Scribd
Upload
5 views2 pages

Tutorial Set 4

Ecolids Ltd introduced a share-based payment scheme for its directors, granting options contingent on their employment for three years, but canceled it in June 2021, leading to a compensation payment. The total expense to be recognized for the canceled scheme is GHC26,667, which will be recorded in profit or loss. Additionally, a separate transaction involving share options for inventory purchase will increase equity and inventory by $6m, with the inventory expense recognized upon sale.

Uploaded by

Niaâma Laghzaoui
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
5 views2 pages

Tutorial Set 4

Ecolids Ltd introduced a share-based payment scheme for its directors, granting options contingent on their employment for three years, but canceled it in June 2021, leading to a compensation payment. The total expense to be recognized for the canceled scheme is GHC26,667, which will be recorded in profit or loss. Additionally, a separate transaction involving share options for inventory purchase will increase equity and inventory by $6m, with the inventory expense recognized upon sale.

Uploaded by

Niaâma Laghzaoui
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Department: Accounting and Finance

Module Title: Financial Accounting II


Module Mnemonic: GHAcF 311
Academic Year: 2025/ 26
Term: Lent

Tutorial Set 4

Ecolids Ltd introduced an equity-settled share-based payment scheme on January 2020 for its 5 directors.
Under the terms of the scheme, the entity will grant 1000 options to each director if they remain in
employment for the next three years. All five directors are expected to stay for the three years. The fair
value of each option at the grant date was GHC8.

On 30 June 2021, the entity decided to base its share-based payment schemes on profit targets instead. It
therefore cancelled the existing scheme. On 30 June 2021, it paid compensation of GHC10 per option to
each of the directors. The fair value of the options at 30 June 2021 was GHC9.

Required:
Explain, with calculations, how the cancellation and settlement of the share-based payment scheme
should be accounted for in the year ended 31 December 2021.

The share option scheme has been cancelled. This means that all the expense not yet charged
through profit or loss must now be recognised in the year ended 31 December 2021:
2marks

Total expense GHC


(5 directors *1000options *GHC8) 40,000
Less expense recognised in year ended 31 December 2020 (13,333)
(5directors*1000 options *GHC8 *1/3)
Expense to be recognised 26,667

To recognise the remaining expense, the journal entries are:

Dr Profit or loss GHC26,667


Cr Equity GHC26,667
Question 2

A company issued share options on 1 June 20X6 to pay for the purchase of inventory. The
inventory is eventually sold on 31 December 20X8. The value of the inventory on 1 June 20X6
was $6m and this value was unchanged up to the date of sale. The sale proceeds were $8m. The
shares issued have a market value of $6.3m.

How will this transaction be dealt with in the financial statements?

Answer
IFRS 2 states that the fair value of the goods and services received should be used to value the
share options unless the fair value of the goods cannot be measured reliably. Thus equity would
be increased by $6m and inventory increased by $6m. The inventory value will be expensed on
sale.

You might also like