Share based payments

Question 1

What is the accounting standard for Share Based payments?

Answer 1

IFRS 2

Question 2

What is the debit and credit for an equity settled transaction?

Answer 2

Dr Expense

Cr Equity

Question 3

What is the debit and credit for a cash settled transaction?

Answer 3

Dr Expense

Cr Liability

Question 4

What FV do you use in the equity settled schemes compared to the cash settled schemes?

Answer 4

Equity settled: at grant date and never changes

Cash settled: at year end and up date each year

Question 5

How do you recognise employee services?

Answer 5

Recognise over vesting period

Question 6

How do we treat the scheme if the company has the choice?

Answer 6

Treat as equity settled unless there is a present obligation to settle in cash

Question 7

If the company had the choice, what type of present obligation is there for a cash settled scheme?

Answer 7

Constructive - past behaviour

Question 8

Explain how you would treat market conditions?

Answer 8

Market conditions, such as achieving the share price, are ignored when calculating the number of equity instruments expected to vest.

This is because the fair value of any equity instruments granted already acknowledge the market conditions.

Question 9

Do you ignore the market conditions even if they are not meeting the condition?

Answer 9

Yes

Question 10

When the vesting period is dependent on performance conditions and it is a market condition, what happens to the length of the vesting period?

Answer 10

It is not revised

Question 11

When the vesting period is dependent on performance conditions and it is a non market condition, what happens to the expense?

Answer 11

Divided by the number of years which is most likely and revised at year end

Question 12

Explain what happens when the vesting period is longer than estimated

Answer 12

The expense is recognised over the original vesting period

Question 13

If an entity reduces the exercise price of options granted to employees, how do you deal with this?

Answer 13

Run two schemes, original and modified scheme.

Reprice the old scheme at date of modification and me w scheme to get the incremental FV

Question 14

When would an entity reduces the exercise price of options?

Answer 14

Normally when the MV has fallen

Question 15

Explain what happens when an entity cancels or settles a share based payment scheme before the vesting date

Answer 15

Acceleration of vesting

Question 16

When calculating the equity for Year 2, what do you need to remember to do?

Answer 16

Only post the movement! So reduce the amount by the b/fwd equity

Question 17

What are the two types of schemes?

Answer 17

Cash settled

Equity settled