Share Based Payment

Question 1

What are the two types of Share Based Payments?

Answer 1

Equity Settled and Cashed Settled

Question 2

What is the double entry for Equity Settled?

Answer 2

Dr Expense Cr Equity ‘Other’

Question 3

What is the double entry for Cash settled?

Answer 3

Dr Expense Cr Liability

Question 4

What is equity Settled?

Answer 4

Payment is offered by Company’s shares

Question 5

What is cash settled?

Answer 5

Payment based on cash price

Question 6

What is the difference between Cash settled and equity settled?

Answer 6

The FV changes each year until date of settlement for cash settled whereas the FV stays constant for equity settled.

Question 7

When calculating between one year and another year, where does the difference go to?

Answer 7

P/L

Question 8

What are two types of vesting conditions?

Answer 8

Market and Non-Market conditions

Question 9

What type of condition is share price?

Answer 9

Market Condition

Question 10

What is the general rule for market conditions?

Answer 10

We make no adjustment to equity

Question 11

When do we estimate the vesting period for market conditions?

Answer 11

At the start

Question 12

Can we adjust for non-market conditions?

Answer 12

yes, we do adjust annually.

Question 13

If options do not vest, what happens?

Answer 13

The equity built can be transferred to retained earnings.

Question 14

When estimating the vesting period, if the period when it vest is actually shorter than the expected vesting period, what do you do?

Answer 14

Accelerate the remainder when it vests

Question 15

When estimating the vesting period, if the period when it vest is actually longer than the expected vesting period, what do you do?

Answer 15

Just use the original estimate

Question 16

What applies to IFRS 2?

Answer 16

1) Must be for goods and Services

2) If the share of employees is based on work/services

Question 17

If the Parent is obliged to replace Subsidiary’s option, do we recognise this as IFRS 2

Answer 17

No we recognise this as IFRS 3 (Business Combinations) since we treat this as FV of considerations

Question 18

If P is not obliged to replace S’s Subsidiary, do we recognise this as IFRS 2?

Answer 18

Yes, we treat this as wages since we are being nice and we spread this across the vesting period.

Question 19

What are the conditions that needs to be met if the holder gets rights to the shares and share options?

Answer 19

Market conditions and non market conditions

Question 20

What does Modification mean and give examples?

Answer 20

Changing the terms during vesting period

E.g. Change the exercise price and change the vesting condition

Question 21

How do you treat modifications?

Answer 21

1) Continue as normal
2) If the change in exercicse price and vesting condition increase FV ( Spread that increase over the remaining vesting period)

Question 22

If there are cancellations/Early Settlement during vesting period, what do you do?

Answer 22

1) Recognise full settlement immediately
2) Any Payment to employee ( Dr Equity Cr Cash) up to FV
3) Above FV ( Dr Exp Cr Cash)