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IFRS 2

Aaccastudent7y ago
Hello sir can you please guide me through this confusion Suppose fair value on grant date of share options was 8 CU. Entity granted 100 options to each of its 3 directors. Vesting period was of 2 years. In middle of next year, entity decides to cancel this scheme. But at the cancellation date the FV of original instruments was 9 CU and the entity settles the scheme by paying employees 10 CU for each option. Now the first entry on cancellation would be to recognise the expense of original FV. i.e 8 CU in SOPL. Now the balance in equity reserves is 100*8*3 = 2400 But when the final settlement entry is made we do DR. Equity 2700 (100*9*3) DR. SOPL 300 (100*1*3) CR. CASH 3000 (10*100*3) My ques is .. How can we debit equity reserves by 2700 when the existing balance we have is only of 2400 (3*100*8) expensed in the vesting period ? Where do we get the excess 300 (2700-2400) to debit from equity ?
P2-D2P2-D2Tutor7y ago#1
Hi, Here are the rules from IFRS 2 "The cancellation or settlement of equity instruments is accounted for as an acceleration of the vesting period and therefore any amount unrecognised that would otherwise have been charged should be recognised immediately. Any payments made with the cancellation or settlement (up to the fair value of the equity instruments) should be accounted for as the repurchase of an equity interest. Any payment in excess of the fair value of the equity instruments granted is recognised as an expense" So, you would remove the 2,400 and the rest is treated as an expense, I think this would make it a 600 expense. Thanks
Aaccastudent7y ago#2
But sir in the kaplan book the entry on the date of cancellation of scheme is Dr. Equit 2700 Dr. SOPL 300 CR. Cash 3000 They have debited equity with the fair value at the date of cancellation (9) and not with the fair value at the grant date (8) Therefore i'm getting confused for the excess amout of equity debited (300) because the original debit is only of 2400. Thanks
P2-D2P2-D2Tutor7y ago#3
It looks like their answer is incorrect then unless I'm mistaken. Thanks
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