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

Parent P grants share options over its own shares to employees of its wholly owned subsidiary S. P has no obligation to pay cash, and S has no obligation to settle. How should this be reflected in the financial statements?

The subsidiary recognises an expense for employee services with a credit to equity as a capital contribution from the parent, and the group treats the plan as equity-settled. The parent's separate statements increase its investment in the subsidiary rather than expensing the cost.

  1. AS recognises no expense in its own financial statements; P expenses the amount in its own profit or loss
  2. BS recognises an expense and a capital contribution in equity in its separate financial statements; the consolidated statements treat it as equity-settledCorrect
  3. CS recognises a liability to P in its separate financial statements; consolidated statements show a cash-settled plan
  4. DOnly the consolidated financial statements recognise the expense, using the fair value at vesting date

Explanation

IFRS 2 requires the receiving subsidiary to account for services received as equity-settled where the parent settles with its own equity instruments, so S recognises an expense with a credit to equity as a capital contribution. In P's separate statements an investment in S is increased. At group level it is an equity-settled employee expense at grant-date fair value.

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