Cumulative expense and period expense over several years

Learning objectives

• Calculate the cumulative expense and the expense of the period for a plan spanning several reporting periods.L2, L3
• Account for the expense of each reporting period and the balance of the reserve.L2, L3

Normative references

• IFRS 2 §15If the equity instruments do not vest until the counterparty completes a specified period of service, the entity presumes that the services will be received during the vesting period and accounts for them as they are rendered, with an increase in equity; if the length of the period depends on a performance condition, it estimates the expected length at the grant date (not subsequently revised for a market condition, revised otherwise).
• IFRS 2 §19Vesting conditions other than market conditions are not taken into account when estimating the fair value of the instruments at the measurement date; instead, they are taken into account by adjusting the number of instruments included in the measurement, so that the amount recognised is ultimately based on the number of instruments that eventually vest: on a cumulative basis, no amount is recognised if such a condition is not satisfied (subject to para. 21).
• IFRS 2 §20To apply para. 19, the entity recognises during the vesting period an amount based on the best available estimate of the number of instruments expected to vest, revises that estimate if subsequent information so indicates, and on the vesting date aligns it with the number of instruments that ultimately vested (subject to para. 21).

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

5 questions

• Alba SA granted 100 employees 500 options each, with a four-year service condition; the fair value of one option at the grant date is EUR 8, i.e. {grant_cost_all_options} for all the options granted. At the end of year two, the entity expects {expected_vest_percent} of the options to vest. Case convention: the elapsed share of the vesting period is {elapsed_share}. Compute the expected total cost, then the cumulative expense at the closing date.L2
• An analyst computes the cumulative expense at the end of year three of a four-year plan using the fair value of all the options granted: 600,000 × 75% = 450,000. The entity nevertheless expects only 80% of the options to vest. What is the error?L3
• For an equity-settled option plan, the cumulative expense recognised at the previous closing is {cumulative_expense_previous}. At the year-end, the entity revises downwards the number of options expected because of more leavers, and the recomputed cumulative expense is {cumulative_expense_revised}. Record the entry for the year.L3
• Nordis SA has granted employee options whose exercise will give rise to a future tax deduction. At the closing date, the intrinsic value of all the options is {intrinsic_value_total} and the vested share is {vested_share}; the expected tax deduction is computed on the intrinsic value multiplied by the vested share (case convention). The cumulative expense recognised is {cumulative_expense} and the tax rate is {tax_rate} (case data). Compute the deferred tax asset and the part of the tax effect taken directly to equity.L4
• At the closing date, the expected future tax deduction on an option plan is 450,000, while the cumulative expense recognised is 360,000. A colleague takes the tax effect of the whole expected deduction to profit or loss. What is the error?L3