Page 363 - SBR Integrated Workbook STUDENT S18-J19

Analysis and interpretation

Example 2

Earnings per share

Chaffinch is a public limited company with a reporting date of 31 December
20X1. No entries have been posted in respect of the following transactions:

 Land (classified as property, plant and equipment (PPE)) is accounted
for using the revaluation model. It is currently held at its cost of $0.6
million but its fair value is $0.9 million.

 On 1 January 20X1, Chaffinch purchased a freehold building in
exchange for issuing 1 million of its own equity shares (with a nominal
value of $0.5 each). The fair value of the building was $2 million. The
share price of Chaffinch was $2.20 on 1 January 20X1. The building was
attributed a useful economic life of 20 years.

 On 1 January 20X1, Chaffinch granted 150,000 share options to each of
its 5 directors. The options will vest if the directors are still employed on
31 December 20X3. The fair value of the options at the grant date was
$1.50. It is expected that one director will resign prior to the vesting date.

Discuss how the above transactions should be accounted for and
explain their likely impact on basic and diluted earnings per share.

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