Page 449 - SBR Integrated Workbook STUDENT S18-J19

Answers

Example 4

Share-based payments and deferred tax

Share-based payment

IFRS 2 Share-based Payment says that the expense of an equity-settled
scheme is spread over the vesting period based on the number of shares or
share options that are expected to vest. The expense is measured as the fair
value of the equity instrument at the grant date.

The expense should be calculated as follows:

(1,000 – 50 – 100) × 2,000 × $6 × 1/3 = $3.4m

There should be a corresponding credit to equity in the statement of financial
position.

Deferred tax

There is a deductible temporary difference between the accounting treatment
of the share-based payment and the tax treatment. IAS 12 Income Taxes says
that the tax base of the share based payment is the estimated future tax
deduction that has accrued to date. This is based on the intrinsic value of the
options at the reporting date. The intrinsic value is the difference between the
fair value of the shares and the exercise price of the share options.

If the estimated future tax deduction accrued to date exceeds the share-based
payment expense recognised in the financial statements, the excess is
deemed to relate to an equity item. This means that the deferred tax relating
to this excess must also be recognised in equity.

The tax base is calculated as follows:

(1,000 – 50 – 100) × 2,000 × ($11 – $2) × 1/3 = $5.1m

The deferred tax asset arising is $1.53 million ($5.1m × 30%).

Of this, $1.02 million ($3.4m share-based payment expense × 30%) will be
credited to profit or loss and the balance of $0.51 million ($1.53m – $1.02m)
will be credited to equity.

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