Scribd
Upload
30 views26 pages

Ifrs 2 Share Basd Payments

Uploaded by

Everjoice Chatora
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
30 views26 pages

Ifrs 2 Share Basd Payments

Uploaded by

Everjoice Chatora
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 26

SHARE

BASED
PAYMENTS

IFRS 2
RECOGNITION CRITERIA

• DEFINITIONS, SCOPE, CONDITIONS TO BE SATISFIED


OVERVIEW
DEFINATIONS
• Grant date in respect of a share-based payment arrangement is the date on
which the entity and the other party (including an employee) agree to such an
arrangement. At this point, both the entity and the counterparty have a
shared understanding of the terms and conditions of such an arrangement.

• Vesting conditions refer to the conditions that must be satisfied for a


counterparty in a share-based payment arrangement to become entitled to
receive cash, other assets or equity instruments of the entity. This will include
service conditions (completing a specified period of service) and performance
conditions (meeting a specific target, e.g., a specified increase in profit).

• Vesting period is the period during which all the specified vesting conditions
of a share-based payment arrangement are to be satisfied
TYPES
The most common type of share-based payment transaction is where share
options are granted to employees or directors as part of their remuneration.

IFRS 2 applies to all types of share-based payment transaction. There are two
main types:
• equity-settled share-based payment transaction
the entity rewards staff with equity instruments (e.g. shares or share options)
• cash-settled share-based payment transaction
the entity rewards staff with amounts of cash measured by reference to the
entity’s share price.
RECOGNITION
If the goods or services are received in exchange for equity (e.g. for
share options), the entity recognises an increase in equity.
The double entry is:
– Dr Expense/Asset
– Cr Equity (normally a special reserve).
RECOGNITION
If the goods or services are received or acquired in a cash-settled share-
based payment transaction, the entity recognises a liability.

The double entry is:


– Dr Expense/Asset
– Cr Liability.
MEASUREMENT
IFRS 2: SHARE BASED PAYMENTS
BASIC PRINCIPLE
• The basic principle is that all transactions are measured at fair value
at the grant date i.e. the date at which the entity and another party
agree to the arrangement.
EQUITY BASED PAYMENTS
• For equity settled transactions, the fair value is likely to be the share price
at the grant date (rather than the fair value of the goods or services
received).
• If the options vest immediately i.e. employees are entitled to the shares
immediately, it is presumed that the entity has received the benefit of
the services and the full amount is recognised on the grant date.
• If the options do not vest immediately, as is usually the case, the
company should spread the cost of the options over the vesting period,
the period during which the specific vesting conditions are satisfied e.g.
length of service with the company, reaching certain targets, achieving
various objectives e.t.c
EQUITY BASED PAYMENTS
• To record the cost on an annual basis:
Dr Income statement
Cr Equity (other reserves)
• The amount is: total number of options issued and expected to vest
multiplied by the fair value of an option at grant date, spread over the
vesting period.
QUESTION 1
On the 1 January 2016, 400 staff receive 100 share options each. They
must work for the company for the next three years and the options
become exercisable on 31 December 2018. The fair value at the time of
granting is $20 per option and this does not change as progress is made
through the three years.
In the year ending 31 December 2016, 10 staff leave and it is thought that
during the three year vesting period, the total amount leaving will be 15%.
In 2017, a further 15 leave but the estimate of total leaving is now
reduced to 10%.
In the final year 12 staff leave.
REQUIRED
• Show how this will impact on the financial statements of the years
2016, 2017 and 2018.
SOLUTION Q1
2016 2017 2018
Share options 40,000 40,000 40,000
Expected to vest 85% 90% (3,700)
––––––– ––––––– –––––––
34,000 36,000 36,300
Fair value at grant date $20 $20 $20
––––––– ––––––– –––––––
Total cost $680,000 $720,000 $726,000
Proportion of vesting period passed 1/3 2/3 3/3
––––––– ––––––– –––––––
Equity $226,667 $480,000 $726,000
Cost charged to SOCI $226,667 $253,333 $ 246,000
QUESTION 2
ABC Ltd has set up an employee option scheme to motivate its sales
team of ten (10) key sales people. Each sales person was offered 1 million
options exercisable at 10c, conditional upon the employee remaining
with the company during the vesting period of 5 years. The options are
then exercisable three weeks after the end of the vesting period.
This is year two of the scheme. At the start of the vesting period, two
sales people suggested that they would be leaving the company during
the second year. However, during the 2nd year one did leave, the other
recommitted to the company and the scheme. The other employees
have always been committed to the scheme and stated their intention to
stay with the company during the 5 years.
QUESTION 2
Relevant market values are as follows:
Date Share price Option price
Grant date 10c 20c
End of Year One 24c 38c
End of Year Two 21c 33c

The option price is the market price of an equivalent marketable option


on the relevant date.
QUESTION 2 CONTINUED…
Required:
Show the effect of the scheme on the financial statements of ABC Ltd
for Year Two.
SOLUTION Q2
• The expense is measured using the fair value of the option at the
grant date, i.e. 20c.
• At the end of year two the amount recognised in equity should be
$720,000 (1m × (10 – 1) × 20c × 2/5).
• At the beginning of year two the amount recognised in equity would
have been $320,000 (1m × 8 × 20c × 1/5).
• The charge to profit for Year Two is the difference between the two:
• $400,000 (720 – 320).
Cash settled share based
payments
An example of a cash settled share based payment transaction is the
payment of a bonus to an employee based on the entity's share price.

The basic principle is that the entity measures the goods or services
acquired and the liability incurred at the fair value of the liability.

Until the liability is settled, the entity remeasures the fair value of the
liability at each reporting date until the liability is settled and at the
date of settlement.
Cash settled share based
payments
• Changes in fair value are recognised in profit or loss for the period.
• Where services are received, these are recognised over the period that
the employees render the services. (This is the same principle as for
equity-settled transactions).
• The expense recognised in each accounting period has a double entry
to a provision/liability account.
– Dr Income statement
– Cr Liability/ provision
• On the vesting date, the amount of the provision/liability should equal
the cash paid.
QUESTION 3
• On 1 January 2014, Cheddar granted 20 000 share appreciation rights
to each of its 10 directors. The conditions attached to the cash settled
share based payment scheme is that the directors must remain an
employee of Cheddar for 3years. The fair value of each cash settled
shared based payment at the 31 December 2014 was $80 and at 31
December 2015 was $75.
• At 31 December 2014, it was estimated that 4 directors would leave
before the end of the 3 years.
• At 31 December 2015, due to a downturn in the economy, it was
estimated that 2 directors would leave before the end of the 3 years.
• Prepare the extracts to be shown in the statement of profit or loss
and the statement of financial position for the year ended 31
December 2014 and 31 December 2015
Solution
SFP 2014 2015
Liability 3,200.000 8,000.000
20 000x80x(10-4)x1/3 20 000x75x(10-2)2/3

SPL
Expenses 3,200.000 4,800.000
QUESTION 4
On 1 January 2016, XYZ Ltd sets up a cash based payment to each of its
100 employees, on condition that they continue to work for the entity
until 31 December 2018. Each employee has been allocated 100 shares
and will receive a payment in cash if the share price exceeds $10 on 31
December 2018, of the amount that it exceeds $10.
• During 2016, 5 employees leave. The entity estimates that a further
12 will leave during 2017 and 2018.
• During 2017, 10 employees leave. The entity estimates that a further
15 will leave during 2018.
• During 2018, 18 employees leave.
QUESTION 3 Cont….
The share prices each year are shown below.
$
2016 11.00
2017 12.00
2018 14.00

Required:
Calculate the amount to be recognised as an expense for each of the three
years ended 31 December 2018 and the liability to be recognised in the
statement of financial position at 31 December for each of the three years.
THE END….
THANK YOU

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy