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DT asset on share options

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › DT asset on share options

  • This topic has 7 replies, 3 voices, and was last updated 2 months ago by Stephen Widberg.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • July 14, 2021 at 3:46 pm #627728
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    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.

    July 15, 2021 at 7:51 am #627812
    Stephen Widberg
    Keymaster
    • Topics: 12
    • Replies: 2843
    • ☆☆☆☆☆

    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

    October 24, 2022 at 5:29 pm #669877
    Varun.J.Thakkar
    Participant
    • Topics: 47
    • Replies: 50
    • ☆☆

    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 lot

    October 25, 2022 at 4:31 pm #669939
    Stephen Widberg
    Keymaster
    • Topics: 12
    • Replies: 2843
    • ☆☆☆☆☆

    Assume 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.

    🙂

    November 9, 2022 at 2:22 pm #671132
    Varun.J.Thakkar
    Participant
    • Topics: 47
    • Replies: 50
    • ☆☆

    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 DTA

    Am i right?

    November 9, 2022 at 5:29 pm #671142
    Stephen Widberg
    Keymaster
    • Topics: 12
    • Replies: 2843
    • ☆☆☆☆☆

    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.

    🙂

    November 9, 2022 at 6:50 pm #671147
    Varun.J.Thakkar
    Participant
    • Topics: 47
    • Replies: 50
    • ☆☆

    Ok thanks a lot sir

    November 11, 2022 at 11:31 am #671250
    Stephen Widberg
    Keymaster
    • Topics: 12
    • Replies: 2843
    • ☆☆☆☆☆

    🙂

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