ifrs 2 Flashcards
what is share based payment? Accounting entry?
payment through shares/share options
entry:
debit: machine/ salaries
credit: equity
3 types of Share based payment are
-equity settled (issue of shares)
-cash settled (cash equal to MP at payment date)
-share options
All SBP transactions are recorded at
fair value
what is direct and indirect measurement?
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.
what if no active market exists of goods purchased and of shares given (eg. if non public company)
then you might use valuation models (like the Black-Scholes model) to estimate the fair value of share options
what is unconditional grant and it’s double entry?
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
what is conditional grant and it’s accounting treatment?
it is payable upon condition being met. the expense is spread over vesting period (matching principle)
what are the two different types of vesting conditions?
1) non market conditions (service years or performance based)
2) market conditions (movement in share price)
what is service vesting condition and it’s accounting treatment?
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
accounting treatment for non market performance based SBP?
-vesting period may change
-same treatment as service based
-revise estimate each year
Accounting treatment for market based performance?
-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
in equity settled SBPs, what date fair value of option do we use?
grant date
what is the double entry for conditional grant yearly expense?
debit- PnL
credit- equity or share based payment reserve
how is yearly expense of conditional grant calculated?
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)
vesting period in non market performance condition can change?
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.)
performance market condition vesting period
not going to change due to volatility. we will always use expected vesting period of grant date.
treatment for grant cancellation?
we will book the remaining expense in PnL immediately. (saza)
entry:
PnL debit
SBPR credit
amount of above entry:
employees sharesFV at grant date
Entry for cancellation without settlement?
transfer all SBPR in R.E
SBPR debit
R.E credit
Accounting treatment for cancellation with settlement?
it is treated like buying back ur own shares. “treasury shares”
-it is debited in equity
entry:
equity debit
cash credit
if settlement price is more than fv of shares at settlement date
excess is booked as expense in PnL.
(compensation expense)
modification in grant, what is the treatment if it is beneficial for employees?
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
modification in grant, beneficial for company/ employer?
do nothing just book original grant (prudence)
what is the difference between cash settled SBP and equity settled SBP accounting treatment?
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
how to identify cash settled SBP?
“share appreciation right” will be mentioned
how to calculate fair value of option?
intrinsic value + time value
intrinsic value: MP - ex. price
time value: level of uncertainty
accounting treatment of share options?
-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
scope of ifrs 2?
-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.
how do we know if it’s derivative account and not ifrs 2
-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
if Parent promises susidary employees to give shares. how will this be treated?
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
accounting treatment for recplacement awards?
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
