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

Parent P granted 10,000 of its own share options to employees of its wholly owned subsidiary S on 1 January 20X1, vesting after 2 years of service. Total grant-date fair value is $60,000. P has no obligation to be paid by S. In the year to 31 December 20X1 what is the correct treatment in the separate and consolidated financial statements?

The award is equity-settled in the group accounts, so $30,000 is expensed in year one with a credit to equity. S records the same expense with a capital contribution credit, and P debits its investment in S and credits equity for the same amount.

  1. AConsolidated: expense $30,000 with equity credit; P separate: investment in S increased by $30,000 with equity credit; S separate: expense $30,000 with equity credit (capital contribution)Correct
  2. BConsolidated: no entry as the award is intra-group; S: no entry; P: expense $30,000
  3. CConsolidated: expense $60,000 immediately; P and S: no entry
  4. DConsolidated: liability of $30,000; S: expense $30,000 with liability credit

Explanation

The group receives services from employees and settles in P's equity, so it is equity-settled in consolidation: $60,000 over 2 years = $30,000 expense. S receives services and records an expense with a credit to equity as a capital contribution. P, having granted its shares to S's employees without charging S, increases its investment in S with a credit to equity.

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