Introduction:
KOKORO JOBIJOBI has granted share options to the employees of its subsidiaries, GBANJA and GORO, over its own shares. Since the options vest immediately, the company needs to determine how to account for these options in its own financial statements, the subsidiaries’ financial statements, and the consolidated group financial statements. The following explains how these transactions should be accounted for in each of the financial statements.

1. Accounting in KOKORO JOBIJOBI’s Own Financial Statements

In KOKORO JOBIJOBI’s own financial statements, the company is granting share options over its own shares to employees of its subsidiaries. According to IFRS 2 – Share-Based Payment, the company (KOKORO JOBIJOBI) must recognize the cost of the share options in its own financial statements.

• Recognition of Expense:
  Since the options vest immediately, KOKORO JOBIJOBI must recognize the full fair value of the share options as an expense in its income statement for the period March 31, 2015.
  • The fair value of the options granted should be determined at the grant date, and the expense will be recognized immediately since the awards vest immediately.
  • Journal Entry:
    • Dr: Share-based Payment Expense
    • Cr: Equity (under Share-based Payment Reserve or similar)
• No Charge to Subsidiaries:
  KOKORO JOBIJOBI does not plan to charge the subsidiaries for these options, meaning the subsidiaries will not recognize any corresponding expense or liability. However, the company must recognize the cost in its own financial statements.

2. Accounting in the Subsidiaries’ (GBANJA and GORO) Financial Statements

In the subsidiaries’ financial statements, the accounting treatment differs because the share options granted are over the parent company’s shares (KOKORO JOBIJOBI’s shares). According to IFRS 2:

• No Expense Recognition in Subsidiaries:
  Since the share options are granted over the parent’s shares and there is no charge from KOKORO JOBIJOBI to the subsidiaries, GBANJA and GORO should not recognize any expense related to these options in their own financial statements.
• No Liability or Equity Recognition in Subsidiaries:
  The subsidiaries do not need to recognize any liability or equity for the share options since they have not incurred any cost related to the share-based payment under this arrangement. They only need to disclose the nature of the arrangement in the notes to the financial statements if necessary.

3. Accounting in the Group Financial Statements

In the consolidated group financial statements, KOKORO JOBIJOBI and its subsidiaries (GBANJA and GORO) are treated as a single entity. Therefore, the share-based payments granted by the parent to the employees of the subsidiaries need to be accounted for within the group.

• Consolidation of the Share-Based Payments:
  Under IFRS 2, the parent company (KOKORO JOBIJOBI) is required to consolidate the expenses related to the share options granted to its subsidiaries’ employees in the group financial statements. This means that the expense recognized in the parent company’s books for the share-based payments (as discussed in point 1) will be consolidated into the group financial statements.
  • The expense for the share options will be recognized at the consolidated level, and the cost will be allocated between the subsidiaries according to the number of options granted to the employees of each subsidiary.
  • Journal Entry in Group Consolidation:
    • Dr: Share-Based Payment Expense (in consolidated income statement)
    • Cr: Equity (under Share-Based Payment Reserve in consolidated balance sheet)
• Disclosure in the Group Financial Statements:
  The group financial statements must disclose the nature of the share-based payment arrangements, the fair value of the options granted, and the total expense recognized for the options in the period. The disclosures should also include any assumptions used in calculating the fair value of the options (e.g., expected volatility, expected life, etc.).

Conclusion

1. In KOKORO JOBIJOBI’s own financial statements: The company should recognize the total fair value of the share options as an expense in the income statement and credit an equity reserve (under Share-based Payment Reserve).
2. In the subsidiaries’ financial statements: No expense or liability should be recognized, as KOKORO JOBIJOBI is not charging the subsidiaries for these options. The subsidiaries may disclose the arrangement in the notes if necessary.
3. In the group financial statements: The expense related to the share options should be consolidated at the group level, with the corresponding credit to equity in the group’s balance sheet.

This approach ensures that the transactions are properly accounted for in accordance with IFRS 2 and appropriately reflects the share-based payment arrangement within the group and its subsidiaries.