Cash-settled group share-based arrangements and NCI

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Petr_H
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Joined: 27 Sep 2022, 05:37

Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello,

please can somebody help me what I should use for the calculation of non-controlling interest in a group share-based payment (at parent level 1 it is posted as equity-settled SBP (in accordance with IFRS 2.43B b) but it is cash-settled at ultimate parent level).

Parent 1 level posts Dr Employeee expense Cr SBP reserve in equity
Ultimate parent posts Dr Investment in subsidiary Cr Cash-settled SBP liability

There is is intermediate parent where ultimate parent has only 76 % ownership interest

Which number should I use for calculation of NCI at ultimate parent level?
Now we preparing consolidated FS for the ultimate parent (Level 3) and there is a question whether we should calculate NCI from :
a) SBP payment expense based on expense posted as equity-settled SBP at Level 1 e.g. 24% x -113 = minus -27
b) SBP payment expense based on expense posted as equity-settled SBP at Level 1 - 24% x -113 + share on SBP reserve + 113 x 24% = in fact zero
c) SBP payment expense based on expense posted as equity-settled SBP at Level 1 - 24% x -113 + consolidation adjustment to cash-settled SBP at ultimate parent level e.g. 30 x 24%

IFRS 10.94 says: An entity shall attribute the profit or loss and each component of other comprehensive income to the owners of the parent and to the non-controlling
interests

I am not sure if use equity-settled SBP reserve for calculation of NCI if it is not present in group consolidated FS because it is eliminated against Investment in subsidiary and the difference is posted to adjust Employee expense at group level.

Thank you very much in advance
Leo
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Joined: 05 Apr 2020, 22:31

Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

In the consolidated FS, the P&L should show the total expenses (Parent+NCI), it's the net result that will be split between parent and NCI (76%vs24%)

In retained earnings, if you book the total amount in equity, 76% will automatically be attributed to parent and 24% will go to NCI during consolidation. And the 76% will be eliminated against investment booked in parent.

This operation should not generate any increase or decrease of contribution of NCI vs parent.
Petr_H
Posts: 17
Joined: 27 Sep 2022, 05:37

Re: Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello Leo,

please may I ask an additional question?

Intermdiate parent (Level 2) will include in their consolidated FS
Expense on equity-settled SBP -113
SBP reserve in equity +113

Ultimate parent (Level 3) will have in their consolidated FS
Expense on cash-settled SBP -83 (-113+30)
Cash-settled SBP liability +83 (113-30)

I think that NCI should be caclulated on subsdiary equity or PL
So I have to calculate NCI from both components of equity at intermediate parent (Level 2) i.g.
PL effect - 113 x 24% = -27
SBP equity reserve + 113 x 24 % = +27
Effect on NCI = -27+27 = 0

Is it correct?

Thank you very much in advance

Please excuse my low understading the topic
Leo
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Joined: 05 Apr 2020, 22:31

Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

Yea, it's fine.

In reality, you don't split like this in the statutory accounts of sub, you book everything into P&L vs Equity.

It's only during consolidation phase that Equity will be allocate based on 76% & 24%.

Overall impact in NCI and equity of the parent should be nil.
Petr_H
Posts: 17
Joined: 27 Sep 2022, 05:37

Re: Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello Leo,

thank you very much.

Best regards

Petr
Leo
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Joined: 05 Apr 2020, 22:31

Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

I found this quite extensive and detailed. You might want to have a look too.

https://annualreporting.info/classify-g ... more-46688
Petr_H
Posts: 17
Joined: 27 Sep 2022, 05:37

Re: Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello Leo,

thank you very much for the link.

I have already seen the pictures on different page:

https://assets.kpmg/content/dam/kpmg/xx ... k-2018.pdf
page 222 and hereafter

but it didn't help me with the NCI calculation as I wrote above

I found that the subsidiary (parent level 2) should post Dr Employee expense vs Cr SBP reserve in equity and in PWC Inform that parent posts Dr Investment in subsidiary vs Cr Liability from cash-settled SBP and in consolidation elimination should be Dr SBP reserve in equity + Employee expense (for difference) vs Cr Investment in subsidiary

Thank you very much for your help
Leo
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Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

And what's the consolidated impacts you have ?
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Re: Cash-settled group share-based arrangements and NCI

Post by Marek Muc »

Petr_H wrote: 29 Sep 2022, 23:00 I have already seen the pictures on different page:

https://assets.kpmg/content/dam/kpmg/xx ... k-2018.pdf
page 222 and hereafter
because annualreporting.info is just content stolen from other websites, Big4 mostly
Petr_H
Posts: 17
Joined: 27 Sep 2022, 05:37

Re: Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello Leo,

it is what we were discussing at work whether the NCI should be calculated at subsidiary level (parent level 2) where there are both effects:
a) decrease in PL for -113
b) increase in equity (equity-settled SBP) for +113
so no effect on equity and no reason for change in NCI

or whether should we strictly follow IFRS 10.94: An entity shall attribute the profit or loss and each component of other comprehensive income to the owners of the parent and to the non-controlling interests
and there would be only effect on PL, i.e. decrease of PL for -113 x NCI share on subsidiary (parent level 2) and there will be effect on NCI e.g. - 27 (-113 x 24%)

Moreover we need to disclose the effect changes in NCI and so we should disclose effect of change in PL - 113 *24% + change in equity + 113 * 24%

I know that from parent level 3 consolidated statement there is only cash-settled liability in consolidated FS, but I was not sure whether NCI (at parent level 3) are affect by change of PL and equity at parent level 2?

Thank you very much in advance
Leo
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Joined: 05 Apr 2020, 22:31

Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

But when you consolidate, the -113 in expenses will be allocated to the NCI for the proportion of 24%.

If I udnerstand, entity at level 2 will do this entry :
dt : expense 113 (PL)
Cr : other reserves (113) (Equity)

when you do the consolidation, 113 in equity will to allocated 76% to parent, and 24% to NCI. And 113 of expenses in P&L will be allocated the same way, so in overall, there is no impact either in Equity of the parent or in NCI, is my understanding correct ?
Petr_H
Posts: 17
Joined: 27 Sep 2022, 05:37

Re: Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello Leo,

it is correct.

We were not sure about it (whether to calculate the NCI from both i.e. change in PL and change in equity at parent 2 level or only from NCI), because if calculate it on both effects that our NCI on both effects 24% of SBP equity reserve and decrease in PL for the same amount.

In our case it is more complex because we adjust the amount in level 3 because Parent (level 3) has SBP cash-settled liability of -83 so we adjust equity reserve from 113 to 83
so at parent 3 level we have to transfer 30 from equity-settled SBP reserve to employee expense
Employee expense +30
Equity-settled SBP -30
to remain with Employee expense and cash-settled SBP liability at parent level 3
I assume that there ano NCI from 30 because it is in parent level 3?

But my questions relates to disclosure of allocation of PL result because if it is calculated on parent level 2 only from PL as states IFRS 10.94 it is will include only negative effect of 24% x -113 but I have to adjust in consolidation because in group statement of changes in equity there is no equity-settled SBP reserve so I don't have anything to offset the negative effect on PL (at parent level 2) so I have to manually adjust contribution to NCI from PL for +113 * 24% to get zero effect on NCI at parent Level 3 statement of changes in equity

in statement of change in equity of parent level 3 there will be only

consolidated PL for year attributable to owners of parent NCI share

so if I don't it adjust manually there will for + 24% x 113 it will not match to PL (SOCI).

There would be difference between PL attributable to owners of parent and NCI in statement of changes in equity and statement of comprehensive income at parent level 3?

I hope that it is understandable

Thank you very much in advance
Leo
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Joined: 05 Apr 2020, 22:31

Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

I think maybe better to understand if you do :
Parent 1 (holding XX% shares of company XX) IFRS 2 Equity settle or cash settled
Journal entry : dt/cr

Parent 2 xxx

Company 1 xxx
Petr_H
Posts: 17
Joined: 27 Sep 2022, 05:37

Re: Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello Leo,

it is in the following way:

Parent Level 1 - 100% ownership of parent level 2 - transactions is posted as equity-settled because the entity is receiving entity and it is not required to settle it (settlement at parent level 3 which is empty holding company)
Employee expense +113 (debit)
SBP equity-settle reserve -113 (credit)

Parent level 2 - 76% parent level 3 + NCI 24%
so it consolidates parent level 1
so it includes
Employee expense +113 (debit)
SBP equity-settle reserve -113 (credit)

Should we calculate NCI:
PL -113 * 24% (negative effect of posted equity-settled SBP)
equity +114 * 24% (positive effect of posted equity-settled SBP)
No effect on NCI (as we discussed earlier)

Parent level 3 - SBP is presented as cash-settled for 83
parent postes in their separate FS:
Investment in subsidiary 83
cash-settled SBP liability -83

consolidation adjustment
Investment in subsidiary -83 (credit)
equity-settled SBP reserve +113 (113) (debit)
employee expense -30 (-113+83) (credit)

How should it be presented in consolidated SOCI and statement of changes in equity at group level 3?

SOCI
allocation of result between NCI and parent based on PL and equity of parent 2 (76% parent and 24 NCI)
a) calculate NCI only from PL effect => effect on NCI would be -113 * 24% = -27 = there would be PL effect on NCI = -27
b) calculate NCI from PL effect and equity effect (equity-settled SBP) = 0 = -113 * 24% + (113 * 24) = 0

Consolidated statement of changes in equity
Profit for period owners of parent NCI I would expect that this amount should match to SOCI
No equity-settled SBP at parent level 3 consolidated FS => no amount for an allocation between NCI and owners of parent

I hope that it is better described?

Thank you very much in advance
Leo
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Joined: 05 Apr 2020, 22:31

Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

Why investment in sub is parent level 3? Isn't parent level 3 owned by parent level 2 which is owned by parent level 1
Petr_H
Posts: 17
Joined: 27 Sep 2022, 05:37

Re: Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello Leo,

it is conversely:

parent level 3 is ultimate parent which is nearly empty company owning 76% parent level 2 - I wrote is in wrong way previously - otherwise nearly empty entity = concluded contracts for SBP with choice of settlement on employees' side => cash-settled SBP at ultimate parent level
parent level 2 is intermediate parent which has NCI about 24% = otherwise is nearly empty entity which owns parent level 1 = consolidate parent level 1 + own result (nearly nothing) = intermediate holding entity
parent level 1 is parent which owns all other operating subsidiaries and runs own very significant business (100% share) = it is so-called "receiving entity" = it has to book employee expense against SBP reserve in equity as equity-settled SBP in accordance with IFRS 2.43B b), because does not have settlement duty

I found posting by ultimate parent in PWC Inform - it is FAQ 13.64.3 in chapter 13 - Share-based payment
It is written that employees does not provide any services to (ultimate) parent so there is no expense in (ultimate) parent level and it should be posted Dr Investment in subsidiary against Cash-settled SBP liability - each remeasurement is posted in the same way - no expense in separate FS of ultimate parent.

My biggest problem is NCI because they should be calculated on consolidated FS of intemediate parent level 2.
These (intemediate - parent level 2) FS include:
a)PL decreased for employee expense on posted equity-settled SBP from parent level 1 (the lowest level) for -113 and
b) equity-settled SBP reserve in equity - consolidated from parent 1 for +113

e.g. total PL result for intemediate parent is 3 000 after consolidation at level 2 (including expense for equity-settled SBP -reserve for -113 from parent level 1 (the lowest parent) + equity-settled SBP for 113

I don't know if I should calculate NCI for ultimate parent level 3 based on:
a) only on consolidated PL of (intermediate) parent level 2 = 3 000 * 24% = 720 which would mean in fact that would be decreased for -27 (-113 SBP expense from level 1 *24%)
b) based on both i.e.g PL result of intermediate parentlevel 2 i.e. 3 000 + equity-settled SBP 113 = (3000+113) * 24% = 747 => this would mean that all expense regarding SBP expense would be be borne by ultimate parent because NCI would excluded effect of SBP on SOCI

So I don't know if I should use:
a) 720 or
b) 747
for allocation between parent and NCI in SOCI?

If I used number 747, I could post a breakdown of changes in NCI that:
a) share on profit 3,000 * 24% = 720
b) share on equity-settled SBP reserve = 113 * 24% = 27
a total of 747

I would cause an inconsistency between this disclosure for NCI and SOCI because I can only use share on PL result in SOCI and statement of changes in equity because there is no equity-settled SBP reserve at ultimate parent level 3

Moreover cash-settled at ultimate parent level 3 are different from equity-settled SBP reserve at level 2 because they are remeasured to fair value at reporting date .e.g. 83
so I have to make consolidation adjustment in level 3
Employee expense -30 (credit)
Equity-settled SBP reserve +113 (debit)
Investment in subsidiary -83 (credit)
to adjust consolidated SBP payment liability only to 83 as it is fair value at reporting date

Maybe the amount looks immaterial but this example is not about amounts but the principle how to calculate NCI at ultimate parent level 3?

I don't know which way is correct (methodologically) - in may previous job we calculated NCI based on equity of subsidiary but IFRS 10.94 speaks only about PL and OCI alllocation + there is no equity-settled SBP in ultimate parent level 3 so I cannot apportion equity-settled SBP in statement of changes in equity between NCI and owners of parent

Method B) would mean very negative impact on PL apportionement between owners of parent and NCI in following years but I want to do it correctly

Thank you very much in advance
Leo
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Joined: 05 Apr 2020, 22:31

Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

Hi,

Will this operation results in parent 1 increase it's investment in parent 2 by a issuance of new shares by parent 2, and parent 2 increase it's investment in parent 3 by issuance of new share in parent 3?
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

I would suggest this.

The one on the upper left, are trial balances of this structure before IFRS 2.

Below, is the impact of IFRS 2 in each of the separate FS and in consolidation.

As from my understanding, Parent 3 gives shares of Parent 1 for services provided by employees to Parent 1, let's say for 10 000 LC, so Parent £ should consider it as Cash based payments, and parent 2 consider it as equity based and parent 1 equity based.

Also, I suggest that in this operation, only parent 3 contributes to the issuance of free shares for the proportion of 76%, so, in the end, the participation of parent 3 will be diluted, this is because parent 3 will issue 10 000 LC worth of shares but group only participate in 7 600 LC. so Equity from parent will not be unvaried, and will reduce itself instead.

Tell me what do you think. Thanks

Oh sorry, in my example I suggest a fair value of service given to parent 1 of of 10 000 LC, and Parent 3 owns 76% of parent 2 which owns 100% of parent 1.
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Leo
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Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

And please share what you did I'm very interested thanks.
Petr_H
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Joined: 27 Sep 2022, 05:37

Re: Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello Leo,

please my late answer but I solved different things in previous weeks and our auditors solved it as it is stated at the end of the text

The situtation is as follows:

Parent Level 1 - about 15 subsidiaries held directly or throught intermediate parent (parent company Level 1 and its subsidiaries or subsidiaries of their subsidiaries ) - for all these companies is prepared one set of consolidated FS
- all companies are 100% owned subsidiaries of Parent company Level 1
- consolidated result in millions of EUR

Parent Level 2 - intermediate parent company - owns Parent Level 1 + without significant business
- nearly "shell company" empty company = result about minus TEUR 40
- intercompany transactions immaterial - small receivable for Parent Level 1 and loan received from Parent Level 1 and partially provided to Parent Level 3 - I would not solve it
- NCI about 25%

Parent Level 3 - ultimate parent company of group = similar to Parent 2 level - only holding company without singificant business
- nearly "shell company" empty company = result about minus TEUR 30
- intercompany transactions immaterial

Share-based transaction:
The parent Level 1 is so-called "receiving entity" (according KPMG Insights into IFRS) because it receives services from management awarded by SBP scheme but it does not have settlement obligation
The scheme at parent level 1 is accounted as equity-settled SBP in accordance with IFRS IFRS 2.43B(b) - group shared- based payment- page 255 in IFRS 2 Handbook
https://assets.kpmg/content/dam/kpmg/be ... k-2018.pdf
The scheme provides managmenet with settlement option (equity- or cash-settled) at ultimate parent level so it is regarded as cash-settled SBP at parent level 3 (ultimate parent)

My question relates to NCI share on profit or loss and OCI (equity) because:
Parent Level 1 posts each quarter e.q.:
Dr 500 Employee expense
Cr 500 Equity-settled SBP
in accordance with fair value of original grant (slightly modified later because not material modifaction) because it is equity-settled

The ultimate parent (Level 3) accounts its cash-settled SBP according to new revaluation
I found in PWC Inform that it must be posted at Level 3 separate FS in this way e.g.
Dr 400 Investment in subsidiary
Cr 400 Payables from cash-settled SBP

In consolidation there is following elimination at level 3:
Dr 500 Equity-settled SBP
Cr 400 Investment in subsidiary
Cr 100 Employee expense

after this consolidation adjustment in the consolidated FS at Level 3 of ultimate parent remains:
Dr 400 Employee expense
Dr 400 Payables from cash-settled SBP

Now there is problem how should be calculated NCI at parent Level 2 which has 25% NCI:
e.g. Parent Level 1 has result 7 mio. EUR including effect of equity-settled SBP (minus 500 TEUR) and OCI - 1 mio. EUR
Parent Level 2 has standalone result about TEUR 40 - ignoring IC relationships with Parent Level 1 which is clear that must be eliminated for calculation of NCI
Parent Level 2 has standalone result about TEUR 30 - ignoring IC relationships with Parent Level 2 which is clear that must be eliminated for ultimate parent consolidated FS

The answer I don't know is how I should calculate 25% NCI at Parent Level 2
I was used to calculate non-controlling interests as equity of the subsidiary times the ownership interst of non-controlling interests

Exact definition for allocation of profit and loss in accordance with IFRS B10.94
An entity shall attribute the profit or loss and each component of other comprehensive income to the owners of the parent
and to the non-controlling interests. The entity shall also attribute total comprehensive income to the owners of the parent
and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

There is no comment on change in equity only non-controlling share in profit and loss or OCI and it causes following interpretation
PWC Inform says there is no guidance for transactions which affects profit and loss and simoultaneously like SBP => entity should develop its accounting policy

NCI at parent level 2 can be calculated as:
a) PL share 25 % * ( 7 000 - 40) including effect of equity-settled SBP expense transferrred from Parent Level 1
OCI share = 25% * - 1 000

B) PL share 25 % * ( 7 000 + 500 - 40) excluding effect of equity-settled SBP expense transferrred from Parent Level 1
OCI share = 25% * - 1 000

d) PL share 25 % * ( 7 000 + (500 - 100) - 40) including effect of cash-settled SBP from consolidation at Parent Level 3 - we don't exactly know if the settlement duty has Parent Level 3 or 2????
OCI share = 25% * - 1 000

Moreover the company is required to disclose
a) profit or loss and OCI of subsidiary including significant NCI
b) "roll-forward" of NCI for subsidiary with significant NCI

If you include effect of SBP on profit or loss the simple equation that profit and loss for period of revelant subsidiary times NCI percentage should equal to NCI share on profit or loss will not work
a ) change in equity of subsidiary with NCI will not equal to change as a result of NCI share in OCI or PL - because equity was increased by parent contribution in a form of Equity-settled SBP
b) if you exclude effect of SBP on profit or loss => NCI share of profit and loss will not equal to summarized consolidated financial information (summarized FS of subsidiary with significant NCI)

Our auditor solved it by stating that NCI are calculated based on profit and loss excluding effect IFRS 2 Share-based payments at Parent Level 2 - excluding effect which was transferred from consolidated profit or loss of Parent Level 1
Percentages of profit and loss and OCI attributable to NCI easy to recalculate

I wanted to enclose file but I haven't found the button for inserting files...

Thank you very much in advance
Leo
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Joined: 05 Apr 2020, 22:31

Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

Thanks, that's clear.

I put the numbers down onto my excel file (see attached).

For simplification, I just supposed that Parent level 3 valued the cash settled scheme at 75% of the shares given to management by parent level 1 (in the perfect world, NCI should contribute as well). So, parent level 3 would book 3.75 (5*0.75%).

It should be read from left to right, in the following order, Statutory accounting, Sub conso by Parent level 2, and group conso by parent level 3.

You'll see that, NCI remains at 25, before and after (which make sense because NCI is not affected by this transaction).

Do you agree?
Attachments
2023-01-02_16h36_55.png
Leo
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Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

Hi Petr, is there any chance to have a look at the file you mentioned please? I'm very interested, thanks.
Petr_H
Posts: 17
Joined: 27 Sep 2022, 05:37

Re: Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello Leo,
please excuse my late answer.
I thought that I had left it in my previous work but I have some version (probably not the last version.
How can I send it to you? (I haven't found how to attach a file to a discussion)
Best regards
Petr
Leo
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Joined: 05 Apr 2020, 22:31

Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

Hi thanks, click on full edit preview and attachments.
Petr_H
Posts: 17
Joined: 27 Sep 2022, 05:37

Re: Cash-settled group share-based arrangements and NCI

Post by Petr_H »

Hello Leo,

please excuse my late answer.

I wanted to attach Excel file but it is not allowed so I created PDF file.

I hope that the file will be understandable.

Thank you very much for your help

Best regards

Petr
Attachments
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Leo
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Re: Cash-settled group share-based arrangements and NCI

Post by Leo »

Thanks, it looks like it's one of your earlier post. You can always do a screen shot of the Excel and attach the screen shot. I'm only interested in how those entities present their own FS, and what you end up having in conso. If you could attach a synthetic resume, like the one I did earlier, that'd be very helpful. Thanks
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