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Subsidiary Employees Granted Rights...

The document discusses accounting for share-based compensation when employees of a subsidiary are granted rights to the parent company's equity instruments. It should be accounted for as equity-settled. The subsidiary measures services received based on the fair value of options at grant date, recognizing an increase in equity as a contribution from the parent. An example transaction is provided along with the corresponding journal entries on the subsidiary's books.

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Angela Macailao
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66 views2 pages

Subsidiary Employees Granted Rights...

The document discusses accounting for share-based compensation when employees of a subsidiary are granted rights to the parent company's equity instruments. It should be accounted for as equity-settled. The subsidiary measures services received based on the fair value of options at grant date, recognizing an increase in equity as a contribution from the parent. An example transaction is provided along with the corresponding journal entries on the subsidiary's books.

Uploaded by

Angela Macailao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 24

SHARE-BASED COMPENSATION
(Subsidiary employees granted rights to the equity instrument of parent)

IFRIC 11 - Share-based payment transactions in which the employees of a subsidiary are


granted rights to the equity instrument of the parent shall also be accounted for as equity-
settled.
The subsidiary shall measure the services received from its employees on the basis of
the fair value of the share options at grant date.
An increase in equity is recognized as a contribution from the parent in the financial
statements of the subsidiary.

Illustration
On January 1, 2020, a parent entity granted 500 share options to each of 100 employees
of a subsidiary, conditional upon the completion of two years of service with the subsidiary.
The FV of the share option is P50 on January 1, 2020.
At grant date, the subsidiary estimated that 80% of the employees will complete the
two-year service period.
At the end of the vesting period. 90% of the employees completed the required two
years of service.
The entity did not require the subsidiary to pay for the shares needed to settle the grant
of share options.
The share options were exercised in January 2022.
The exercise price is P120 and the par value is P100 per share.

Journal entries on the books of the subsidiary


2020

Salaries 1,000,000
Equity contribution from parent 1,000,000

Number of employees (80% x 100) 80


Multiply by number of share options per employee 500
Total Share Options 40,000
Multiply by FV 50
Total Compensation 2,000,000
Compensation for 2020 (2,000,000/2 years) 1,000,000
2021
Salaries 1,250,000
Equity contribution from parent 1,250,000

Number of employees (90% x 100) 90


Multiply by number of share options per employee 500
Total Share Options 45,000
Multiply by FV 50
Cumulative compensation - 12/31/21 2,250,000
Compensation recognized in 2020 (1,000,000)
Compensatio in 2021 1,250,000

2022
The exercise of the share options is recognized by the parent.
Cash 5,400,000
Share capital 4,500,000
Share premium 900,000

Exercise price (45,000 x 120) 5,400,000


Par value per shares (45,000 x 100) 4,500,000
Share premium 900,000

Modification of Condition
If an entity modified the vesting condition on which equity instruments were granted, the
following procedures shall be followed:

1. PFRS 2 Application Guidance, PAr B43 - entity shall continue to account for the equity
instruments granted based on the original condition and vesting period of the date of
grant.
- If modification is beneficial to the employees - entity shall include the increase in
FV as additional compensation
2. Par B44- entity shall continue to recognize compensation based on the original condition
as if the modification had never occurred under the following circumstances:
- The modification reduces the FV of the equity instruments
- The modification is apparently not beneficial to the employees

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