SRI LANKA ACCOUNTING STANDARDS

SLFRS 02
SHARE-BASED PAYMENT (Revision)

Question 01
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.

Question 02
A company grants 2,000 share options to each of its three directors on 1 January 20X6, subject to the
directors being employed on 31 December 20X8. The options vest on 31 December 20X8. The fair value
of each option on 1 January 20X6 is $10, and it is anticipated that on 1 January 20X6 all of the share
options will vest on 31 December 20X8. The options will only vest if the company’s share price reaches
$14 per share.

The share price at 31 December 20X6 is $8 and it is not anticipated that it will rise over the next two
years. It is anticipated that on 31 December 20X6 only two directors will be employed on 31 December
20X8.

How will the share options be treated in the financial statements for the year ended 31 December 20X6?

Question 03
Jay, a public limited company, has granted 300 share appreciation rights to each of its 500 employees on
1 August 20X5. The management feel that as at 31 July 20X6, the year end of Jay, 80% of the awards will
vest on 31 July 20X7. The fair value of each share appreciation right on 31 July 20X6 is $15.

What is the fair value of the liability to be recorded in the financial statements for the year ended 31 July
20X6?

Question 04
A company issues fully paid shares to all 500 existing employees on 31 July 20X8. Shares issued to
employees normally have vesting conditions attached to them and vest over a three-year period, at the
end of which the employees have to be in the company’s employment. However, these shares have
been given to the employees because of the performance of the company during the year. The shares
have a market value of $2m on 31 July 20X8 and an average fair value over the previous 12 months of
$3m. It is anticipated that in three-years’ time there will be 400 employees at the company.

What amount would be expensed to profit or loss for the year ended 31 July 20X8?

Question 05
A public limited company has granted 700 share appreciation rights (SARs) to each of its 400 employees
on 1 January 20X6. The rights are due to vest on 31 December 20X8 with payment being made on 1
January 20X9. During 20X6, 50 employees leave, and it is anticipated that a further 50 employees will
leave during the vesting period. Fair values of the SARs are as follows:

1 January 20X6 15

31 December 20X6 18

31 December 20X7 20

What will be recorded in the financial statements on 31 December 20X6 for the share appreciation
rights?

Question 06
The following share option schemes were in existence at 31 May 20X5

Director's Grant date Options At grant Exercise Performance Vesting Exercise

name granted date price conditions date date
J.Van Heflin 1 June 20,000 5 4.50 A 6/20X5 6/20X6
20X3
R. Ashworth 1 June 50,000 6 6 B 6/20X7 6/20X8
20X4

The price of the company's shares at 31 May 20X5 is $12 per share and at 31 May 20X4 was $12.50 per
share. The performance conditions which apply to the exercise of executive share options are as follows:

Performance Condition A

The share options do not vest if the growth in the company's earnings per share (EPS) for the year is less
than 4%. The rate of growth of EPS was 4.5% (20X3), 4.1% (20X4), 4.2% (20X5). The directors must still
work for the company on the vesting date.

Performance Condition B

The share options do not vest until the share price has increased from its value of $12.50 at the grant
date (1 June 20X4) to above $13.50. The director must still work for the company on the vesting date.
No directors have left the company since the issue of the share options and none are expected to leave
before June 20X7. The shares vest and can be exercised on the first day of the due month.
The directors are uncertain about the deferred tax implications of adopting IFRS 2. Vident operates in a
country where a tax allowance will not arise until the options are exercised and the tax allowance will be
based on the option's intrinsic value at the exercise date. Assume a tax rate of 30%.

Required:
Discussion (with suitable calculations) as to how the directors' share options would be accounted for in
the financial statements for the year ended 31 May 20X5, including the adjustment to opening balances:

Question 07
On 31 May 2007, Leigh purchased property, plant and equipment for $4 million. The supplier has agreed
to accept payment for the property, plant and equipment either in cash or in shares. The supplier can
either choose 1·5 million shares of the company to be issued in six months’ time or to receive a cash
payment in three months’ time equivalent to the market value of 1·3 million shares. It is estimated that
the share price will be $3·50 in three months’ time and $4 in six months’ time.