Page 501 - SBR Integrated Workbook STUDENT S18-J19
P. 501
Answers
Example 2 – continued
Share options
This is an equity-settled share-based payment with employees. An expense is
recognised over the three year vesting period based on the number of options
expected to vest and the $1.50 fair value at the grant date:
(5 – 1) × 150,000 × $1.50 × 1/3 = $0.3m
Dr Profit or loss $0.3m
Cr Other components of equity $0.3m
The expense reduces profits, which reduces basic earnings per share.
Moreover, share options are a dilutive instrument because Chaffinch now has
a commitment to issue its own ordinary shares for below market price.
Chaffinch must calculate the number of ‘free shares’ that it is committed to
issue and include this in the diluted EPS calculation. As a result, diluted EPS
will reduce.
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