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Hello Sir,
I wanted to ask you that in the lecture for DT for SBP, we said that the CV will be the intrinsic value and the tax base would be nil.
However, while attempting the question Panel (Dec 2005) , it says on 1st Nov 2003 the company granted 10m share options worth $40m with a 2 year vesting period.
The intrinsic value of 10m share options on 31-10-04 was $16m and on 31-10-05 was $46m.
The options were exercised on 31-10-05.
We have to account for this transaction on 31-10-04 and 31-10-5.So, we were supposed to calculate the carrying amount of the SBP and the tax base would be nil i.e what I calculated 10m x 16m x 1/2 = $80m
Then take that $80m x 30% tax = $24m.But what they did is, they made the carrying amount of the SBP nil and tax base was (16/2) = $8 and 30% on that = $2.4m.
Can you please explain why this was , I’m having issues here .
Thank you.
Hi,
If you follow what we did in the lecture then you get the right answer. Our carrying value is based upon the intrinsic value to give (8) and the tax base is nil. As the CV is less than the tax base then there is a deferred tax asset.
I slightly disagree with what has been done in the answer because if you look at the CV and TB then the CV is greater than the tax base, which gives a deferred tax liability when it has to be a deferred tax liability.
Hope this helps.
Thanks
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