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sir can you just write the journal entry for this(end of Year 2), with a brief explanation of how you arrived at your figures? Pls sir it will be great help. I literally spent over two hours trying to solve this question…
An entity, Splash, established a share option scheme for its four directors. This scheme commenced on 1 July 2008. Each director will be entitled to 25,000 share options on condition that they remain with Splash for four years, from the date the scheme was introduced.
Information regarding the share options is provided below:
Fair value of option at grant date $10 Exercise price of option $5 The fair value of the shares at 30 June 2009 was $17 per share.
A tax deduction is only given for the share options when they are exercised. The allowable deduction will be based on the intrinsic value of the options. Assume a tax rate of 30%.Required:
Calculate and explain the amounts to be included in the financial statements of Splash for the year ended 30 June 2010 including explanation and calculation of any deferred tax implications.This is not a past exam question.
DT on share options is as follows:
DT asset = tax rate x no of instruments expected to vest x vesting period elapsed x intrinsic vale (17 minus 5 in your example)
Please do not copy out whole questions
Sir,
The journal entry for this given in Kaplan text is
DR DTA 90000
CR Equity 15000
CR Profit/loss 75000
My question is…
Why is equity credited? What does it signify?In study text they Have written when DTA > Remuneration expense..the tax deduction relates partly to equity..
Can u please explain this?
Thanks a lotAssume that:
1. SBP expense is 10.
2. Tax rate is 30%.
3. The DTA – based on intrinsic value – is 5.IAS 12 requires that the tax credit in the P&L cannot be more than 30% of the SBP expense – because of matching concept.
so we have to stick the extra 2 somewhere………………..equity…………….why?……………..nowhere else to stick it.
🙂
Got it..thank you
One more question
In the last year when the shares are exercised
The entry would be
DR Equity
DR Profit/Loss
CR DTAAm i right?
I think it would depend on the actual intrinsic value of the option at the exercise date.
Don’t get too hung up on this – just focus on recent past questions to see what is examined.
🙂
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