CR Flashcards
Equity settled scheme
Grant date - date SBP (usually option) comes into existence
Vesting date - date from which conditions associated with SBP are achieved by employee, allowing access to SBP
Vesting period - period from grant date to vesting date
Exercise date - date equity based SBP actually exercised by employee
ES scheme - recognition
No vesting conditions - expense or asset in FS immediately
Vesting conditions - expense spread over vesting period on a cumulative basis
DR Expense CR Equity
Impact of vesting conditions - non market-based
Conditions unrelated to MV of the share eg completing minimum service period, achieving sales/profit target
FV calculated at grant date
FV spread over vesting period BUT value revised each year to account for expected shares to be vested
Vesting conditions subsequently not met - any prior expense recognised is reversed
Impact of vesting conditions - market-based
Conditions linked to price of share in some way
Eg minimum increase in share price/SH return
Already accounted for at grant date so ignore when calculating expense
Conditions not expected to be met - still recognise expense
Transactions with third party eg supplier
Eg supplier
Direct method used
Dr Purchases
Cr SC/SP
FV of transaction
Transactions with employees
Difficult to measure directly so indirect method used = FV of equity instrument at date option granted using ‘option pricing model’ (takes into account any expected market conditions)
Equity required =
FV at grant (doesn’t change) x No. options (Contractual per employee) x Expected no. vestors (Estimation that can change) x Vesting period lapsed/Total vesting period (Months if begun in middle of period)
P/L charge = CY equity required - PY equity required
Exercising options
Exercised: Dr Cash (Proceeds) Dr Equity (Remove balance created over vesting period) Cr Share Capital (Nominal value) Cr Share Premium (Balance)
Lapsed:
Dr Equity (Remove balance created)
Cr Retained earnings
Modification of equity
Due to change in exercise price as a result of share price being less than expected or general fall in stock market
- Continue original transaction over full vesting period
X = FV at grant x No. of options x Expected no. of vestors
Allocated to reporting period by splitting into years/months eg 4 year vesting period, which started before the current year, x 1/4
- Account for change in FV over time remaining (prospectively)
Y = (FV now – FV before modification) x No. of options x Expected no. of vestors
Allocated to reporting period by splitting into years/months, eg 30 months remaining, happened 6 months into reporting period, x 6/30
Dr Expense x+y
Cr Equity x+y
Cancellation and settlement
FV of accelerated vesting based on actual employees at the time - Dr Expense Cr Equity
Any payment to employee treated as share buyback
Dr Equity (Vested to date)
Dr Retained earnings (FV of option at cancel x options x vestors to date)
Dr P/L (Balance)
Cr Cash (Amount paid)
Cash settled transactions
Bonus based on entity’s share price aka ‘share appreciation rights’
Same DE as equity, but liability, re-estimate FV each YE
Dr Expense
Cr Liability
Full liability from vesting to exercise
Choice of settlement
Entity choice:
- Obligation to deliver cah eg past options have been settled with cash - cash settled
- No obligation - equity settled
3rd party choice:
- Transaction is a compound instrument equity/liability
Equity element = FV per equity settled method - FV per cash settled method at grant date
Distributable profits
Companies prohibited from paying dividends except out of available profits
Dividends available = acc realised profits - acc realised losses (usually retained earnings)
DPs - Rules for all companies CA06
Provision - realised loss
Revaluation surplus - unrealised gain
Additional depn on revaluation may be treated as part of realised profit
Disposal of revalued asset = unrealised surplus/loss = realised
Financial instruments at FV gains/losses = realised if FV from active market
DPs - NCA revaluations
Gains = unrealised unless reverse prior loss
Losses = realised except where loss
- Offsets surplus on asset
- Arises from reassessment of value of all NCAs
- Arises from reassessment of some NCAs where assets not revalued worth at least their book value
DPs - Additional rules for public companies
PLC may not reduce net assets below aggregate amount of called up share cap and undistributable reserves
NA less SC, UR = DPs
URs = Share prem + excess unrealised profit over unrealised losses + any other reserve the company is prohibited from distributing by memorandum, articles, statute
Employee benefits
Post employment eg pensions
Other long term eg sabbatical, long service leave - same as DB scheme, remeasurement to P/K
Short term eg bonus, holiday pay - accruals concept, expense in period, o/s liability in SFP
Termination payments eg redundancy, severance - IAS37: provision if entity demonstrably committed
Defined contribution scheme
Contribution made is % of salary, future pension depends on how fund performs
No legal/constructive obligation to make further contributions if fund does not hold sufficient assets
Expense = % contribution x total pay (inc bonus relating to the year)
Asset/liability = expenses - amount paid
Disclosure - size of expense and description of scheme
Defined benefit scheme
Outcome is guaranteed and typically depends on eg final salary and years worked.
Contributions vary in order to achieve this outcome.
Obligation to pay funds into pension plan
Disclose difference between plan obligation and plan assets in SFP as deficit/surplus
Table
DB scheme - settlement
When entity eliminates obligations for part/ all of benefits under a plan
Dr Plan liabilities (reduction in PV)
Cr Plan assets (amount paid)
Dr/Cr P/L Balance
Net asset ceiling
Threshold to ensure DB scheme surplus is carried at no more than recoverable amount
Net surplus restricted to amount of cash savings available to entity in future
