that prevent them from joining
competitors in the same industry for a period of two years after the
acquisition date if there is a change in ownership. How should ABC
plc account for the non-compete elements of this transaction?
