P4 - Corporate Financial

Reporting

IFRS 2
Share base payments
 Objective and Scope
The objective of this IFRS is to specify the
financial reporting by an entity when it
undertakes a share-based payment
transaction. In particular, it requires an
entity to reflect in its profit or loss and
financial position the effects of share-
based payment transactions, including
expenses associated with transactions
in which share options are granted to
employees.
An entity shall apply this IFRS in accounting
for all share-based payment transactions,
whether or not the entity can identify
specifically some or all of the goods or
services received, including:
(a) equity-settled share-based payment
transactions,
(b) cash-settled share-based payment
transactions, and
(c) transactions in which the entity receives
or acquires goods or services and the
terms of the arrangement provide either
the entity or the supplier of those goods
or services with a choice of whether the
entity settles the transaction in cash (or
other assets) or by issuing equity
instruments,
 Definitions
 An equity-settled share-based payment transaction is a share-based payment
transaction in which the entity receives goods or services as consideration for
the entity’s equity instruments. An equity instrument is a contract that
evidences a residual interest in the assets of an entity after deducting all of its
liabilities. An equity instrument granted is the right to an equity instrument of
the entity conferred by the entity on another party, under a share-based
payment arrangement.
 A cash-settled share-based payment transaction is a share-based payment
transaction in which the entity acquires goods or services by incurring a
liability to transfer cash or other assets to the supplier of those goods or
services for amounts that are based on the price or value of the entity’s shares
or other equity instruments.
 The grant date is the date at which the entity and another party (including an
employee) agree to a share-based payment arrangement. At grant date the
entity confers on the counterparty the right to cash, other assets, or the
entity’s equity instruments, provided that the specified vesting conditions are
met.
 Definitions
 Under a share-based payment arrangement, a counterparty’s right to receive
the entity’s cash, other assets, or equity instruments vests upon satisfaction of
any specified vesting conditions. Vesting conditions include service and
performance conditions.
 The vesting period is the period during which all the specified vesting
conditions of a share-based payment arrangement should be satisfied.
 Fair value is the amount for which an asset could be exchanged; a liability
settled; or an equity instrument granted could be exchanged between
knowledgeable, willing parties in an arm’s length transaction.
 Intrinsic value is the difference between the fair value of the shares to which
the counterparty has the right to subscribe or which it has the right to receive,
and the price the counterparty is required to pay for those shares.
 Market condition is a condition that is related to the market price of the
entity’s equity instruments.
 A share option is a contract that gives the holder the right but not the
obligation to subscribe to the entity’s shares at a fixed or determinable price
for a specified period of time.
Transactions not with in the scope of
IFRS2
Right Issue
For the purposes of this IFRS, a transaction with an employee (or other
party) in his/her capacity as a holder of equity instruments of the entity is
not a share-based payment transaction. For example, if an entity grants all
holders of a particular class of its equity instruments the right to acquire
additional equity instruments of the entity at a price that is less than the
fair value of those equity instruments, and an employee receives such a
right because he/she is a holder of equity instruments of that particular
class, the granting or exercise of that right is not subject to the
requirements of this IFRS.
 Transactions not with in the scope of
IFRS2
Business Combination
 An entity shall not apply this IFRS to transactions in which the entity acquires
goods as part of the net assets acquired in a business combination as defined
by IFRS 3, in a combination of entities or businesses under common control, or
the contribution of a business on the formation of a joint Arrangement. Hence,
equity instruments issued in a business combination in exchange for control of
the acquiree are not within the scope of this IFRS. However, equity
instruments granted to employees of the acquiree in their capacity as
employees (eg in return for continued service) are within the scope of this
IFRS. Similarly, the cancellation, replacement or other modification of share-
based payment arrangements because of a business combination or other
equity restructuring shall be accounted for in accordance with this IFRS.
 IFRS 3 provides guidance on determining whether equity instruments issued in
a business combination are part of the consideration transferred in exchange
for control of the acquiree (and therefore within the scope of IFRS 3) or are in
return for continued service to be recognized in the post-combination period
(and therefore within the scope of this IFRS).
 Transactions not with in the scope of
IFRS2
Financial Instruments
 This IFRS does not apply to share-based payment transactions in which the
entity receives or acquires goods or services under a contract within the scope
of IAS 32 and (IAS 39) IFRS 9. Such a contract cannot be entered into for the
purpose of the receipt or delivery of the non-financial item (Goods and
Services) in accordance with the entity’s expected purchase, sale or usage
requirements, these contracts are only made with the purpose of gaining
increase in Financial assets or for decrease in financial Liabilities.
 Financial Instruments
 IAS 32 and IAS 39 shall be applied to those contracts to buy or sell a non-
financial item that can be settled net in cash or another financial
instrument, or by exchanging financial instruments, as if the contracts
were financial instruments. For example
 when the terms of the contract permit either party to settle it net in cash or
another financial instrument or by exchanging financial instruments.
 when the ability to settle net in cash or another financial instrument, or by
exchanging financial instruments, is not explicit in the terms of the contract,
but the entity has a practice of settling similar contracts net in cash or another
financial instrument or by exchanging financial instruments (whether with the
counterparty, by entering into offsetting contracts or by selling the contract
before its exercise or lapse);
 When, for similar contracts, the entity has a practice of taking delivery of the
underlying and selling it within a short period after delivery for the purpose of
generating a profit from short-term fluctuations in price or dealer’s margin.
 When the non-financial item that is the subject of the contract is readily
convertible to cash.
 Accounting Treatment
Recognition
 An entity shall recognize the goods or services received or acquired in a share-
based payment transaction when it obtains the goods or as the services are
received. The entity shall recognize a corresponding increase in equity if the
goods or services were received in an equity-settled share-based payment
transaction, or a liability if the goods or services were acquired in a cash-
settled share-based payment transaction.
 When the goods or services received or acquired in a share-based payment
transaction do not qualify for recognition as assets, they shall be recognized as
expenses.
Equity-settled share-based payment transactions
 For equity-settled share-based payment transactions, the entity shall measure
the goods or services received, and the corresponding increase in equity,
directly, at the fair value of the goods or services received, unless that fair
value cannot be estimated reliably. If the entity cannot estimate reliably the
fair value of the goods or services received, the entity shall measure their
value, and the corresponding increase in equity, indirectly, by reference to the
fair value of the equity instruments granted.
 Transactions in which services are received
 If the equity instruments granted vest immediately, the counterparty is not
required to complete a specified period of service before becoming
unconditionally entitled to those equity instruments. In the absence of evidence
to the contrary, the entity shall presume that services rendered by the
counterparty as consideration for the equity instruments have been received. In
this case, on grant date the entity shall recognize the services received in full,
with a corresponding increase in equity.
 If the equity instruments granted do not vest until the counterparty completes a
specified period of service, the entity shall presume that the services to be
rendered by the counterparty as consideration for those equity instruments will
be received in the future, during the vesting period. The entity shall account for
those services as they are rendered by the counterparty during the vesting
period, with a corresponding increase in equity. For example:
if an employee is granted share options conditional upon completing three years’
service, then the entity shall presume that the services to be rendered by the
employee as consideration for the share options will be received in the future, over
that three-year vesting period.
The Fair value of the Equity Instrument at the Grant Date Should be Used for All
initial and Subsequent Calculations and any change in the Fair value should
not be taken into Consideration.
Treatment of vesting conditions
 A grant of equity instruments might be conditional upon satisfying specified
vesting conditions (service or Performance). For example, a grant of shares or
share options to an employee is typically conditional on the employee
remaining in the entity’s employ for a specified period of time or on achieving
a specified growth in profit and targets.
 Vesting conditions shall be taken into account by adjusting the number of
equity instruments included in the measurement of the transaction amount so
that, ultimately, the amount recognized for goods or services received as
consideration for the equity instruments granted shall be based on the
number of equity instruments that eventually vest. Hence, on a cumulative
basis, no amount is recognized for goods or services received if the equity
instruments granted do not vest because of failure to satisfy a vesting
condition, eg the counterparty fails to complete a specified service period, or
a performance condition is not satisfied.
 An entity shall recognize an amount for the goods or services received during
the vesting period based on the best available estimate of the number of
equity instruments expected to vest and shall revise that estimate, if
necessary, if subsequent information indicates that the number of equity
instruments expected to vest differs from previous estimates. On vesting date,
the entity shall revise the estimate to equal the number of equity instruments
that ultimately vested.
 Market conditions
 Market conditions, such as a target share price upon which vesting (or
exercisability) is conditioned, shall be taken into account when estimating
the fair value of the equity instruments granted. Therefore, for grants of
equity instruments with market conditions, the entity shall recognize the
goods or services received from a counterparty who satisfies all other
vesting conditions (eg services received from an employee who remains in
service for the specified period of service), irrespective of whether that
market condition is satisfied.
After vesting date
 Having recognized the goods or services received and a corresponding
increase in equity, the entity shall make no subsequent adjustment to
total equity after vesting date. For example, the entity shall not
subsequently reverse the amount recognized for services received from an
employee if the vested equity instruments are later forfeited or, in the
case of share options, the options are not exercised. However, this
requirement does not preclude the entity from recognizing a transfer
within equity, ie a transfer from one component of equity to another.
 Beginner offered directors an option scheme based on a three year period
of service. The number of options granted to directors at the inception of
the scheme was 10 million. The options were exercisable shortly after the
end of the third year. The fair value of the options and the estimates of the
number of options expected to vest were:

Year Rights expected to vest Fair value of the option

Start of Year One 8m 30c
End of Year One 7m 33c
End of Year Two 8m 37c
End of Year Three 9m 74c

Show how the option scheme will affect the financial statements for each of
the three years.
Asif has set up an employee option scheme to motivate its sales team of ten
key sales people. Each sales person was offered 1 million options
exercisable at 10c, conditional upon the employee remaining with the
company during the vesting period of 5 years. The options are then
exercisable three weeks after the end of the vesting period.
This is year two of the scheme. At the start of the year, two sales people
suggested that they would be leaving the company during the second year.
However, although one did leave, the other recommitted to the company
and the scheme. The other employees have always been committed to the
scheme and stated their intention to stay with the company during the 5
years. Relevant market values are as follows:
Date Share price Option price
Grant date 10c 20c
End of Year One 24c 38c
End of Year Two 21c 33c
The option price is the market price of an equivalent marketable option on
the relevant date.
Show the effect of the scheme on the financial statements of Asif for Year
Two.
Bahzad has singled out the inventory control director for an employee option
scheme. He has been offered 3 million options exercisable at 20c,
conditional upon him remaining with the company for three years and
improving inventory control by the end of that period. The proportion of
the options that vest is dependant upon the inventory days on the last day
of the three years. The schedule is as follows:
Inventory days Proportion vesting
5 100%
6 90%
7 70%
8 40%
9 10%
The options also have a vesting criteria related to market value. They only
vest if the share price is above 25c on the vesting day, i.e. at the end of the
third year.
This is the second of the three years. At the start of the year it was estimated
that the inventory days at the end of the third year would be 7. However,
during the year inventory control improved and at the end of the year the
estimate of inventory days at the end of the third year was 6. The relevant
market data is as follows:
Date Share price Option price
Grant date 20c 10c
End of Year One 19c 6c
End of Year Two 37c 19c

The option price is the market price of an equivalent marketable option on

the relevant date.
Show the effect of the scheme on the financial statements of Bahzad for Year
Two.
Discuss and show how the following share based payment transactions
should be accounted for in the financial statements of Landmark
Advertising Ltd., for the year ended December 31, 2014. Support your
answer with necessary calculations and journal entries:
(i) Landmark Advertising Ltd., purchased 100% shares of Limelight (Pvt.)
Ltd., on January 1, 2014. All four (4) directors of Limelight (Pvt.) Ltd., were
issued 400,000 shares of Rs. 10 each, of Landmark Advertising Ltd., when
the fair value of the share was Rs. 22 per share. 04
(ii) The purchase agreement states that Landmark Advertising Ltd., will issue
further 6,000 shares to each director (the former directors of Limelight
(Pvt.) Ltd.) on December 31, 2014, if they are in employment with
Landmark Advertising Ltd., on that date. One of the directors left the
company during the year ended December 31, 2014. 03
(iii) The operating results of the Landmark Advertising Ltd., for the year
ended December 31, 2014 showed exceptional performance hence the
management of the company decided to issue 100 fully paid shares to
each employee, as a bonus to its 150 employees on its payroll as at
December 31, 2014. The market price of the share was Rs. 30 per share.
03
Shed Company is engaged in manufacturing and marketing of new-born baby
products. The company is facing issues of employees turnover and unable
to maintain its sales growth. In 2011, the company hired a new marketing
director having experience of 20 years in the relevant industry. He
proposed following scheme for marketing team consisting of 100 sales
representatives. He was confident that this scheme would help to retain
employees and result in sales growth.
According to this scheme, all employees will be granted share options subject
to three-year vesting period provided that the sales will grow minimum of
15% per annum throughout the vesting period. Criteria of share options,
dependent upon the increase in the sales growth throughout each year of
vesting period is as follows:

Sales growth No. of Share Options per Eligible Employee

15% - 20% 100
Over 20% - 25% 150
Over 25% 200
At the grant date, fair value of each share option was Rs. 75 and it was
estimated that the sales growth for each year would be around 20% to
25% and only 10% employees would leave the company before vesting
period. At the reporting date of vesting period the results were as follows:

Date No. of Employees Annual Expected Future Average

Employees Expected to Sales Sales Growth Sales
Left Leave before Growth for for Remaining Growth to
Vesting Date the Year Vesting Period Date
31/12/2011 4 6 26% 26% 26.00%
31/12/2012 3 5 21% 24% 23.50%
31/12/2013 2 - 16% 21.00%

Required:
Identify the annual charge to profit or loss, together with the amounts to be
included in the statement of financial position for each year. 09
 Modifications to the terms and conditions
including cancellations & settlements
The entity shall recognize, as a minimum, the services received measured at
the grant date fair value of the equity instruments granted, unless those
equity instruments do not vest because of failure to satisfy a vesting
condition (other than a market condition) that was specified at grant date.
This applies irrespective of any modifications to the terms and conditions
on which the equity instruments were granted, or a cancellation or
settlement of that grant of equity instruments. In addition, the entity shall
recognize the effects of modifications that increase the total fair value of
the share-based payment arrangement or are otherwise beneficial to the
employee. Any increase Over the Benefits Already Granted Should be
Apportion over the remaining Period on a systematic Basis.
If a grant of equity instruments is cancelled or settled during the vesting
period (other than a grant cancelled by forfeiture when the vesting
conditions are not satisfied):
(a) the entity shall account for the cancellation or settlement as an
acceleration of vesting, and shall therefore recognize immediately the
amount that otherwise would have been recognized for services received
over the remainder of the vesting period.
(b) any payment made to the employee on the cancellation or settlement of
the grant shall be accounted for as the repurchase of an equity interest, ie
as a deduction from equity, except to the extent that the payment exceeds
the fair value of the equity instruments granted, measured at the
repurchase date. Any such excess shall be recognized as an expense.
However, if the share-based payment arrangement included liability
components, the entity shall re measure the fair value of the liability at
the date of cancellation or settlement. Any payment made to settle the
liability component shall be accounted for as an extinguishment of the
liability.
An Entity grants 100 Share options to each of its 500 employees, provided
that they remain in service over next three years. The fair value of each
option is 20$.

During year one, 50 employees leave. The entity estimates that a further 60
employees will leave during years two and three.

At the end of year one the entity reprices its share option because the share
price has fallen. The other vesting conditions remain unchanged. At the
date of repricing, the fair value of each of the original share option
granted (before taking the repricing into Account) was $ 10. the fair value
of each share option is $ 15 (after taking the repricing into Account).

During year two, further 30 employees leave. The entity estimates that a
further 30 employees will leave during year three.

During year three, a further 30 employees leave.

Calculate the amount to be recognized in the financial statements for each of

the three years of the scheme.
An entity grants 100 share option to each of its 15 employees in its sales
team, on condition that they remain in service over next three years.
There is also a performance condition: the team must sell more than
40,000 unit of a particular product over the three year period. At the grant
date the fair value of each option is $ 20.

During year 2, the entity increases the sales target to 70,000 units. By the end
of year 3, only 60,000 units have been sold and share option do not vest.

All 15 employees remain with the entity for the full three years.

Calculate the amount to be recognized in the financial statements for each of

the three years of the scheme.
During the year, FMCG launched a new product in the market and expected
normal growth as that of existing products. In order to motivate the sales
force to achieve the target for three years, the company granted 225 share
options to each member of the sales team of 10 employees. At the grant
date, the fair value of each option is Rs.25. The grant was based on the
condition that the employees remain in service over the next three years
and the team sells 80,000 units of product over the three-year period.
During second year, the company increased the sales target to 120,000 units
after positive feedback from customers and widely acceptance of the
product in the market.
By the end of third year, only 100,000 units have been sold and the share
options do not vest. All employees remained with the company for three
years.
Required:
(i) Explain the accounting treatment of the above transaction under IFRS 2.
02
(ii) Calculate the amounts to be recognized in the financial statements for
each of the three years of the scheme. 02
 Cash-settled share-based payment
transactions
 For cash-settled share-based payment transactions, the entity shall
measure the goods or services acquired and the liability incurred at the
fair value of the liability. Until the liability is settled, the entity shall re
measure the fair value of the liability at the end of each reporting period
and at the date of settlement, with any changes in fair value recognized
in profit or loss for the period.
 For example, an entity might grant share appreciation rights to employees
as part of their remuneration package, whereby the employees will
become entitled to a future cash payment (rather than an equity
instrument), based on the increase in the entity’s share price from a
specified level over a specified period of time. Or an entity might grant to
its employees a right to receive a future cash payment by granting to them
a right to shares (including shares to be issued upon the exercise of share
options) that are redeemable, either mandatorily (eg upon cessation of
employment) or at the employee’s option.
On 1 January 20X1 an entity grants 100 cash share appreciation rights (SAR)
to each of its 300 employees, on condition that they continue to work for
the entity until 31 December 20X3.
During 20X1, 20 employees leave. The entity estimates that a further 40 will
leave during 20X2 and 20X3.
During 20X2, 10 employees leave. The entity estimates that a further 20 will
leave during 20X3.
During 20X3, 10 employees leave.
The fair values of one SAR for each year are shown below.
Years Fair value $
20X1 10.00
20X2 12.00
20X3 15.00

Calculate the amount to be recognized as an expense for each of the three

years ended 31 December 20X3 and the liability to be recognized in the
statement of financial position at 31 December for each of the three
years.
Management of Star Company is worried about excessive turnover of employees.
The HR Director has suggested to grant 250 cash share appreciation rights
(SARs) to each of its 400 employees subject to condition that the employees
continue to work for the entity for three years. The Board approved the
proposal from July 1, 2009. The management expects that 20 employees will
leave each year. During three years following employees left the company:
Years No. of Emp.
2009-2010 20
On June 30, 2012, 125 employees exercised
2010-2011 24
their rights. The fair value of the share
2011-2012 30
appreciation rights for the year in which a
liability exists are shown below, together with the intrinsic value at the date of
exercise:
Fair value (Rs.) Intrinsic Value (Rs.)
Jun-10 12.50 11.50
Jun-11 14.00 14.50
Jun-12 16.50 17.00
Required:
Calculate the amount to be presented in the statement of financial position and
statement of comprehensive income for three years from 2010 to 2012. 08
 Share-based payment transactions
with cash alternatives
Where the counterparty with a choice of settlement
 If an entity has granted the counterparty the right to choose whether a share-
based payment transaction is settled in cash (Other asset) or by issuing equity
instruments, the entity has granted a compound financial instrument, which
includes a debt component (ie the counterparty’s right to demand payment in
cash) and an equity component (ie the counterparty’s right to demand
settlement in equity instruments rather than in cash).
Initial Recognition
 The entity shall account separately for the goods or services received or
acquired in respect of each component of the compound financial instrument.
For the debt component, the entity shall recognize the goods or services
acquired, and a liability to pay for those goods or services, as the counterparty
supplies goods or renders service, in accordance with the requirements
applying to cash-settled share-based payment transactions. For the equity
component (if any), the entity shall recognize the goods or services received,
and an increase in equity, as the counterparty supplies goods or renders
service, in accordance with the requirements applying to equity-settled share-
based payment transactions.
 At the date of Settlement
 At the date of settlement, the entity shall re measure the liability to its fair
value. If the entity issues equity instruments on settlement rather than
paying cash, the liability shall be transferred direct to equity, as the
consideration for the equity instruments issued.
 If the entity pays in cash on settlement rather than issuing equity
instruments, that payment shall be applied to settle the liability in full. Any
equity component previously recognized shall remain within equity. By
electing to receive cash on settlement, the counterparty forfeited the right
to receive equity instruments. However, this requirement does not
preclude the entity from recognizing a transfer within equity, ie a transfer
from one component of equity to another.
 Where the entity with a choice of settlement
 For a share-based payment transaction in which the terms of the arrangement
provide an entity with the choice of whether to settle in cash or by issuing
equity instruments, the entity shall determine whether it has a present
obligation to settle in cash and account for the share-based payment
transaction accordingly. The entity has a present obligation to settle in cash if
the choice of settlement in equity instruments has no commercial substance
(eg because the entity is legally prohibited from issuing shares), or the entity
has a past practice or a stated policy of settling in cash, or generally settles in
cash whenever the counterparty asks for cash settlement.
Initial Recognition
 If the entity has a present obligation to settle in cash, it shall account for the
transaction in accordance with the requirements applying to cash-settled
share-based payment transactions.
 If no such obligation exists, the entity shall account for the transaction in
accordance with the requirements applying to equity-settled share-based
payment transactions.
At the date of Settlement
 if the entity elects to settle by issuing equity instruments, no further
accounting is required (other than a transfer from one component of equity to
another, if necessary).
 if the entity elects to settle in cash, the cash payment shall be accounted for as
the repurchase of an equity interest, ie as a deduction from equity.
On 1 January 2015, Mr. Talented was appointed as the President of Meharban
Bank Limited (MBL). According to the terms of the employment contract, MBL
granted Mr. Talented the right to receive either 100,000 shares of the bank or a
cash payment equivalent to the value of 80,000 shares. This grant is conditional
to completion of 3 years of service with the bank and can be exercised within 1
year of vesting date. If he chooses the share alternative he would have to hold
the shares for a period of two years after the vesting date.
The par value of MBL’s shares is Rs. 10 each. At the grant date, MBL’s share price
was Rs. 145 per share. The share prices on 31 December 2015, 2016, 2017 and
2018 are estimated at Rs. 150, Rs. 156, Rs. 165 and Rs. 175 respectively.
Dividends are not expected to be announced during the next three years.
After taking into account the effects of the post-vesting transfer restrictions, MBL
estimates that the fair value of the share alternative on the date of
appointment of Mr. Talented was Rs. 135 per share.
Required:
Suggest journal entries to record the above transactions in the books of MBL for
the years ending 31 December 2015, 2016, 2017 and 2018 if Mr. Talented
chooses the share alternative in July 2018. (11) June 15
Quail Pakistan Limited (QPL), a listed company, is reviewing the following
transactions which have not yet been accounted for in the financial statements
for the year ended 30 June 2012:
(a) On 1 July 2011, QPL announced a bonus of Rs. 30 million to its employees if
they achieved the annual budgeted targets by 30 June 2012. The bonus would
be paid in the following manner:
 25% of the bonus would be paid in cash on 31 December 2012 to all employees irrespective
of whether they are still working for QPL or not.
 The balance 75% will be given in share options, to those employees who are in QPL’s
employment on 31 December 2012. The exercise date and number of options will be fixed by
the management on the same day. The budgeted targets were achieved. The management
expects that 5% employees would leave between 30 June 2012 and 31 December 2012. (04)
(b) On 30 June 2012, a plant having a list price of Rs. 50 million was purchased.
QPL has allowed the following options to the supplier, in respect of payment
thereagainst:
 To receive cash equivalent to price of 1.5 million shares of the company after 3 months; or
 To receive 1.7 million shares of the company after 6 months. QPL estimates that price of its
shares would be Rs. 35 per share after three months and Rs. 40 per share after six months.
(05)
Required: Discuss how the above share-based transactions should be accounted
for in QPL’s financial statements for the year ended 30 June 2012. Show
necessary calculations. (Journal entries are not required) Dec., 12
Margie, a public limited company, has entered into several share related
transactions during the period and wishes to obtain advice on how to account
for the transactions.
• Margie has entered into a contract with a producer to purchase 350 tonnes
of wheat. The purchase price will be settled in cash at an amount equal to the
value of 2,500 of Margie’s shares. Margie may settle the contract at any time
by paying the producer an amount equal to the current market value of 2,500
of Margie shares, less the market value of 350 tonnes of wheat. Margie has
entered into the contract as part of its hedging strategy and has no intention
of taking physical delivery of the wheat. Margie wishes to treat this
transaction as a share based payment transaction under IFRS 2 ‘Share-based
Payment’. (7 marks)
• Margie has acquired 100% of the share capital of Antalya in a business
combination on 1 December 2009. Antalya had previously granted a share-
based payment to its employees with a four-year vesting period. Its employees
have rendered the required service for the award at the acquisition date but
have not yet exercised their options. The fair value of the award at 1
December 2009 is $20 million and Margie is obliged to replace the share-
based payment awards of Antalya with awards of its own. Margie issues a
replacement award that does not require post-combination services. The fair
value of the replacement award at the acquisition date is $22 million. Margie
does not know how to account for the award on the acquisition of Antalya. (6
marks)
• Margie issued shares during the financial year. Some of those shares were
subscribed for by employees who were existing shareholders, and some were
issued to an entity, Grief, which owned 5% of Margie’s share capital. Before
the shares were issued, Margie offered to buy a building from Grief and
agreed that the purchase price would be settled by the issue of shares. Margie
wondered whether these transactions should be accounted for under IFRS 2.
(4 marks)
• Margie granted 100 options to each of its 4,000 employees at a fair value of
$10 each on 1 December 2007. The options vest upon the company’s share
price reaching $15, provided the employee has remained in the company’s
service until that time. The terms and conditions of the options are that the
market condition can be met in either year 3, 4 or 5 of the employee’s service.
At the grant date, Margie estimated that the expected vesting period would be
four years which is consistent with the assumptions used in estimating the fair
value of the options granted. The company’s share price reached $15 on 30
November 2010. (6 marks)
Required:
Discuss, with suitable computations where applicable, how the above
transactions would be dealt with in the financial statements of Margie for
the year ending 30 November 2010.
Professional marks will be awarded in question 2 for the clarity and quality of
discussion. (2 marks)