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Group plans
Extract from FRS102: Section 26.16
26.16 If a share-based payment award is granted by an entity to the employees of one or more members in the group, the members are permitted, as an alternative to the treatment set out in paragraphs 26.3 to 26.15, to recognise and measure the share- based payment expense on the basis of a reasonable allocation of the expense for the group.
OmniPro comment
It is very common for employees of subsidiary companies to be granted shares/options in the subsidiary’s parent company in return for their service in the subsidiary company. As the service is provided to the subsidiary company, the expense must also be accounted for in the subsidiary financial statements.
Section 26.16 above allows a subsidiary undertaking to recognise and measure the cost of the SBC (Share Based Payment Charge) on a reasonable allocation of the expense for the group as a whole which will reduce the administrative burden on subsidiaries to provide detailed calculations.
There are a number of circumstances where the entity receiving goods or services would be expected to account for the awards as equity settled. These are where:
- The entity has no obligation to settle the share based payment transaction; or
- The awards granted are settled with the entity’s own equity instruments.
Where the parent company issues shares/share options in itself to employees of a subsidiary the deemed cost is debited as an investment in the subsidiary (i.e. akin to a capital contribution) in the parent entity financial statements (not in the consolidated financial statements) subject to this not increasing the investment in the subsidiary above its recoverable amount. The journal entry would be as follows:
Dr Investment in Subsidiary
Cr Share Based Payment Reserve or provisions depending on whether it is cash settled or not.
Example 26: SBC and groups
Parent A issues shares/options in itself to the employees of Subsidiary A and B for the services provided to the subsidiaries. The parent does not charge the subsidiaries. In the consolidated financial statements these would be treated as equity settled as they are settled by the issuance of shares. Under Section 26, the parent can recharge subsidiaries A and B on a reasonable basis. In the consolidated financial statements the following journals would be included:
| CU | CU | |
| Dr Employee Costs – SBC | XXX | |
| Cr Share Based Payment Reserve | XXX |
In the parent entity financial statements the journal would be
| CU | CU | |
| Dr Investment in Subsidiary with Deemed Capital Contribution | XXX | |
| Cr Share Based Payment Reserve | XXX |
In the books for the subsidiaries the journal would be to:
| CU | CU | |
| Dr Employee Costs with the Share Based Payment Cost for the Service Provided in Year | CU | |
| Cr Share Based Payment Reserve | CU |
Example 27: SBC and groups
If we take the above example and assume the group does recharge the subsidiary (usually done for tax purposes as the subsidiary will get a tax deduction in the UK, if a UK subsidiary is recharged for the cost by the parent). Then the accounting in the subsidiary company would be to:
| CU | CU | |
| Dr Share Based Payment Reserve | XXX | |
| Dr Profit and loss with any excess | XXX | |
| Cr Intercompany/Bank | XXX |
In the books of the parent entity the journals would be:
| CU | CU | |
| Dr Share Based Payment Reserve | XXX | |
| Cr Investment in Subsidiary | XXX |
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