Chapter 10

Question 1

Share based payment

Answer 1

• Cash settled share based payment
• Equity settled share based payment

Question 2

Equity settled share based payment

Answer 2

Issue shares:
* use fv of goods / services OR use fv of grant date
* market conditions: if didn’t meet, need to disclose also, cannot reverse expense and cannot extend the year, but can shorterned
* non-market conditions: if didn’t meet, no need disclose & reverse expense (reverse figure at the last vesting period) if disclose and show the net effect –> last second year of vesting period, can extend and shorterned the year

recognise in SOPL and equity during that year should use C/F - B/F

Dr SOPL/asset Cr equity
FV (unexercised) & intrinsic value (exercised)

Question 3

Cash settled share base payment

Answer 3

• Shares aprreciation right SAR (market share起就pay员工), they pay cash if the share price increase
• use the FV of liability as at year end, any changes in FV recognise in SOPL
• SAR recognised as expense and liability over the vesting period

Cash-settled SBP will increase the liability, and increase the gearing, thereby increase the financial risk

recognise in SOPL and liability during that year should use C/F - B/F

Dr SOPL/asset Cr liability

Question 4

Basic Earning per share (EPS)

Answer 4

Profit after tax attributable to ordinary shareholder / weighted average no. of shares

Question 5

Diluted Earning per share

Answer 5

• Profit after tax attributable to ordinary shareholder / weighted average no. of shares
• If a company has convertible loan note, the company has more share options in the future, and thus, future EPS may reduce (会造成dilution EPS是因为 more share options 使到basic EPS drop）diluted EPS要考虑convertible loan note and share option会导致profit 和 no. of shares怎样变

Need to recalculate EPS by assuming all converted to shares –> is a warning to shareholder that EPS may drop in the future

Question 6

How equity-settled SBP affect EPS?

Answer 6

Equity-settled SBP:
* Expenses increase
* Equity increase
* Profit after tax decrease
* Basic EPS drop
* Diluted EPS also drop coz of share option

Question 7

How cash-settle SBP affect EPS?

Answer 7

Cash settled share based payment will reduce profit due to the expenses recognised.

This will reduce basic and diluted EPS. However, if the employees are motivated due to this share based payment, they may help the company to earn more profit. If this is the case, EPS may increase.

As cash settled share based payment does not involve issue of shares, it will not result in further dilution in EPS.