Here is a preview of 2 accounting tips you can receive from our new Accounting Q&A Bulletin, coming soon to Checkpoint.
As an accountant, you are faced with issues every day. With access to practical accounting and audit tips based on the most commonly encountered scenarios, you can save time to quickly understand the facts and possible outcomes.
Tip #1 – Loss of control
Issue:
My client has recently completed a business combination and incurred various legal and other expenses.
Can these be capitalised as part of the business combination?
Conclusion:
No. Most acquisition-related costs are expensed except those that relate to the issuing of debt or equity securities.
Background
AASB 3
Acquisition-related costs
53 Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder’s fees; advisory, legal, accounting, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognised in accordance with AASB 132 and AASB 9.
Tip #2 – Adjusting share based payment expectations
Issue
We have an employee share plan which vests after 3 years of service. At the beginning of year 1 we estimated the number of employees we expected to be in employment at the end of the three years (80%) and started expensing based on that probability. We are now at the end of year two and predict 85% of the original employees will remain at the end of the third year.
Should we amend the final probability and increase the expense at the end of the 2nd year, or leave it alone and true it up at the end of year 3?
Conclusion
You should revise your estimate at the end of each reporting period and adjust the cumulative expense accordingly (this should be done in the period the revision occurs and not retrospectively).
For instance, if the total expense at the start was expected to be $6,000 ($2,000 per annum) and at the end of year two you revise the total expense to $7,500 then at the end of year two the cumulative expense should be $5,000 ($7,500 * 2/3). Since $2,000 was expensed during the first year then $3,000 will be expensed in the 2nd year to ensure the cumulative expense is correct.
Background
AASB 2
20 To apply the requirements of paragraph 19, the entity shall recognise an amount for the goods or services received during the vesting period based on the best available estimate of the number of equity instruments expected to vest and shall revise that estimate, if necessary, if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates. On vesting date, the entity shall revise the estimate to equal the number of equity instruments that ultimately vested, subject to the requirements of paragraph 21.
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