IFRS 2, SHARE-BASED PAYMENT (Part 3)

ACCA P2 考試：IFRS 2, SHARE-BASED PAYMENT (Part 3)

EXAMPLE 4

A company operates in a country where it receives a tax deduction equal to the intrinsic value of the share options at the exercise date. The company grants share options to its employees with a fair value of $4.8m at the grant date. The company receives a tax allowance based on the intrinsic value of the options which is $4.2m. The tax rate applicable to the company is 30% and the share options vest in three-years' time.

Answer

A deferred tax asset would be recognised of:

$4.2m @ 30% tax rate x 1 year / 3 years = $420,000

The deferred tax will only be recognised if there are sufficient future taxable profits available.

DISCLOSURE

IFRS 2 requires extensive disclosures under three main headings:

" Information that enables users of financial statements to understand the nature and extent of the share-based payment transactions that existed during the period.

" Information that allows users of financial statements to understand how the fair value of the goods or services received, or the fair value of the equity instruments which have been granted during the period, was determined.

" Information that allows users of financial statements to understand the effect of expenses, which have arisen from share-based payment transactions, on the entity's profit or loss in the period.

The standard is applicable to equity instruments granted after 7 November 2002 but not yet vested on the effective date of the standard, which is 1 January 2005. IFRS 2 applies to liabilities arising from cash-settled transactions that existed at 1 January 2005.

MULTIPLE-CHOICE QUESTIONS

1. Which of the following do not come within the definition of a share-based payment under IFRS 2?

A employee share purchase plans

B employee share option plans

C share appreciation rights

D a rights issue that includes some shareholder employees

2. A company issues fully paid shares to 500 employees on 31 July 20X8. Shares issued to employees normally have vesting conditions attached to them and vest over a three-year period, at the end of which the employees have to be in the company's employment. These shares have been given to the employees because of the performance of the company during the year. The shares have a market value of $2m on 31 July 20X8 and an average fair value for the year of $3m. It is anticipated that in three-years' time there will be 400 employees at the company.

What amount would be expensed to profit or loss for the above share issue?

A $3m

B $2m

C $1m

D $666,667

3. A company grants 750 share options to each of its six directors on 1 May 20X7. The options vest on 30 April 20X9. The fair value of each option on 1 May 20X7 is $15 and their intrinsic value is $10 per share. It is anticipated that all of the share options will vest on 30 April 20X9. What will be the accounting entry in the financial statements for the year ended 30 April 20X8?

A Increase equity $33,750; increase in expense in profit or loss $33,750

B Increase equity $22,500; increase in expense in profit or loss $22,500

C Increase liability $67,500; increase in expense profit or loss $67,500

D Increase liability $45,000; increase in current assets $45,000

4. A public limited company has granted 700 share appreciation rights (SARs) to each of its 400 employees on 1 January 20X6. The rights are due to vest on 31 December 20X8 with payment being made on 31 December 20X9. During 20X6, 50 employees leave, and it is anticipated that a further 50 employees will leave during the vesting period. Fair values of the SARs are as follows:

	$
1 January 20X6	15
31 December 20X6	18
31 December 20X7	20

What liability will be recorded on 31 December 20X6 for the share appreciation rights?

A $1,260,000

B $1,680,000

C $2,520,000

D $3,780,000

ANSWERS

1 (d).

2 (b). $2m. The issue of fully paid shares is deemed to relate to past service and should be expensed to profit or loss at 31 July 20X8.

3 (a). 750 x 6 (directors) x $15 / 2 years = $33,750

4 (a). 700 x (400 - 100) x $18 x 1/3 = $1,260,000

Written by a member of the Paper P2 examining team

Last updated: 4 Dec 2015