Awards with multiple service periods Scenario 1 On 1 January 2013, the entity enters into a share-based payment arrangement with an employee. The employee is informed that the maximum potential award is 40,000 shares, 10,000 of which will vest on 31 December 2013, and 10,000 more on each of 31 December 2014, 31 December 2015 and 31 December 2016. Vesting of each tranche of 10,000 […]

Award with non-vesting condition only An entity grants a director share options on condition that the director does not compete with the reporting entity for a period of at least three years. The ‘non-compete’ clause is considered to be a non-vesting condition (see above and below). As this is the only condition to which the award is subject, the award has no vesting conditions and […]

ward with no re-estimation of number of awards vesting An entity grants 100 share options to each of its 500 employees. Vesting is conditional upon the employees working for the entity over the next three years. The entity estimates that the fair value of each share option is €15. The entity estimates that 20% of the original 500 employees will leave during the three year […]

Different tax rates applicable to retained and distributed profits An entity operates in a jurisdiction where income taxes are payable at a higher rate on undistributed profits (50%) with an amount being refundable when profits are distributed. The tax rate on distributed profits is 35%. At the balance sheet date, 31 December 2013, the entity does not recognise a liability for dividends proposed or declared […]

Award vesting in instalments (‘graded’ vesting) An entity is considering the implementation of a scheme that awards 600 free shares to each of its employees, with no conditions other than continuous service. Two alternatives are being considered: All 600 shares vest in full only at the end of three years. 100 shares vest after one year, 200 shares after two years and 300 shares after […]

Elimination of intragroup profit (1) H, an entity taxed at 30%, has a subsidiary S, which is taxed at 34%. On 15 December 2013 S sells inventory with a cost of €100,000 to H for €120,000, giving rise to a taxable profit of €20,000 and tax at 34% of €6,800. If H were preparing consolidated financial statements for the year ended 31 December 2013, the […]

Award with non-market vesting condition and variable vesting period At the beginning of year 1, the entity grants 100 shares each to 500 employees, conditional upon the employees remaining in the entity’s employment during the vesting period. The shares will vest: at the end of year 1 if the entity’s earnings increase by more than 18%; at the end of year 2 if the entity’s […]

Elimination of intragroup profit (2) H, an entity taxed at 34%, has a subsidiary S, which is taxed at 30%. On 15 December 2013 S sells inventory with a cost of €100,000 to H for €120,000, giving rise to a taxable profit of €20,000 and tax at 30% of €6,000. If H were preparing consolidated financial statements for the year ended 31 December 2013, the […]

Award with non-market vesting condition and variable number of equity instruments At the beginning of year 1, an entity grants an option over a variable number of shares (see below), estimated to have a fair value at grant date of £20 per share under option, to each of its 100 employees working in the sales department on the following terms. The share options will vest […]

Intragroup transfer of goodwill A parent company P has two subsidiaries – A, which was acquired some years ago and B, which was acquired during the period ended 31 December 2010 at a cost of €10 million. For the purposes of this discussion, it is assumed that B had negligible identifiable assets and liabilities. Accordingly, P recorded goodwill of €10 million in its consolidated financial […]