hi
the question is from Jun 07
On 31 May 2007, Leigh purchased property, plant and equipment for $4 million. The supplier has agreed to
accept payment for the property, plant and equipment either in cash or in shares. The supplier can either choose
1•5 million shares of the company to be issued in six months time or to receive a cash payment in three months
time equivalent to the market value of 1•3 million shares. It is estimated that the share price will be $3•50 in
three months time and $4 in six months time. (financial statements of Leigh for the year ended 31 May 2007.)

Under IFRS2, if the fair value of the goods or services received can be measured directly
and easily then the equity element is determined by taking the fair value of the goods or services less the fair value of the debt element of this instrument. The debt element is essentially the cash payment that will occur.

According to this, the fair value of the PPE should be 4, the cash payment that will occur should be 4,55.

But the answer is as follow:

The accounting entry would be:
Dr PPE $4•55 million
Cr Liability $4 million
Cr Equity $0•55 million


I would like to know how this figure come up?

Thank you very much!

hi , this would be under FRS 102 Share base payment... this will be under " share based transaction with chice of settlement ( either by cash or equity. )

for equity settle = 1.5m * $4 = $ 6m

for cash settle = 1.3 * 3.5 = $ 4.55

However the rules is to ALWAYS assume it's cash settled then equity settle. therefore take $4.55m
the cost of the asset is debt element and the outstanding is Equity element.

therefore

DR NCA $4.55m
Cr Debt $4m ( Cost of asset )
Cr Equity $0.55 M

always assume cash settle then equity settled . pls correct me if i'm wrong . so i can learn also... everybody good luck for exam okie... everybody shall pass~