Share Based Payments - Introduction 1 / 7

89 others answered this question

Question 2c

Delta is an entity which is engaged in the construction industry and prepares financial statements to 30 September each year. The financial statements for the year ended 30 September 2015 are shortly to be authorised for issue. The following events are relevant to these financial statements:

(c) On 1 October 2014, Delta granted share options to 100 senior executives. The options vest on 30 September 2017. The number of options granted per executive depend on the cumulative revenue for the three years ended 30 September 2017. Each executive will receive options as follows:

Cumulative revenue for the three years ended 30 September 2017 Number of options PER EXECUTIVE
Less than $180 million Nil
At least $180 million but less than or equal to $270 million 200
More than $270 million 300

Delta’s revenue for the year ended 30 September 2015 was $50 million. The directors of Delta have produced reliable budgets showing that the revenues of Delta for the next two years are likely to be:

– Year ended 30 September 2016 – $65 million.
– Year ended 30 September 2017 – $75 million.

On 1 October 2014, the fair value of these share options was $3 per option. This figure had increased to $3·60 per option by 30 September 2015 and was expected to be $5 per option by 30 September 2017. All of the 100 executives who were granted the options on 1 October 2014 were expected to remain as employees throughout the three-year period from 1 October 2014 to 30 September 2017. (4 marks)

Required:
Explain and show how the three events would be reported in the financial statements of Delta for the year ended 30 September 2015.

Note: The mark allocation is shown against each of the three events above.

76 others answered this question

Question 3a

(a) IFRS 2 – Share-based Payment – defines a share-based payment transaction as one in which an entity receives goods or services from a third party (including an employee) in a share-based payment arrangement. A share-based payment arrangement is an agreement between an entity and a third party which entitles the third party to receive either:

– Equity instruments of the entity (equity-settled share-based payments); or
– Cash or other assets based on the price of equity instruments of the entity (cash-settled share-based payments).

Share-based payment arrangements are often subject to vesting conditions which must be satisfied over a vesting period.

Required:
For both cash-settled AND equity-settled share-based payment arrangements, explain:
(i) The basis on which the arrangements should be measured; 
(ii) The criteria which are used to allocate the total value of the arrangement to individual accounting periods;
(iii) The accounting entries (debit and credit) required during the vesting period. (6 marks)

78 others answered this question

Question 4ii

You are the financial controller of Omega, a listed entity which prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). The managing director, who is not an accountant, has recently been appointed. She formerly worked for Rival, one of Omega’s key competitors. She has reviewed the financial statements of Omega for the year ended 30 September 2014 and has prepared a series of queries relating to those statements:

Query Two
‘The notes to our financial statements refer to equity settled share-based payments relating to the granting of share options. When I joined Omega, I was granted share options but I can only exercise those options if I achieve certain performance targets in my first three years as managing director. I know that other directors are also granted similar option arrangements. I don’t see why they affect the financial statements when the options are granted though, because no cash is involved unless the options are exercised. Please explain to me exactly what is meant by an ‘equity settled share-based payment’. Please also explain how, and when, equity settled share-based payments affect the financial statements of entities that grant them to their employees. I would like to know how such ‘payments’ are measured, over what period the ‘payments’ are recognised, and exactly what accounting entries are involved.’ (8 marks)

Required:
Provide answers to the three queries raised by the managing director. Your answers should refer to relevant provisions of International Financial Reporting Standards

Note: The mark allocation is shown against each of the three issues above.

We use cookies to help make our website better. We'll assume you're OK with this if you continue. You can change your Cookie Settings any time.

Cookie SettingsAccept