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Chapter
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Share-Based Payments (IFRS 2)
385
5.2 Thus the cumulative expe nse recogni zed at the rep orting date is the fair va lue on the rep ort ing
da te times the amount of the vesting period that has lapsed. An y change in the fair va lue bet ween
the ves ting date and the settleme nt date is recogni zed immediately.
Case Study 3
An entity issues share appreciation rights on July I.
20X5,
and the entity's year-end is June
30, 20X6.
The rights vest on June
30, 20X9.
The value of the share appreciation rights was
$1
million at the
beginning of the year. The fair value on June
30, 20X6,
had increased by
$600,000.
Required
What is the expense for share appreciation rights for the year ended June
30, 20X6?
Solution
The expense for the year would increase to
$400,000
from
$250,000
per year
(250
+
600 / 4),
leaving the
remaining balance of
$1.2
million to be recognized over the remaining three-year period. If the share ap–
preciation rights were to be settled in
2X
II, any change in the fair value between
20X9
and
2X
I I would
be shown in the financial statements immediately.
5.3 Unlike equity-settled tran sactions, any redu cti on in the va lue of the award is recognized im–
medi atel y, even if the award is not ex e rcised. The payment of a cas h-settled share- based tran sac–
tion can occur after the servi ces are rendered.
6. TRANSACTIONS THAT CAN BE SETTLED FOR SHARES OR CASH
6.1 Some sha re-based paym ent tran sact ions allow the ent ity or the employee the choice as to
whe ther to settle the tran sacti on in cas h or by issuin g equity ins trume nts. An employee may have
the right to choose be tween a payment equal to the market price of the shares o r be g ive n sha res
subj ect
to
certain cond itions-for example, not being able to sell them for a period of time. Th e
accounting for this type of instrument depends on which part y has the cho ice of settleme nt meth od
and the ex tent to which the enti ty has incu rred a liability.
6.2 If the employee has the right to choose the settleme nt meth od, the entity is deem ed to have
issued a compound fin anci al ins trument (i.e., it has issued an instrument with a debt element-the
ca sh component-and an equity eleme nt-whe re the employee has the right to receiv e equity
instruments).
6.3 If the fair va lue of the goods or services received can be measured directly and easily, the eq–
uit y element is determined by taking the fair va lue of the goods or se rvices less the fair value of the
debt element of thi s instrument. T he debt eleme nt is ess entially the cash pa yment that will occur. If
the fair va lue of the goods or se rvices is measured by referen ce to the fa ir valu e of the equity in–
strume nts given, the who le of the compo und instrument sho uld be fai r valued. The equity elemen t
becomes the d ifference between the fair va lue of the equity instrumen ts granted less the fair val ue
of the debt component.
Case Study 4
An entity has purchased property. plant, and equipment for
$10
million. The supplier can choose how
the purchase price can be settled. The choices are the receipt of I million shares of the entity in one
year's time or the receipt of a cash payment in six months' time equivalent to the market value of
800,000
of the entity's shares.
It
is estimated that the fair value of the first alternative would be
$ 11
mil–
lion and the fair value of the second alternative would be
$9
million.
Required
Explain how this transaction is accounted for.
Solution
When the entity receives the property, plant, and equipment, it should record a liability of
$9
million and
an increase in equity of
$ 1
million (the difference between the value of the property, plant, and equip–
ment and the fair value of the liability).