Ch. 22 Share Based Payment Flashcards
What are the two types of share-based compensation
Share options and share appreciation rights
What does share-based compensation refer to
It refers to how compensation is based off of the performance of the entity’s shares – doesn’t matter if you get the right to shares or cash.
What are share options
gives an employee the right ot purchase shares in a company for a pre-established price for a specified period of time.
What is a vesting period?
The period in between when the share option is granted and period in which it will finally vest (be claimed). Aka the waiting period.
Explain the logic of the vesting period and why it is usually different from the date of issue.
It is assumed that the option is compensated for services provided during the vesting period.
As the option is earned in the period, compensation expense is recorded for the proportionate amount of the fair value of the option.
Dr. Compensation Expense
Cr. Contributed surplus - share option (to equity)
If an entity expected that an amount will not be vested, the amount earned is multiplied by the percentage expected to vest. – Employees who leave prior to the vesting option - forfeiting it
How are options measured?
Option-pricing model (don’t need to calculate) - it determines the fair value of an option based on factors such as time until expiration, market value of the underlying share, volatility of the share price, expected dividends and the risk-free interest rate
Why are options derecognized?
- option is redeemed
- option expires
What are the journal entires if an option is redeemed?
Dr. Cash
Dr. Contributed surplus - share options
cr. Comon Shares
What are the journal entries if an option expires?
Dr. Contributed surplus - shar eoptions
Cr. contributed surplus - expired shares
What’s the differences between SARS and Share options
SARS can be settled with equity or cash
What is the journal entry when SARS is recognized (similar to options, it also has a vesting period)
Dr. Compensation expense
Cr. SAR Liability
If they suspect that an amount will net vest they will apply a percentage just like before
What is the journal entry if it is redeemed
Dr. SAR liability
Cr. Cash
What is the journal entry if it just expired
Dr. SAR Liability
Cr. Compensation expense
SARS settled under equity IFRS
Employees do not pay an option price to obtain the shares, instead they obtain a number of shares equal to the value of the shares (market price - benchmark price)/market price
ASPE differnece: How are SARs measured?
the intrinsic value is used (market price - exercise price)
