Question

The question is based on Australian Accounting Standards. Please commit if you sure about the concept. I request you to be ethical and don't just answer anything irrelevant for the sake of money. Thanks

Alpha Ltd operates a share option plan for its officers, employees, and consultants for up to 10% of

its outstanding shares. Under this plan, the exercise price of each option equals the closing market

price of the shares on the day before the grant. Each option has a term of 5 years and vests one-

third on each of the 3 years following grant date. Before this financial period, Alpha Ltd has

accounted for its share option plan on settlement date and no expense has been recognised.

REQUIRED:

Prepare an appropriate memorandom outlining the disclosures that will need to be made in Alpha Limited Financial Statement following the adoption of AASB 2 Share Based Payment.

Words required 700

Answer 1

AASB 2 Share Based Payment:

Para A:

In line with AASB 2 Alpha Limited is required to disclose information that enables investors / users of the financial statements of Alpha Ltd to understand how the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was determined along-with the valuation methods adopted, assumptions or estimates considered in this exercise, expenses recognised etc in the books.

Para B:

Alpha Ltd is operates (Effective date of Scheme was FY -----say three year back) a share option plan, salient feature of the plan are as follows:

1. Share option plan for its officers, employees, and consultants is limited up to 10% of its outstanding shares.
2. The exercise price of each option equals the closing market price of the shares on the day before the grant.
3. Each option has a term of 5 years and vests one- third on each of the 3 years following grant date.

Para C:

Details of share option scheme during the reporting period:

SL	Particulars	FY-CY	FY-PY
1.	Description of each type of share-based payment arrangement that existed at any time during the period including (a) the general terms and conditions of each arrangement, such as vesting requirements (b) the maximum term of options granted (c)the method of settlement (e.g. whether in cash or equity)
	a) Scheme for Employee Category
	b) Scheme for Consultants Category
2	Number and weighted average exercise prices of share options for each of the groups of options
	a) outstanding at the beginning of the period
	b) granted during the period
	c) forfeited during the period
	d) exercised during the period
	e) expired during the period
	f) outstanding at the end of the period
	g) exercisable at the end of the period
3	Expenses / Value recognised in the books of accounts for eligibility of option vesting for the period arising from share-based payment transactions in which the goods or services received did not qualify for recognition as assets and hence were recognised immediately as an expense, including separate disclosure of that portion of the total expense that arises from transactions accounted for as equity-settled share-based payment transactions.
4	Value recognised in the books of accounts for liabilities arising from share-based payment transactions: • The total carrying amount at the end of the period
	The total intrinsic value at the end of the period of liabilities for which the counterparty’s right to cash or other assets had vested by the end of the period

Para C:

Valuation of Services for grant of Share Options: Alpha Ltd has to disclose how it measured the fair value of services (or goods) of Employees and Consultants, received as consideration for equity instruments of the entity and the fair value of the equity instruments (options) granted. Alpha Ltd has to disclose information on following a. for share options granted during the period, the weighted average fair value of those options at the measurement date and information on how that fair value was measured, including: • The option pricing model used and the inputs to that model, including the weighted average share price, exercise price and any other inputs to the model, including the method used and the assumptions made to incorporate the effects of expected early exercise.

Method of Accounting of Services against Share Options and Value of Share Options: Company is required to disclose how it has accounted for the services rendered towards acquiring share options with values for each category.

Para D:

Disclosure of Previous Financial Years: Company has not accounted for any expenses under this head before this financial year. During the financial years in which share options were exercised details are as under:

(Details for prior to Current FY are to be provided in similar way as in case of FY, please refer above disclosures at C)

In addition to above disclosures company has to mention the expenses recognised for previous financial years (financial year wise) (i.e. Prior Period Expenses) including quantum of expenses already booked in previous years, if any, like expenses for employees.

Para E:

This may be further noted that Standard requires minimum information to be disclosed in the Financial Statements of Alpha Ltd and in case information provided is not sufficient to capture the entire transactions / values, Alpha Ltd should also provide additional information which will enable investors / users to be able to understand complete methodology and values concerning each leg of transactions.