Share Based Payments

Question 1

What is a share-based payment?

Answer 1

It occurs when an entity obtains goods or services from other parties (such as employees or suppliers) and settles the amounts payable by issuing to them shares or share options.
They can also involve cash payments being made, with the cash amount being linked to share values.

Question 2

What are some examples of share-based payments?

Answer 2

• a supplier may provide goods in return for shares in the entity
• share ownerships plans where employees receiver an entity’s shares in exchange for their services.
• Share appreciation rights (SARS) that entitle employees to cash payments calculated by reference to increases in the market price of an entity’s shares.
• Call options that gives the employees the right to purchase an entity’s shares in exchange for their services.

Question 3

What are the 3 types of SBPs?

Answer 3

1. Equity settled share-based payment transactions, in which the entity receives goods or services as consideration for equity instruments of the entity (including share or share options).
2. Cash settled share-based payment transactions, in which the acquires goods or services by incurring liabilities to the supplier for amounts that are based on the price (or value) of the entity’s shares or other equity instruments of the entity.
3. Hybrid transactions in which the entity receives goods or services and the terms of the arrangement provide either: (i) the entity; or (ii) the supplier of those goods or services
   with a choice of whether the entity settles the transaction in cash or by issuing the equity instruments.

Question 4

How shall equity -settled SBP be measured?

Answer 4

The entity shall measure the goods or services received at fair value of goods and services unless that fair value cannot be estimated reliably (in which case, grant-date fair value of equity instruments should be used)

Question 5

What are the two types of vesting conditions?

Answer 5

1. A market-based performance condition (is taken into account when estimating the fair value of the equity instruments granted)
2. Service conditions (taken into account when estimating the number of equity instruments that are likely to eventually vest)

Question 6

What are two examples of cash-settled share-based payments?

Answer 6

• share appreciation rights
• rights to shares that are redeemable for cash

Question 7

What is the accounting entry required for cash-settled schemes?

Answer 7

Dr Profit or loss
Cr Liabilities

Question 8

What are the arguments against accounting for share based payments

Answer 8

• no cost, therefore no charge
• earning per share would be hit twice
• adverse economic consequence

Reject all of these reasons - failure to record the transactions would result in an economic distortion, whereby goods and services are received without accounting for them