CA Chandan Kumar Jha
1. IFRS 2 applies to all share-based payment transactions, which are defined as follows:
♠ Equity-settled, in which the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options)
♠ Cash-settled, in which the entity receives goods or services by incurring a liability to the supplier that is based on the price (or value) of the entity’s shares or other equity instruments of the entity
♠ Transactions in which the entity receives goods or services and either the entity or the supplier of those goods or services have a choice of settling the transaction in cash (or other assets) or equity instrument.
2. Outside the scope
IFRS 2: “the date at which the entity and another party (including an employee) agree to a share-based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement”
Equity settled: settled in equity instruments of the entity (or another entity in the group)
Cash settled: settled in cash, based on the price (or value) of the entity’s shares
– Counterparty (e.g. LTI participant) has choice:
– Company has choice:
A. Equity Settled
Transaction with employees
Transaction with non-employee
B. Cash Settled
C. Choice of Settlement
Counterparty (e.g. LTI participant) has choice:
Company has choice:
Equity settled: – Measured at fair value at grant date.
Cash settled: – Fair value of Liability incurred.
8. Group settled share-based payments (IFRS Para 43C)
The entity receiving the goods or services will recognise the transaction as equity-settled only if:
In all other circumstances, the entity will measure the transaction as cash-settled.
9. Practical application