Share-based Payment

Share-based payments

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Module Objectives

This module focuses on:

Whether a transaction is a share-based payment or not

Recharge arrangements related to group share-based payments

2


Question 1Background

In order to diversify its operations even further DiversiCo together with twoother investors (A and B) invest in an existing banking operation calledBank

Bank has been operating for several years (i.e. it has value) Instead of buying the shares from the existing owner (Mr X), Bank issues

new shares to DiversiCo, Investor A and Investor B, and then buys backthe shares from Mr X

Mr X is paid fair value for his shares The fair value per share is CU10 The cash contributions made by the three shareholders are set out in the

table on the next slide DiversiCo obtains a controlling interest (52%) in Bank at a premium DiversiCo has no experience in the banking industry Investor B is well known for its knowledge and expertise in the banking

industry


Question 1 continued

Shareholding after the issue of shares and the buy back transaction

4

Shareholder % interest in Bank

Amount of ordinaryshares

CashContribution

DiversiCo 52% 1 100 000 CU 12 100 000Investor A 24% 500 000 CU 5 000 000Investor B 24% 500 000 CU 3 000 000


Question 1 (a)

A.Yes for all the shares issuedB.No for all the shares issuedC.Yes only for shares issued to

Investor BD.Yes only for shares issued to

DiversiCoE.Yes except for shares issued to

Investor A

5A. B. C. D. E.

0% 0% 0%0%0%

Is this transaction an IFRS 2 share-based payment transaction in the financial statements of Bank?

10


Question 1(b)

A.DR Bank 20.1m; CR Stated Capital 20.1m

B.DR Bank 20.1m; DR Share-based payment expense 0.9m; CR Stated Capital 20.1m; CR SBP reserve 0.9m

C.DR Bank 20.1m; DR Share-based payment expense 2m; CR Stated Capital 20.1m; CR SBP reserve 2m

6A. B. C.

0% 0%0%

10

What are the journal entries Bank should record in respect of the shares issued?


Question 2Background

DiversiCo operates a group share-based payment plan The conditions relating to the plan are as follows:

- DiversiCo grants 100 shares of DiversiCo to employees of Blue (asubsidiary of DiversiCo)

- Employees must remain within the service of Blue for three years toreceive the shares

- DiversiCo will invoice Blue at the end of the three year period for the fairvalue of the shares as at that date based on the number of sharesvested (contractual arrangement exists)

7


Question 2 cont

The table below sets out the fair value of the shares at the respective dates

8

Date Fair value per share Number of shares expected to vest

Grant date 9 100End of year 1 10 100


Question 2 (a)

A.Equity settled since Blue has no obligation to settle with the employees

B.Cash settled since it will be settled in shares of DiversiCo

C.Cash settled since Blue has to pay cash to DiversiCo upon issue of the shares

D.No share-based payment should be recognised as Blue has no obligation towards the employees

9A. B. C. D.

0% 0%0%0%

10

How should the share-based payment be classified in the AFS of Blue?


Question 2 (b)

A.Equity settled since it will be settled in shares of DiversiCo

B.No share-based payment since the employees are rendering services to Blue and not DiversiCo

C.No share-based payment since Blue must pay DiversiCo for the shares issued

10

A. B. C.

0% 0%0%

10

How should the share-based payment be classified in the AFS of DiversiCo?


Question 2 (c)

11

What are the journal entries to account for the SBP and recharge arrangement in the AFS of Blue at the end of year 1?

Account Amount1. Dr SBP Expense 300

Cr Equity (300)Dr Equity 333Cr Liability (333)

2. Dr SBP Expense 333Cr Equity (333)Dr Equity 333Cr Liability (333)


Cr Equity (300)Dr Recharge Expense 333Cr Liability (333)

4. Dr SBP Expense 300Cr Equity (300)Dr Equity 300Dr Recharge expense 33Cr Liability (333)


Question 2 (c) - continued

A.1B.2C.3D.4

12A. B. C. D.

0% 0%0%0%

10

What are the journal entries to account for the SBP and recharge arrangement in the AFS of Blue at the end of year 1?


Question 2 (d)

13

What are the journal entries to account for the SBP and recharge arrangement in the AFS of DiversiCo at the end of year 1?

Account Amount1. Dr Investment in sub 300

Cr Equity (300)Dr Receivable 333Cr Investment in sub (333)

2. Dr SBP Expense 333Cr Equity (333)Dr Receivable 333Cr Recharge Income (333)


Cr Equity (300)Dr Receivable 333Cr Recharge Income (333)

4. Dr Investment in sub 300Cr Equity (300)Dr Receivable 333Cr Investment in sub (300)Cr Dividend income (33)


Question 2 (d) - continued

A.1B.2C.3D.4

14

A. B. C. D.

0% 0%0%0%

10

What are the journal entries to account for the SBP and recharge arrangement in the AFS of DiversiCo at the end of year 1?


15

Share-based paymentsModule ObjectivesQuestion 1BackgroundQuestion 1 continuedQuestion 1 (a)Question 1(b) Question 2BackgroundQuestion 2 contQuestion 2 (a)Question 2 (b)Question 2 (c)Question 2 (c) - continuedQuestion 2 (d)Question 2 (d) - continuedSlide Number 15

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Share-based Payment