Week 3.1: Share-based payments Flashcards
What are share-based payments?
When an organisation compensates for receiving goods or services using shares or share options.
What are the benefits of share-based payments?
They are a common way of rewarding employees.
This encourages long-term commitment to companies by giving employees a vested interest in the business.
Aligns employee and organisational objectives.
What was the problem with share-based payments?
Initially they were covered by IAS 19, and they did not have any recognition in the financial statements, only disclosed in notes section.
This type of payment became popular, therefore IFRS 2 was eventually introduced.
According to IFRS 2, how should share based payments be recognised?
recognise an expense for share-based payments for goods or services in the period in which they were acquired.
Increase in equity is it is equity-settled and increase in liability if it is cash-settled.
How should the share based payments be measured?
At fair value.
If FV of goods/services cannot be measured, use FV of equity instrument.
What is vesting period?
The schedule over which you gain ownership of various benefits.
Employees can only exercise options after they have vested.
What are conditions that employees need to meet to receive the share-based payments?
- Service conditions- Having to complete a specific period of service (e.g. 5 yrs)
- Performance condition- – having to meet specified performance targets (e.g. specified increase in profit )
What is an intrinsic value?
In rare cases where FV of equity is not measurable, you work out intrinsic value.
= Fair value of shares - Exercise price
What is the difference of share-based payments measurments of equity-settled and cash-settled?
Equity based- Measured at fair value on the grant date.
Cash settled- Measured at fair value of the liability at each financial statement date.
