Share-based payment

Learning objectives

• Calculate the deferred tax asset on a share option plan from the future tax deduction estimated at the end of the reporting period.L3
• Allocate and recognise the tax benefit between profit or loss (up to the cumulative remuneration expense) and equity (the excess).L3, L4

Normative references

• IAS 12 §68AIn some jurisdictions, an entity receives a tax deduction relating to remuneration paid in shares, share options or other equity instruments; the amount of that deduction may differ from the related cumulative remuneration expense and may arise in a later accounting period.
• IAS 12 §68BWhen the future tax deduction for the services received is not known at the end of the period, it is estimated on the basis of information available at that date.
• IAS 12 §68CIf the tax deduction (or estimated future tax deduction) exceeds the cumulative remuneration expense, the deduction relates also to an equity item: the tax relating to the excess is recognised directly in equity, and the remainder in profit or loss.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

16 questions

• When the amount of the future tax deduction for services remunerated in share options is not known at the reporting date, the entity estimates it on the basis of information available at that date.L3
• When the estimated future tax deduction of a share option plan exceeds the cumulative remuneration expense recognised, the whole of the related tax benefit is recognised in profit or loss.L3
• In Wenlandor's country, the tax deduction for a share option plan equals the intrinsic value of the options at the exercise date (case data). On what basis does Wenlandor estimate the future deduction at the reporting date?L3
• Yspala granted {options} options to its managers, subject to {service_period} years of service. The tax law in the case grants, on exercise, a deduction equal to the intrinsic value of the options, spread over the service period for the services received. At the reporting date, {years_elapsed} years of service have been rendered and the intrinsic value is {intrinsic_value} per option; all beneficiaries are expected to stay. Tax rate: {tax_rate}%. Future taxable profit is probable. Compute the deferred tax asset at the reporting date.L3
• One year after granting {options} options exercisable after {service_period} years of service, Zarnovel prepares its year-end: {years_elapsed} year of service has been rendered, the share price shows an intrinsic value of {intrinsic_value} per option, and the tax law in the case will deduct the intrinsic value on exercise, allocated to services in proportion to the period elapsed. Tax rate: {tax_rate}%; sufficient future profits. What deferred tax asset does Zarnovel recognise?L3
• At the reporting date, the estimated future tax deduction of Arquevin's share option plan is {estimated_deduction}, against a cumulative remuneration expense recognised of {cumulative_expense}. Tax rate: {tax_rate}%; the deferred tax asset is recoverable. Split the tax effect between profit or loss and equity.L3
• After a fall in the share price, the estimated future deduction of Belcastor's free share plan is now only {estimated_deduction}, whereas the cumulative remuneration expense reaches {cumulative_expense}. Tax rate: {tax_rate}%; the asset is recoverable. What part of the tax effect goes to profit or loss, and what part to equity?L4
• Calvidra recognises the deferred tax on its share option plan for the first time: estimated future deduction {estimated_deduction}, cumulative remuneration expense {cumulative_expense}, rate {tax_rate}%, recoverable asset. Record the entry at the reporting date.L3
• At 31 December 20X5, the deferred tax asset of Dorvenne's share option plan was {opening_dta}, recognised entirely in profit or loss (no excess at that date). At 31 December 20X6, the rise in the share price brings the estimated future deduction to {estimated_deduction}, against a cumulative remuneration expense of {cumulative_expense}. Rate: {tax_rate}%; recoverable asset. Teaching assumption: the split is determined on cumulative amounts at the reporting date. Record the 20X6 entry.L4
• For its share option plan, Estriva recorded at the reporting date: debit deferred tax asset 96,000, credit deferred tax income 96,000. Data: estimated future deduction 480,000, cumulative remuneration expense 400,000, rate 20%, recoverable asset. Where is the error?L3
• Falquenne estimates the future tax deduction of its share option plan from the grant-date fair value of the options (6 per option), whereas the tax law in the case will deduct intrinsic value on exercise and the intrinsic value at the reporting date is 15 per option. Where is the error?L4
• At the end of 20X5, Gernasse carried a deferred tax asset of 50,000 on its share option plan (deduction equal to intrinsic value on exercise, under the tax law in the case). At 31 December 20X6, the share price has fallen below the exercise price: the intrinsic value is nil and no recovery can be anticipated from the information available. Which treatment applies at the 20X6 reporting date?L4
• In Hollivane's country, the tax law (case data) caps the tax deduction for a share plan at the remuneration expense recognised. At the reporting date, the estimated future deduction is therefore equal to the cumulative expense of 300,000; rate 25%, recoverable asset. Where does Hollivane recognise the tax effect of 75,000?L3
• In some jurisdictions, the tax deduction for remuneration paid in share options may differ in amount from the cumulative remuneration expense and arise in a later accounting period.L3
• Kervadin recognises an expense each year for its share option plan; the tax law in the case grants the deduction only when the options are exercised, for their intrinsic value at that date. Why does deferred tax arise at the reporting date?L3
• The Lumbrac group has two subsidiaries, each with an identical share option plan. Country A (case data): the expense recognised is deductible in the same period in which it is recognised, for the same amount. Country B: the deduction arises only when the options are exercised, for their intrinsic value. Which subsidiary recognises a deferred tax asset for the plan (future profits probable)?L4