Interaction of IFRS 10, IAS 32 and IFRS 2 (fresh issue of shares)
On 1 January 2013, the EBT of ABC plc subscribed for 100,000 £1 shares of ABC plc at £2.50 per share, paid for in cash provided by ABC by way of loan to the EBT. Under local law, these proceeds must be credited to the share capital account up to the par value of the shares issued, with any excess taken to a share premium account (additional paid-in capital). These were the only ABC shares held by the EBT at that date.
On 1 May 2013, ABC granted executives options over between 300,000 and 500,000 shares at £2.70 per share, which will vest on 31 December 2013, the number vesting depending on various performance criteria. It is determined that the cost to be recognised in respect of this award is 15p per share.
On 1 September 2013, the EBT subscribed for a further 300,000 shares at £2.65 per share, again paid for in cash provided by ABC by way of loan to the EBT.
On 31 December 2013, options vested over 350,000 shares and were exercised immediately.
The accounting entries for the above transaction required by IFRS 10, IAS 32 and IFRS 2 in the consolidated financial statements of ABC would be as follows. It should be noted that all these pronouncements require various entries to be recorded in ‘equity’. Thus, some variation may be found in practice as to the precise characterisation of the reserves, in deference to local legal requirements and other ‘traditions’ in national GAAP which are retained to the extent that they do not conflict with IFRS.