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- This topic has 3 replies, 2 voices, and was last updated 3 years ago by Kim Smith.
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- June 17, 2021 at 1:26 pm #625577AnonymousInactive
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In March 20X5, a cash-settled share-based payment plan was introduced for senior executives, who will receive a bonus on 31 December 20X7. The amount of the bonus will be based on the increase in Dali Co’s share price from that at the date of the flotation, when it was $2.90, to the share price at 31 December 20X7. On the advice of the newly appointed finance director, no accounting entries have been made in respect of the plan, but the details relating to the cash-settled share-based payment plan will be disclosed in the notes to the financial statements.
Year End share price is $3.5.
My doubt here is should we recognise a liability at 3.5 or at 0.6(3.5 – 2.9) at the year end. Usually for cash settled share based payment we will recognise liability at the year end value. But here since they have mentioned “bonus will be based on the increase in share price from 2.9 to 3.5” I got a confusion.
Thanks in advance. And your response to Setter Co – loan liability was helpful too.
June 17, 2021 at 2:07 pm #625580I don’t have the BPP version of the question to give you a complete answer but, as you say, it states “based on the increase” it is the $0.6 increase that will be relevant rather than the y/e share price. However, it only says “based on … the increase” – that isn’t the same as the amount of the increase – e.g. the bonus could be quantified as 20% of the increase.
And thank you for the feedback on the Setter post.
June 19, 2021 at 9:56 am #625792AnonymousInactive- Topics: 2
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Thank you, got it.
This is the answer part for that
This falls under the scope of IFRS 2 Share-based Payment which states that the liability in respect of the plan should be measured at fair value at the year end. The increase in the share price from $2.90 at flotation to $3.50 (projected) at the year end indicates that a liability should be recognised at 31 December 20X5 based on the fair value of the liability which has accrued up to that date, with the expense recognised in the statement of profit or loss.Is it explaining the same, I couldn’t get the wordings.
June 19, 2021 at 10:06 am #625797Yes it is but more implied than explicit. It also perhaps implies that the difference is the amount of the liability but as I suggested, I think it would be only a % and perhaps a relatively small one. A company doesn’t pay all the increase in value to management – otherwise the shareholders won’t get to share in the wealth!
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