IFRS 2 SHARE BASED PAYMENT - basic overview and summary
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Definition of Share-based Payment
A share-based payment is a transaction in
which the entity receives or acquires goods or services either as
consideration for its equity
instruments or by incurring liabilities for amounts based on the price
of the entity's shares or other equity instruments of the entity. The
accounting requirements for the share-based payment depend on how the
transaction will be settled, that is, by the issuance of (a) equity, (b)
cash, or (c) equity or cash.
which the entity receives or acquires goods or services either as
consideration for its equity
instruments or by incurring liabilities for amounts based on the price
of the entity's shares or other equity instruments of the entity. The
accounting requirements for the share-based payment depend on how the
transaction will be settled, that is, by the issuance of (a) equity, (b)
cash, or (c) equity or cash.
Scope
The concept of share-based payments is broader
than employee share options. IFRS 2 encompasses the issuance of
shares, or rights to shares, in return for services and goods. Examples
of items included in the scope of IFRS 2 are share appreciation rights, employee share purchase plans,
employee share ownership plans, share option plans and plans where the
issuance of shares (or rights to shares) may depend on market or
non-market related conditions.
than employee share options. IFRS 2 encompasses the issuance of
shares, or rights to shares, in return for services and goods. Examples
of items included in the scope of IFRS 2 are share appreciation rights, employee share purchase plans,
employee share ownership plans, share option plans and plans where the
issuance of shares (or rights to shares) may depend on market or
non-market related conditions.
IFRS 2 applies to all entities. There is no
exemption for private or smaller entities. Furthermore, subsidiaries
using their parent's or fellow subsidiary's equity as consideration for
goods or services are within the scope of the Standard.
exemption for private or smaller entities. Furthermore, subsidiaries
using their parent's or fellow subsidiary's equity as consideration for
goods or services are within the scope of the Standard.
There are two exemptions to the general scope
principle.
principle.
First, the issuance of shares in a business combination
should be accounted for under IFRS 3 Business Combinations. However,
care should be taken to distinguish share-based payments related to the
acquisition from those related to employee services.
should be accounted for under IFRS 3 Business Combinations. However,
care should be taken to distinguish share-based payments related to the
acquisition from those related to employee services.
Second, IFRS 2 does not address share-based
payments within the scope of paragraphs 8-10 of IAS 32 Financial
Instruments: Disclosure and Presentation, or paragraphs 5-7 of IAS 39
Financial Instruments: Recognition and Measurement. Therefore, IAS 32
and 39 should be applied for commodity-based derivative contracts that
may be settled in shares or rights to shares.
payments within the scope of paragraphs 8-10 of IAS 32 Financial
Instruments: Disclosure and Presentation, or paragraphs 5-7 of IAS 39
Financial Instruments: Recognition and Measurement. Therefore, IAS 32
and 39 should be applied for commodity-based derivative contracts that
may be settled in shares or rights to shares.
IFRS 2 does not apply to share-based payment
transactions other than for the acquisition of goods and services. Share
dividends, the purchase of treasury
shares, and the issuance of additional shares are therefore
outside its scope.
transactions other than for the acquisition of goods and services. Share
dividends, the purchase of treasury
shares, and the issuance of additional shares are therefore
outside its scope.
Recognition and Measurement
The issuance of shares or rights to shares
requires an increase in a component of equity. IFRS 2 requires the
offsetting debit entry to be expensed when the payment for goods or
services does not represent an asset. The expense should be recognised
as the goods or services are consumed. For example, the issuance of
shares or rights to shares to purchase
inventory would be presented as an increase in inventory and would be
expensed only once the inventory is sold or impaired.
requires an increase in a component of equity. IFRS 2 requires the
offsetting debit entry to be expensed when the payment for goods or
services does not represent an asset. The expense should be recognised
as the goods or services are consumed. For example, the issuance of
shares or rights to shares to purchase
inventory would be presented as an increase in inventory and would be
expensed only once the inventory is sold or impaired.
The issuance of fully vested shares, or rights
to shares, is presumed to relate to past service, requiring the full
amount of the grant-date fair value to be expensed immediately. The
issuance of shares to employees with, say, a three-year vesting period
is considered to relate to services over the vesting period. Therefore,
the fair value of the share-based payment, determined at the grant date,
should be expensed over the vesting period.
to shares, is presumed to relate to past service, requiring the full
amount of the grant-date fair value to be expensed immediately. The
issuance of shares to employees with, say, a three-year vesting period
is considered to relate to services over the vesting period. Therefore,
the fair value of the share-based payment, determined at the grant date,
should be expensed over the vesting period.
As a general principle, the total expense
related to equity-settled share-based payments will equal the multiple
of the total instruments that vest and the grant-date fair value of
those instruments. In short, there is truing up to reflect what happens
during the vesting period. However, if the equity-settled share-based
payment has a market related performance feature, the expense would
still be recognised if all other vesting features are met. The following
example provides an illustration of a typical equity-settled
share-based payment.
related to equity-settled share-based payments will equal the multiple
of the total instruments that vest and the grant-date fair value of
those instruments. In short, there is truing up to reflect what happens
during the vesting period. However, if the equity-settled share-based
payment has a market related performance feature, the expense would
still be recognised if all other vesting features are met. The following
example provides an illustration of a typical equity-settled
share-based payment.
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