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IFRS 2Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIFRS 2L3 · Advanced

Cash-settled share appreciation rights: remeasured liability, effect of the conditions (2016 amendment), external supplier and disclosures

6 documents14 tasks≈ 90 min
0 / 19 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  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn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

Maridan SA (fictitious entity) closes its accounts on 31 December. On 1 January 20X6, it granted to 50 executives share appreciation rights payable in cash; it also remunerated a consulting firm in shares. You prepare the schedule of the liability from 20X6 to 20X8, the entries and the information to disclose.

Your assignment

Classify the rights and say how the service and market conditions are taken into account; compute the liability at the closing dates of 20X6 and 20X7 and at the settlement date of 20X8; compute the expense of each year and the decrease in fair value of 20X8; reconcile the opening and closing liability; measure the remuneration of the consulting firm and say why the fair value of the shares is not used; record the four entries and present the cumulative effect; list the information to disclose 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

Maridan SA (fictitious entity) closes its accounts on 31 December; its functional currency is the euro. Case conventions: amounts in EUR; the fair values per right are those of the valuation at each closing date, case data; case convention (pedagogical assumption, not attributed to IFRS 2): the total expected fair value is the product of the fair value of the right and the number of rights expected, the elapsed share is given as a percentage, and the amendment of June 2016 applies over the whole period; the entries are illustrative.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Executives entitled50 units
Rights per executive100 units
Rights expected at 31/12/20X64,500 units
Fair value of the right at 31/12/20X6€9.00
Elapsed share of the vesting period at 31/12/20X650%
Rights vested at 31/12/20X74,600 units
Fair value of the right at 31/12/20X7€12.00
Elapsed share of the vesting period at 31/12/20X7100%
Fair value of the right at the settlement date€10.00
Opening liability of 20X6 and liability after settlement: nil€0.00
Shares delivered to the firm1,200 units
Share price at the receipt of the services€14.00
Usual price of the services€18,000.00
Insurance premium€9,800.00

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

  • Rules of the share appreciation rights

  • Valuations and estimates at each date

  • Agreement with the consulting firm

  • Valuation report of the rights

  • Insurance premium

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 1Professional judgement

        Classify the rights and say how the service and market conditions are taken into account.

      2. Task 2Calculation

        Compute the liability at 31 December 20X6.

        Calculator

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

        Part 1 · Calculation

        Compute the liability at 31 December 20X6.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Total expected fair value at 31/12/20X6 (4,500 × 9)

      3. Task 3Calculation

        Compute the liability at 31 December 20X7.

        Calculator

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

        Part 1 · Calculation

        Compute the liability at 31 December 20X7.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Total fair value at 31/12/20X7 (4,600 × 12)

      4. Task 4Calculation

        Compute the liability at the settlement date of 20X8.

        Calculator

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

        Part 1 · Calculation

        Compute the liability at the settlement date of 20X8.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Total fair value at the settlement date (4,600 × 10)

      5. Task 5Analysis

        Compute the expense of 20X6 and 20X7 and the decrease in fair value of 20X8.

        Calculator

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

        Part 1 · Calculation

        Compute the expense of 20X6 and 20X7 and the decrease in fair value of 20X8.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: 20X8 decrease in fair value (55,200 − 46,000)

      6. Task 6Calculation

        Reconcile the closing liability of 20X7 and 20X8 with the opening liability.

        Calculator

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

        Part 1 · Calculation

        Reconcile the closing liability of 20X7 and 20X8 with the opening liability.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Liability after settlement 20X8 (55,200 − 9,200 − 46,000)

      7. Task 7Analysis

        Measure the remuneration of the consulting firm and compare it with the fair value of the shares delivered.

        Calculator

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

        Part 1 · Calculation

        Measure the remuneration of the consulting firm and compare it with the fair value of the shares delivered.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      8. Task 8Journal entries

        Record the expense of 20X6.

        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

      9. Task 9Journal entries

        Record the expense of 20X7.

        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 decrease in fair value of 20X8.

        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 cash settlement of 20X8.

        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

      12. Task 12Effects 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

      13. Task 13Analysis

        Which information is to be prepared for the notes, and which cumulative amount is found again in the cash paid?

        Calculator

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

        Part 1 · Calculation

        Which information is to be prepared for the notes, and which cumulative amount is found again in the cash paid?

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      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 / 19).

      Document this file

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

      Normative references

      • IFRS 2 §30
      • IFRS 2 §13
      • IFRS 2 §44
      • IFRS 2 §47
      • IFRS 2 §50
      • IFRS 2 §51