ifrs 2

Question 1

what is share based payment? Accounting entry?

Answer 1

payment through shares/share options

entry:
debit: machine/ salaries
credit: equity

Question 2

3 types of Share based payment are

Answer 2

-equity settled (issue of shares)
-cash settled (cash equal to MP at payment date)
-share options

Question 3

All SBP transactions are recorded at

Answer 3

fair value

Question 4

what is direct and indirect measurement?

Answer 4

direct- transaction recorded at fair value of goods received. normally applied in case of goods, machine etc.

indirect- when fv of goods received cannot be calculated (no active market exists), then transaction is recorded at fair value of shares or share options given.
. normally in case of employee payment.

Question 5

what if no active market exists of goods purchased and of shares given (eg. if non public company)

Answer 5

then you might use valuation models (like the Black-Scholes model) to estimate the fair value of share options

Question 6

what is unconditional grant and it’s double entry?

Answer 6

when the recipient gets the shares/share options right away. eg. reward to employees.

it’s booked in PnL immediately.

debit- grant expense
credit- equity

Question 7

what is conditional grant and it’s accounting treatment?

Answer 7

it is payable upon condition being met. the expense is spread over vesting period (matching principle)

Question 8

what are the two different types of vesting conditions?

Answer 8

1) non market conditions (service years or performance based)
2) market conditions (movement in share price)

Question 9

what is service vesting condition and it’s accounting treatment?

Answer 9

requires employee to remain with company for a set period

expense is recognized over the service period. (matching concept)

-expense is booked on expected % of employees vesting
-estimated vesting must be revised at each reporting date.
-if not met, previous equity will be reversed in PnL as an income

Question 10

accounting treatment for non market performance based SBP?

Answer 10

-vesting period may change
-same treatment as service based
-revise estimate each year

Question 11

Accounting treatment for market based performance?

Answer 11

-vesting period will be constant. we will use the one at grant date .no need to check at each reporting date
-if not met, then no reversal in PnL. only within equity transfer

Question 12

in equity settled SBPs, what date fair value of option do we use?

Answer 12

grant date

Question 13

what is the double entry for conditional grant yearly expense?

Answer 13

debit- PnL
credit- equity or share based payment reserve

Question 14

how is yearly expense of conditional grant calculated?

Answer 14

cumulative:

number of employees* number of shares * fair value at grant date *percentage of employees expected to vest in current yr * (current year/total vesting period)

Question 15

vesting period in non market performance condition can change?

Answer 15

it will vary. All expense of SBP will be booked on basis of expected vesting period at each year end. Means vesting period will be revised each year.)

Question 16

performance market condition vesting period

Answer 16

not going to change due to volatility. we will always use expected vesting period of grant date.

Question 17

treatment for grant cancellation?

Answer 17

we will book the remaining expense in PnL immediately. (saza)
entry:
PnL debit
SBPR credit

amount of above entry:
employees sharesFV at grant date

Question 18

Entry for cancellation without settlement?

Answer 18

transfer all SBPR in R.E

SBPR debit
R.E credit

Question 19

Accounting treatment for cancellation with settlement?

Answer 19

it is treated like buying back ur own shares. “treasury shares”
-it is debited in equity
entry:
equity debit
cash credit

Question 20

if settlement price is more than fv of shares at settlement date

Answer 20

excess is booked as expense in PnL.
(compensation expense)

Question 21

modification in grant, what is the treatment if it is beneficial for employees?

Answer 21

record it as a separate contract.
book “incremental fair value” at date of modification over the remaining vesting period

incremental fair value:
FV of option just before modification
less
FV of option just after modification

Question 22

modification in grant, beneficial for company/ employer?

Answer 22

do nothing just book original grant (prudence)

Question 23

what is the difference between cash settled SBP and equity settled SBP accounting treatment?

Answer 23

cash settled SBP means we will pay cash equal to M.V of our shares.
1) double entry is different.
double entry of cash settled:
-debit: PnL
-credit: liability
2) in equity settled we used grant date FV, in cash settled we use FV of option at each year end

Question 24

how to identify cash settled SBP?

Answer 24

“share appreciation right” will be mentioned

Question 25

how to calculate fair value of option?

Answer 25

intrinsic value + time value

intrinsic value: MP - ex. price
time value: level of uncertainty

Question 26

accounting treatment of share options?

Answer 26

-payment will always be made at intrinsic value (because at payment date uncertainty is 0)
-but before payment liability is recorded at FV of option

Question 27

scope of ifrs 2?

Answer 27

-transaction with employees in capacity of SH is outside scope of ifrs 2
-share exchange in case of business combination falls in scope of ifrs 3
-share based payment that falls under ias 32/39 and ifrs9
eg.
when there is net settlement option in the transaction. in that case derivative accounting will apply.

Question 28

how do we know if it’s derivative account and not ifrs 2

Answer 28

-agreement allows net cash settlement
-past practice of net cash settlement
-company sells shortly just after delivery
-the underlying item itself is a cash equivalent eg. prize bond

if even 1 of the above is true, it means its derivative accounting

Question 29

if Parent promises susidary employees to give shares. how will this be treated?

Answer 29

in S books:
record transaction as equity settled SBP

logic: matching principle

in P books:
treat as investment
investment dr
SBPR credit

in consolidated books:
treated as equity settled SBP.
entry:
PnL debit
SBPR credit

Question 30

accounting treatment for recplacement awards?

Answer 30

replacement awards are when P is giving shares to S employees at the time of takeover, as a replacement of S co’s shares.

-if replacement is compulsory: then make it part of cost of investment
-if replacement not compulsory then treat under ifrs 2