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Question 2c

Delta is an entity which prepares financial statements to 30 September each year. The financial statements for the year ended 30 September 2016 are shortly to be authorised for issue. The following events are relevant to these financial statements:

(c) On 1 October 2014, Delta granted 250 share appreciation rights to 100 senior executives. The rights vest on 30 September 2017 provided the executives remain with Delta for the three-year period from 1 October 2014 to 30 September 2017. The rights can be exercised from 30 November 2017 to 31 December 2017. On 1 October 2014, it was expected that 10 executives would leave over the three-year period from 1 October 2014 to 30 September 2017. This estimate was confirmed on 30 September 2015 but two executives left unexpectedly during the year ended 30 September 2016 and Delta now expects that 12 executives will leave over the three-year period ending on 30 September 2017. Delta further estimated that all executives who were eligible to exercise the rights would do so. On 1 October 2014, the fair value of a share appreciation right was $3·20. The fair value increased to $3·50 by 30 September 2015 and to $3·60 by 30 September 2016.

(5 marks)

Required:
Explain and show how the three events would be reported in the financial statements of Delta for the year ended 30 September 2016.

Notes:
1. The mark allocation is shown against each of the three events above.
2. In explaining event (b), you do not need to consider the impact on inventory and cost of sales.