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Practical caseIFRS 2L3 · Advanced

Beneficial and non-beneficial modification, cancellation with payment and change of an award from cash-settled to equity-settled

6 documents14 tasks≈ 90 min
0 / 16 items completed
Standards
IFRS 2 — Share-based Payment
Assistance levelNo help · reduced assistance
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Terravane SA (fictitious entity) closes its accounts on 31 December. It modified or cancelled four awards made on 1 January 20X6 with a four-year vesting period: an option plan whose exercise price is lowered (A), a plan whose exercise price is raised (B), a plan cancelled against a payment (C) and a plan of rights payable in cash turned into options (D). You prepare the treatment of each change and the entries.

Your assignment

For plans A and B, say whether the modification is beneficial, compute the incremental fair value and then the additional expense of 20X8 of plan A, and say what happens to the minimum expense of plan B; for plan C, compute the accelerated expense and the excess of the payment over the fair value of the instruments repurchased; for plan D, compute the difference recognised in profit or loss; record the four entries, present their cumulative effect and conclude. One document is not useful.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Advanced level: no help, the work is grouped by kind.

Documents

File documents

6 documents: open each one to read it.

Document 1Memo

Company profile and case conventions

Terravane SA (fictitious entity) closes its accounts on 31 December; its functional currency is the euro. Case conventions: amounts in EUR; the fair values at the modification or cancellation date are those of an expert, case data; case convention (pedagogical assumption, not attributed to IFRS 2): the original expense of each plan is recognised separately and is not taken up here; the incremental fair value is computed on the number of options expected to vest; the entries are illustrative.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Total fair value of plan A before the modification€27,000.00
Total fair value of plan A after the modification€45,000.00
Elapsed share of the remaining period of plan A at 31/12/20X850%
Total fair value of plan B before the modification€18,000.00
Total fair value of plan B after the modification€12,000.00
Total cost of plan C at the grant date€80,000.00
Cumulative expense of plan C at the cancellation date€40,000.00
Payment to the beneficiaries of plan C€55,000.00
Fair value of the instruments cancelled€50,000.00
Liability of plan D at the modification date€70,000.00
Fair value of the new award of plan D€90,000.00
Share of the services received at the modification date50%
Maintenance invoice€6,300.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort6

  • Company profile and case conventions

  • Decisions to modify plans A and B

  • Cancellation of plan C and payment agreement

  • Transformation of plan D

  • Valuation at the modification date

  • Maintenance invoice

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      14 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Analysis

        Plans A and B: is the modification beneficial? What happens to the minimum expense of plan B?

      2. Task 2Calculation

        Plans A and B: compute the incremental fair value.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Plans A and B: compute the incremental fair value.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Incremental fair value of plan B (12,000 − 18,000)

      3. Task 3Calculation

        Plan A: compute the additional expense of 20X8.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Plan A: compute the additional expense of 20X8.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Professional judgement

        Plan C: what is the treatment of the cancellation and of the payment?

      5. Task 5Calculation

        Plan C: compute the accelerated expense.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Plan C: compute the accelerated expense.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Calculation

        Plan C: compute the excess of the payment over the fair value of the instruments repurchased.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Plan C: compute the excess of the payment over the fair value of the instruments repurchased.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      7. Task 7Analysis

        Plan D: what is the treatment of the change to equity settlement?

      8. Task 8Calculation

        Plan D: compute the difference recognised in profit or loss.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Plan D: compute the difference recognised in profit or loss.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Amount recognised in equity

      9. Task 9Journal entries

        Record the additional expense of plan A.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      10. Task 10Journal entries

        Record the accelerated expense of plan C.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      11. Task 11Journal entries

        Record the payment to the beneficiaries of plan C.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        TotalsDebit0Credit0

      12. Task 12Journal entries

        Record the change of plan D to equity settlement.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        TotalsDebit0Credit0

      13. Task 13Effects on the financial statements

        What is the cumulative effect of the four entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      14. Task 14Conclusion

        Write the conclusion.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 16).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 2 §26
      • IFRS 2 §27
      • IFRS 2 §28