PROFESSIONAL SIMULATION (Continued)
Schedule A
*Computation of weighted-average number of shares adjusted for dilutive
securities
Average number of shares under options outstanding …………. 140,000
Option price per share ……………………………………………………….. X $10
Proceeds upon exercise of options …………………………………….. $1,400,000
IFRS CONCEPTS AND APPLICATION
IFRS16-1
The primary IFRS reporting standards related to financial instruments,
including dilutive securities is IAS 39 “Financial Instruments: Recognition
and Measurement”. The accounting for various forms of stock-based
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
awarded to employees is recognized over the period to which the
employees’ services relate.
The main differences concern (1) the accounting for convertible debt.
IFRS16-3
(a) Norman makes the following entry to record the issuance under U.S.
GAAP.
Cash …………………………………………………………
400,000
Bonds Payable ………………………………….
400,000
IFRS16-3 (Continued)
(b) Under IFRS, Norman must “bifurcate” (split out) the equity component—
(c) IFRS provides a more faithful representation of the impact of the bond
issue, by recording separately its debt and equity components.
IFRS16-4
The FASB has been 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 discussion document similar to the FASB Preliminary Views
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–
range financing may view the convertible debt as a means of raising
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
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
IFRS16-7 (Continued)
On the other hand, recording the issue of the ordinary shares at the book
value of the debentures is open to question. It may be argued that the
exchange of the shares for the debentures completes the transaction cycle
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
Present Value of Interest Payments:
($120,000 X 2.57710) ………………………………… 309,252
Present Value of the Liability Component ……. $1,896,912
IFRS16–12
(a) Carrying Value of Bonds, 1-1-13
(from Ex. 16–11(a)) …………………………………… $1,896,912
(b) Share Premium—Conversion Equity …………… 103,088
Bonds Payable …………………………………………… 1,928,665
IFRS16-12 (Continued)
(c) Share Premium—Conversion Equity ……………. 40,000*
Bonds Payable …………………………………………… 1,928,665
Cash ……………………………………………………. 1,940,000
Gain on Repurchase …………………………….. 28,665**
IFRS16–13
(a) 1/1/14 No entry
12/31/14 Compensation Expense ($6 X 5,000 ÷ 5) …… 6,000
Share Premium—Share Options ……….. 6,000
(c) No change for part (a), unless the fair value of the options change.
For part (b):
1/10/14 Unearned Compensation ($45 X 700)……….. 31,500
Share Capital—Ordinary ($1 X 700) …… 700
Share Premium—Ordinary ……………….. 30,800
IFRS16-13 (Continued)
(d) Employee share-purchase plans generally permit all employees to pur–
chase shares at a discounted price. When employees purchase the
IFRS16–14
(a) IFRS 2 addresses the accounting for share-based payment
compensation plans.
(b) The objectives for accounting for stock compensation are (as stated
by IFRS 2, paragraph 1): The objective of this IFRS is to specify the
financial reporting by an entity when it undertakes a share-based
payment transaction. In particular, it requires an entity to reflect in its
(c) When the goods or services received or acquired in a share-based
payment transaction do not qualify for recognition as assets, they
shall be recognised as expenses (par.8).
IFRS16-14 (Continued)
To apply the requirements of paragraph 10 to transactions with
employees and others providing similar services,† the entity shall
Typically, shares, share options or other equity instruments are
granted to employees as part of their remuneration package, in
addition to a cash salary and other employment benefits. Usually, it is
not possible to measure directly the services received for particular
components of the employee’s remuneration package. It might also
not be possible to measure the fair value of the total remuneration
received, the entity shall measure the fair value of the employee
services received by reference to the fair value of the equity
instruments granted (par. 12).
IFRS16–15
(a) (1) Under M&S’s share–based compensation plan 18,367 options were
granted during 2012. ($, 000)
(2) At 31 March 2012, 2,803 options were exercisable by eligible
managers.
IFRS16-15 (Continued)
(5) The accounts to which the proceeds from these option exercises
are credited are Share Capital and Share Premium.
(6) The number of outstanding options at 31 March 2012, is 47,245 at
an average exercise price of 259.3p.