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IFRS 2

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › IFRS 2

  • This topic has 3 replies, 2 voices, and was last updated 3 years ago by Stephen Widberg.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • September 22, 2021 at 4:32 pm #636326
    akka17bakka
    Participant
    • Topics: 105
    • Replies: 99
    • ☆☆☆

    Hello Tutor,

    Could you kindly help me understand this paragraph from Kaplan Text.

    ”……….. The fair value of a SAR could exceed its intrinsic value at exercise

    date. This is because SAR holders who do not exercise their rights at that time

    have the ability to benefit from future share price rises.

    At the end of the exercise period, the intrinsic value of a SAR will equal its fair

    value. The liability will be cleared and any remaining balance taken to profit or

    loss.”

    Thank you.

    September 22, 2021 at 6:11 pm #636331
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3411
    • ☆☆☆☆☆

    …….. The fair value of a SAR could exceed its intrinsic value at exercise

    date. This is because SAR holders who do not exercise their rights at that time

    have the ability to benefit from future share price rises.

    I AGREE – FV WILL TAKE ACCOUNT OF WHAT MIGHT HAPPEN TO THE SHARE PRICE IN THE FUTURE

    At the end of the exercise period, the intrinsic value of a SAR will equal its fair

    value.

    I THINK THEY ARE SAYING THAT THE NEW FV WILL BE THE SAME AS THE INTRINSIC VALUE- BECAUSE THERE IS NO FUTURE!

    The liability will be cleared and any remaining balance taken to profit or

    loss.”

    TRUE – THE NEW FV WILL BE DIFFERENT BECAUSE THE ORIGINAL FV WAS AN ESTIMATE

    September 22, 2021 at 9:51 pm #636338
    akka17bakka
    Participant
    • Topics: 105
    • Replies: 99
    • ☆☆☆

    I am sorry I am still unable to understand it.

    When SARs are exercised, they are accounted for at their intrinsic value at the
    exercise date.

    The intrinsic value of share/option is the difference between the FV and exercise date price, right?

    September 23, 2021 at 5:56 pm #636377
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3411
    • ☆☆☆☆☆

    Yes – that’s correct

    I’m confused that you are using jargon that the examiner doesn’t use. If you interested in ‘intrinsic value’ you could recap FM notes

    The question will tell you:

    – FV – used for year liability

    – Cash paid – intrinsic value if you want to call it that – used to calculate settlements in the year

    If you are happy with our Example 5 in our Course Notes, I would move on..

    If you need detailed guidance KPMG have a guide:

    https://home.kpmg/content/dam/kpmg/xx/pdf/2018/11/ifrs-2-handbook-2018.pdf

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