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 […]

Award with non-market vesting condition and variable exercise price An entity grants to a senior executive 10,000 share options, conditional upon the executive’s remaining in the entity’s employment for three years. The exercise price is CHF40. However, the exercise price drops to CHF30 if the entity’s earnings increase by at least an average of 10% per year over the three year period. On grant date, […]

Uncertain tax positions – unit of account An entity has submitted a tax return indicating a current tax liability of £2.5 million. This £2.5 million includes the tax effect of a deduction disputed by the tax authority, the tax effect of which is £500,000. In other words, if the tax authority”s challenge is sustained the entity”s tax liability will in fact be £3 million. The […]