Baltic Corp. (BC) has been a publicly accountable enterprise for the past five years. On December 16, 2016, for the first time, BC adopted a stock option plan for its three top executives. The company agreed to make 45,000 shares available under this plan and agreed on a strike price of $21 per share. On December 16, 2016, the companyâ€™s share price on the TSE closed at $21.
On January 3, 2017, the following options were granted to each of executives Smith, Jones and Chen, and the options granted at this time were estimated to have a total fair value of $405,000:
15,000 options each
The options are exercisable during the two-year period from January 1, 2020 to December 31, 2021, after which they will expire. The market prices of the BC shares were as follows:
January 3, 2017 $20.50
December 31, 2017 $23.00
December 31, 2018 $28.10
December 31, 2019 $30.00
December 31, 2020 $31.50
December 31, 2021 $28.00
The three executives exercised their options as follows: 50% of the options on December 31, 2020 and the other 50% on December 31, 2021.
Further to Question 1 (above), investigate and identify the IFRS standard name and number, and paragraph number that covers how to account for such a compensatory stock option plan. Indicate what the standard requires (taken from the standard itself, not the textbook).
Assume that Baltac Corp. (see Question 1 above) is a private company that had provided a share appreciation plan instead of a stock option plan. The terms and conditions and share prices, etc. were the same as provided in Question 1.
Joe Yew, the Vice-president â€“ Finance of Abbass Corporation (AC) provides you with the following information related to the companyâ€™s year just ended on December 31, 2016. Abbass is a large private company that has opted to follow IFRS. Joe tells you that the controller is off on sick leave and had to leave before completing the financial statements that are scheduled to go to ACâ€™s Board of Directors the following day. One of the outstanding items is the determination of earnings per share.
The VP provides you with the following information:
The company ended its 2015 fiscal year with 342,500 common shares, 12,500 shares were purchased and retired on February 28, 2016 from a shareholder who was moving away and 21,000 shares were issued on July 29, 2016 when a subsidiary company was acquired. On September 30, 2016, AC issued a 25% stock dividend.
The VP â€“ Finance also provided you with a copy of the December 31, 2016 draft financial statements which included the following information:
8% convertible debentures $ 1,500,000
Lease obligations and other long-term debt 5,000,000
$1.00 cumulative, convertible Class A preferred shares,
no par value, 200,000 shares authorized,
60,000 shares issued and outstanding 600,000
$2.00 convertible Class B preferred shares, no par
value, 25,000 shares authorized, issued, and
Common shares, no par value, 1,000,000 shares
authorized, 438,750 shares issued and outstanding 4,400,000
Contributed surplus ,650,000
Retained earnings 2,400,000
Accumulated other comprehensive income 23,600
Other draft comments:
(a) Calculate basic EPS for inclusion with the financial statements.
(b) For each potentially dilutive factor individually, identify the change in earnings and the
change in shares that would result as you prepare to calculate fully diluted EPS. In each
case, identify whether the factor is dilutive or anti-dilutive.
(c) Assume your calculations in (a) result in the following answer for basic EPS for net
income: [Note: these are not the correct results, but should be used as the starting point for completing part (c).]
Assume: Basic EPS for net income =
Earnings to common/weighted average number of shares
= $935,000/400,000 shares
= $2.34 per share
Using your results from part (b) and the assumption for basic earnings per share for net income as given in part (c):