Overview of the Situation:
Yerokun Limited granted 500 Share Appreciation Rights (SARs) to its 300 managers on May 1, 2011. The SARs vested on April 30, 2013, and could be exercised from May 1, 2013, to April 30, 2015. The SARs had a fair value of ₦10 at the grant date, with an estimated 5% of managers expected to leave during the vesting period. The SARs’ fair value evolved over time as follows:

Key Points:

• All expected leavers (5%) remained with the company.
• On April 30, 2015, 60 managers exercised their options when the intrinsic value was ₦10.50 per SAR.

Yerokun Limited seeks advice on whether to account for the SARs under IFRS 2 (Share-Based Payment) or IFRS 13 (Fair Value Measurement) and how the SARs should have been accounted for from the grant date to April 30, 2014.

Accounting for SARs under IFRS 2 (Share-Based Payment)

Under IFRS 2 – Share-Based Payment, share appreciation rights (SARs) are considered a form of cash-settled share-based payment, as the company is obligated to pay the managers the intrinsic value of the rights (the difference between the market value and the exercise price).

Key Points in IFRS 2 Accounting:

1. Measurement at Grant Date:
   The SARs should initially be recognized at the fair value of the rights on the grant date. In this case, the fair value of each SAR on the grant date was ₦10.
2. Vesting Period:
   The SARs vest over the period from May 1, 2011, to April 30, 2013. During the vesting period, the expense recognized in the profit or loss should reflect the fair value of the SARs granted. IFRS 2 requires that the fair value of the SARs be re-measured at each reporting date (for example, April 30, 2012, April 30, 2013, and April 30, 2014) until the end of the vesting period.
3. Fair Value Re-measurement:
   Under IFRS 2, the fair value of the SARs should be re-measured at each reporting date during the vesting period (April 30, 2012, April 30, 2013, April 30, 2014). The changes in fair value are not recognized in the profit or loss until the SARs are exercised or expired.
   • April 30, 2012: The fair value of each SAR is ₦9.
   • April 30, 2013: The fair value of each SAR is ₦11.
   • April 30, 2014: The fair value of each SAR is ₦12.
4. Accounting for the Expense: The expense recognized is based on the number of SARs expected to vest (in this case, 100% of SARs vested) and the fair value of the SARs at each reporting date.

   The process of accounting for the SARs:

   • Year 1 (2011–2012): Expense is based on the ₦9 fair value.
   • Year 2 (2012–2013): Expense is based on the ₦11 fair value.
   • Year 3 (2013–2014): Expense is based on the ₦12 fair value.
5. Recognition of Liability:
   A liability is recognized on the statement of financial position based on the intrinsic value of the SARs, which is calculated at the time of exercise. For each reporting date, the changes in fair value should be recognized as a liability in the balance sheet, and the related expense should be included in the profit or loss.

Application of IFRS 13 (Fair Value Measurement)

While IFRS 13 deals with the measurement of fair value, it does not dictate how share-based payments like SARs should be accounted for. The fair value of SARs at the reporting date is used in the calculation of the expense under IFRS 2, but IFRS 13 does not directly govern the recognition or expense accounting for SARs.

Thus, IFRS 13 is not directly applicable for the recognition of SARs in the financial statements. IFRS 2 should be used as it specifically addresses the recognition, measurement, and disclosure of share-based payments.

Conclusion:

1. SARs should be accounted for under IFRS 2 as a cash-settled share-based payment.
2. The fair value of the SARs should be measured at each reporting date during the vesting period, and the expense recognized should reflect this re-measurement.
3. The liability for the SARs should be recognized based on their intrinsic value at the time of exercise, which, in this case, was ₦10.50 per SAR when the 60 managers exercised their options on April 30, 2015.

Summary: Yerokun Limited should apply IFRS 2 for accounting the SARs, with fair value re-measurement at each reporting date and recognition of the corresponding expense in the profit or loss.