[et_pb_section admin_label=”Header – All Pages” global_module=”1221″ transparent_background=”off” background_color=”#1e73be” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”||0px|”][et_pb_row global_parent=”1221″ admin_label=”row”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ admin_label=”Post Title” title=”on” meta=”off” author=”on” date=”on” categories=”on” comments=”on” featured_image=”off” featured_placement=”below” parallax_effect=”on” parallax_method=”on” text_orientation=”left” text_color=”light” text_background=”off” text_bg_color=”rgba(255,255,255,0.9)” module_bg_color=”rgba(255,255,255,0)” title_all_caps=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid” title_font=”|on|||” title_font_size=”35″ custom_padding=”10px|||”] [/et_pb_post_title][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” global_module=”1228″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”0px||0px|” padding_mobile=”on” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row global_parent=”1228″ admin_label=”Row” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”0px||0px|” padding_mobile=”off” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ admin_label=”Text” background_layout=”light” text_orientation=”left” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://frs102.com/members/premium-toolkit/section-26/” type=”big” color=”red”] Return to Section 26 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Recognition with or without vesting conditions
Extract from FRS102: Section 26.3 – 26.6
26.3 An entity shall recognise the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction, or a liability if the goods or services were acquired in a cash-settled share-based payment transaction
26.4 When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, the entity shall recognise them as expenses.
26.5 If the share-based payments granted to employees vest immediately, the employee is not required to complete a specified period of service before becoming unconditionally entitled to those share-based payments. In the absence of evidence to the contrary, the entity shall presume that services rendered by the employee as consideration for the share-based payments have been received. In this case, on grant date the entity shall recognise the services received in full, with a corresponding increase in equity or liabilities.
26.6 If the share-based payments do not vest until the employee completes a specified period of service, the entity shall presume that the services to be rendered by the counterparty as consideration for those share-based payments will be received in the future, during the vesting period. The entity shall account for those services as they are rendered by the employee during the vesting period, with a corresponding increase in equity or liabilities.
OmniPro comment
Where share based payments are provided without any vesting conditions then the fair value of the shares issued is recognised as an expense immediately unless they relate to an asset.
Appendix I of FRS 102, defines vesting as ‘under a share based payment arrangement, a counterparty’s right to receive cash, other assets or equity instruments of the entity vests when the counterparty’s entitlement is no longer conditional on the satisfaction of vesting conditions’.
Where the share based payments have vesting conditions, the cost is allocated over the life of the vesting period on straight line basis. The journals required where the share based payments are deemed to be equity settled are:
| CU | CU | |
| Dr Employee Costs/Share Based Payment Costs | XXX | |
| Cr Share Based Payment Reserve (in equity) | XXX |
The journals required where the share based payments are deemed to be cash settled are:
| CU | CU | |
| Dr Employee Costs/Share Based Payment Costs | XXX | |
| Cr Provisions | XXX |
Example 9: Vesting conditions
Company A issued 10 of its employees with share options which vest if the employees remain in employment for 4 years. The fair value of the option for each employee as determined was CU400.
Therefore in this case, the entity at each reporting date must estimate how many of the employees will remain in employment for that period and allocate this over the 4 years.
Therefore if we assume that all 10 will stay for the four years at the end of year 1, the journal required to be posted is:
| CU | CU | |
| Dr Employee Costs/Share Based Payment Costs | 1,000 | |
| Cr Share Based Payment Reserve (in equity) (CU400*10 employees/4years) | 1,000 |
If we then assume at the end of year 2, one employee has left and we now anticipate only 9 will remain in employment. In this case the journal required to be posted is:
| CU | CU | |
| Dr Employee Costs/Share Based Payment Costs | 800 | |
| Cr Share Based Payment Reserve (in equity) ((CU400*9 employees/4 years*2yrs gone) less the CU1,000 already recognised in the prior year)) | 800 |
If in the above example, the company was required to settle the options in cash as opposed to issuing shares, then they would be accounted for as cash settled and instead of the credit going to the share based payment reserve, it would be posted to provisions.
Example 10: Non-vesting conditions Company A issues shares to its employees with no vesting conditions. In this case the fair value of the share is recognised as an expense immediately and taken to be issued for service previously given by employees.
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