Accounting Chapter 16 A reconciliation of the numerators and the denominators

CE16-3

According to FASB ASC 260-10–50-1 (Earnings Per Share—Disclosure):

For each period for which an income statement is presented, an entity shall disclose all of the following:

(a) A reconciliation of the numerators and the denominators of the basic and diluted per-share

computations for income from continuing operations. The reconciliation shall include the individual

income and share amount effects of all securities that affect earnings per share (EPS). Example 2

CE16-4

According to FASB ASC 260-10–55-12 (Earnings Per Share—Implementation—Restatement of EPS

Data):

If the number of common shares outstanding increases as a result of a stock dividend or stock split

CODIFICATION RESEARCH CASE

(a) The accounting for stock compensation is addressed in the FASB

(b) See FASB ASC 718-10-10 (Compensation—Stock Compensation,

Overall, Objectives).

10-1 The objective of accounting for transactions under share-based

payment arrangements with employees is to recognize in the

10–2 This Topic requires that the cost resulting from all share-based

payment transactions be recognized in the financial statements.

This Topic establishes fair value as the measurement objective in

(c) See FASB ASC 718-50–25.

25-1 An employee share-purchase plan that satisfies all of the

CODIFICATION RESEARCH CASE (Continued)

1. The plan satisfies either of the following conditions:

(a) The terms of the plan are no more favorable than those

available to all holders of the same class of shares. Note

that a transaction subject to an employee share-purchase

2. Substantially all employees that meet limited employment

qualifications may participate on an equitable basis.

3. The plan incorporates no option features, other than the

following:

(a) Employees are permitted a short period of time—not

exceeding 31 days—after the purchase price has been fixed

IFRS CONCEPTS AND APPLICATION

IFRS16.1

The primary IFRS reporting standards related to financial instruments,

including dilutive securities is IAS 39 “Financial Instruments: Recognition

IFRS16.2

IFRS and U.S. GAAP are substantially the same in the accounting for

dilutive securities, stock-based compensation, and earnings per share. For

example, both IFRS and U.S. GAAP follow the same model for recognizing

stock-based compensation. That is, the fair value of shares and options

IFRS16.3

(a) Norman makes the following entry to record the issuance under U.S.

GAAP.

IFRS16.3 (Continued)

(b) Under IFRS, Norman must “bifurcate” (split out) the equity component—

the value of the conversion option—of the bond issue. Under IFRS, the

convertible bond issue is recorded as follows.

IFRS16.4

The FASB has working on a standard that will likely converge to IFRS in the

accounting for convertible debt. Similar to the FASB, the IASB is examining

the classification of hybrid securities; the IASB is seeking comment on a

IFRS16.5

(a) From the point of view of the issuer, the conversion feature of

convertible debt results in a lower cash interest cost than in the case

of nonconvertible debt. In addition, the issuer in planning its long–

IFRS16.5 (Continued)

(b) The purchaser obtains an option to receive either the face amount of

the debt upon maturity or the specified number of shares upon

conversion. If the market value of the underlying shares increases above

IFRS16.6

The view that separate accounting recognition should be accorded the

conversion feature of convertible debt is based on the premise that there is

an economic value inherent in the conversion feature or call on the ordinary

shares and that the value of this feature should be recognized for

IFRS16.7

The book value method used by the company to record the exchange of

convertible debentures for ordinary shares can be supported on the

grounds that when the company issued the convertible debentures, the

proceeds could represent consideration received for the shares. Therefore,

IFRS16.8

Cordero would account for the discount as a reduction of the cash

IFRS16.9

Cash ($4,000,000 X .99) ……………………………………….. 3,960,000

IFRS16.10

Share Premium—Conversion Equity …………………… 20,000

IFRS16.11

(a) Present Value of Principal:

($2,000,000 X .79383) ……………………………….. $1,587,660

(b) Cash ………………………………………………………….. 2,000,000

Bonds Payable …………………………………….. 1,896,912

Share Premium—Conversion Equity ……… 103,088

IFRS16.12

(a) Carrying Value of Bonds, 1/1/19

(from Ex. 16–11(a)) …………………………………… $1,896,912

Discount Amortized in 2019

IFRS16.12 (Continued)

(c) Share Premium—Conversion Equity …………… 40,000*

Bonds Payable …………………………………………… 1,928,665

Cash ……………………………………………………. 1,940,000

IFRS16.13

January 1, 2020

(a) No entry

December 31, 2020

IFRS16.13 (Continued)

(c) No change for part (a), unless the fair value of the options change.

For part (b):

January 1, 2020

Unearned Compensation ($45 X 700)……….. 31,500

(d) Employee share-purchase plans generally permit all employees to pur–

chase shares at a discounted price. When employees purchase the

IFRS16.14

(a) IFRS 2 addresses the accounting for share-based payment

compensation plans.

(b) The objectives for accounting for stock compensation are (as stated

by IFRS 2, paragraph 1): The objective of this IFRS is to specify the

financial reporting by an entity when it undertakes a share-based

IFRS16.14 (Continued)

(c) When the goods or services received or acquired in a share-based

payment transaction do not qualify for recognition as assets, they

shall be recognized as expenses (par.8).

For equity-settled share-based payment transactions, the entity shall

To apply the requirements of paragraph 10 to transactions with

employees and others providing similar services,† the entity shall

measure the fair value of the services received by reference to the fair

Typically, shares, share options or other equity instruments are

granted to employees as part of their remuneration package, in

addition to a cash salary and other employment benefits. Usually, it is

not possible to measure directly the services received for particular

components of the employee’s remuneration package. It might also

not be possible to measure the fair value of the total remuneration

package independently, without measuring directly the fair value of the

IFRS16.15

(a) (1) Issues equity-settled share-based payments to certain employees.

A fair value for the equity-settled share awards is measured at the

(2) At 1, April 2017, 13,351,790 options were granted during 2018

(3) At 1, April 2017, 4,976,777 were exercisable

(4) In 2017, 29,500 were exercised at an average price of 261p