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Definition
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.
Scope
IFRS 2 encompasses the issuance of shares, or rights to shares, in return for
services and goods.
Items included in the scope of IFRS 2 are
plans where the issuance of shares (or rights to shares) may depend on
market or non-market related conditions.
Measurement
1. Equity settled the entity issues equity instruments in consideration for services
rendered.
Share options
2. Cash settled the entity incurs a liability for services received and the liability is
based on the entitys equity instruments.
Share appreciation rights
Share Options
1. Rights or privileges granted to officers and key employees of a corporation to
acquire shares during a specified period upon fulfillment of certain conditions at a
specified price.
2. Measurement of compensation
Fair value method
Compensation is equal to the fair value of the share options on
the date of grant.
Fair value is computed using stochastic calculus.
Fair value may be computed using option valuation models.
Examples of option valuation models are Black-Scholes Model,
Garman & Kholhagen Model, Reiner & Rubinstein Model,
Trinomial Model, Binomial Options Pricing Model and the BlackScholes Merton Model.
Required method in PFRS 2.
Intrinsic value method
The compensation is equal to the intrinsic value of the share
options.
The intrinsic value is the excess of the market value of the share
over the option price.
The intrinsic value can be used only if the fair value of the
share option cannot be estimated reliably.
The entity shall measure the share options at their intrinsic value
initially and subsequently at each reporting date and at the date of
final settlement, with any change in intrinsic value recognized in
profit and loss.
3. Option price is usually less than the market price.
4. Considered additional compensation given to officers and employees.
Recognition of Compensation
PFRS 2 provides the following rules for the recognition of compensation expense:
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Pro-forma Entries
Recognition
Exercise
Expiration
xxx
Cash
Shares options outstanding
Share capital
Share premium
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Salaries expense
Salaries payable
xxx
xxx
3
Payment
Salaries payable
Cash
xxx
xxx
P xxx
xxx
Pxxx
Pro-forma Entries
Recognition of
liability and equity
component
Settlement
If Cash
alternative
If Equity
alternative
Salaries
Share options outstanding
xxx
Salaries expense
Salaries payable
xxx
Salaries payable
Share options outstanding
Cash
Share premium
xxx
xxx
Salaries payable
Share options outstanding
Share capital
Share premium
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Disclosures
the nature and extent of share-based payment arrangements that existed during
the period;
4
how the fair value of the goods or services received, or the fair value of the equity
instruments granted, during the period was determined; and
the effect of share-based payment transactions on the entity's profit or loss for
the period and on its financial position.
July 2009