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ACCA Strategic Professional · Strategic Business Reporting (International) · Share-based payment

Foxtrot Co granted share options to employees vesting after three years of service. In year 2 the board repriced the options downward after a fall in the share price, increasing the fair value of each option by $1 at the repricing date. How should Foxtrot account for the repricing?

Foxtrot should continue to recognise the original grant-date cost and also recognise the incremental fair value, measured at the repricing date, over the remaining vesting period. The original measurement is not replaced, and the increment is not expensed immediately unless vesting has occurred.

  1. AIgnore it, since equity-settled awards are never remeasured
  2. BRecognise the incremental fair value over the remaining vesting period, in addition to the original grant-date chargeCorrect
  3. CRecognise the incremental fair value immediately in profit or loss in full
  4. DReplace the original grant-date fair value with the new fair value for the whole vesting period

Explanation

Modifications that increase fair value are beneficial to employees. The incremental fair value at the modification date is recognised over the period from modification to vesting, in addition to the original cost, which continues to be recognised. Replacing the original value or immediate recognition is wrong unless the modified award has already vested.

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