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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ 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″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#ffffff” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.2″ title=”Index”]Contents
26.1 Scope of this section.
26.1.1 Extract from FRS102: Section 26.1 – 26.2.
26.1.2.1.1 What is meant by goods?
26.1.2.1.2 What are share appreciation rights?
26.1.2.1.3 Examples of arrangements that do or do not come within the remit of Section 26.
26.2 Recognition with or without vesting conditions.
26.2.1 Extract from FRS102: Section 26.3 – 26.6.
26.2.2.1.2 Journal required where equity settled.
26.2.2.1.3 Journal required where cash settled.
26.2.2.1.4 Example of vesting conditions.
26.3 Measurement of equity-settled share-based payment transactions.
26.3.1 Extract from FRS102: Section 26.7 – 26.9.
26.3.2.1 Overview – Equity settled share -based payment transactions.
26.3.2.1.1 Equity settled share-based payment transactions – Defined.
26.3.2.1.3 Grant date defined.
26.3.2.2.1 Service date and fair valuing a non-employee service.
26.3.2.2.2 Determining the grant date.
26.3.2.3 Service conditions – defined.
26.3.2.4 Performance conditions – vesting and non-vesting market conditions.
26.3.2.4.2 Market conditions – defined.
26.3.2.4.2.1 Examples of market vesting conditions (section 26.9 of FRS 102 refers).
26.3.2.4.2.2 Examples of non-market vesting conditions (section 26.9 of FRS 102 refers).
26.3.2.4.2.3 Non-vesting conditions.
26.3.2.5 Accounting for market and non-market vesting conditions – Fair valuing rules.
26.3.2.5.1 All market vesting and non-vesting market conditions incorporated into fair values.
26.3.2.5.1.1 Once fair value determined – it cannot change subsequently.
26.3.2.6 Examples – Accounting for equity settled share based payments.
26.3.2.6.1 Award with service conditions – no change in assumptions (Section 26.9 of FRS 102).
26.3.2.6.2 Award with service conditions – change in assumptions (Section 26.9 of FRS 102).
26.3.2.6.4 Equity instruments – non market vesting conditions.
26.3.2.6.6 Award of equity with a market condition.
26.4 Valuation of shares, Share options and equity-settled share appreciation rights.
26.4.1 Extract from FRS102: Section 26.10 to 26.11.
26.4.2.2 Fair valuing shares, share options and equity-settled share appreciation rights.
26.4.2.4 Examples of option pricing model and how they work.
26.5 Modifications to the terms and conditions on which equity instruments were granted.
26.5.1 Extract from FRS102: Section 26.12.
26.5.2.1.1 Modification increases value to the employee.
26.5.2.1.1.1 What is meant by incremental value.
26.5.2.1.2 Modification decreases value to the employee.
26.5.2.2 Examples of modifications.
26.5.2.2.1 Worked examples of modifications – repricing/increase in number of options.
26.6 Cancellations and settlements.
26.6.1 Extract from FRS102: Section 26.13.
26.6.2.1 Overview and application.
26.6.2.2 Examples of cancellation and settlement – accounting.
26.6.2.3.1 What is a forfeiture?
26.6.2.3.2 Accounting for forfeitures.
26.7 Cash-settled share-based payment transactions (and cash alternatives).
26.7.1 Extract from FRS102: Section 26.14-26.15B.
26.7.2.1.1 Entity has choice to settle in cash or by issuance of equity.
26.7.2.1.2 Counterparty has choice to settle in cash or by issuance of equity.
26.7.2.2 Examples of cash settled share based payment transactions.
26.7.2.3 Accounting examples of cash settled share based payments.
28.8.1 Extract from FRS102: Section 26.16.
26.8.2.1 Share based payments where shares issued in parent in return for service in Subsidiary.
26.8.2.1.1 Accounting for the SBC in the subsidiary.
26.8.2.1.1.1 Recharge of costs by parent subsequently.
26.8.2.1.2 Accounting for the SBC in the parent.
26.8.2.1.2.1 Recharge of costs by parent subsequently.
26.8.2.2 Allocation of share based payment charge within a group.
26.8.2.3 Share based payment accounting in Groups.
26.9 Deferred tax.
26.10 Disclosures.
26.10.1 Extract from FRS102: Section 26.18 – 26.23.
26.10.2.2 Accounting policy notes.
26.10.2.3 Extract from the notes to the financial statements.
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26.2 Recognition with or without vesting conditions
26.2.1 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.
26.2.2 OmniPro comment
26.2.2.1 Overview
As per Sections 26.3 to 26.5 of FRS 102 where share based payments are provided without any vesting conditions (see 26.2.2.1.1 for the definition of vesting) then the fair value of the shares issued is recognised as an expense immediately unless they relate to an asset with the corresponding amount recognized in equity (if equity settled) or liabilities (if cash settled).
As per Section 26.6 of FRS 102 where the share based payments have vesting conditions, the cost is allocated over the life of the vesting period on a straight line basis.
26.2.2.1.1 Vesting defined
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’.
26.2.2.1.2 Journal required where equity settled
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 |
See further details at 26.3.2
26.2.2.1.3 Journal required where cash settled
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 |
See further details at 26.2.2.1.4
26.2.2.1.4 Example of vesting conditions
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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Example 1: Shares issued for services rendered.
Example 2: Shares issued in return for stock.
Example 3: Share appreciation.
Example 5: Shares issued to employees as part of a business combination.
Example 6: Shares issued to the previous owner as part of a business combination.
Example 7: Issuance of share rights/options in other group companies.
Example 8: Phantom share scheme.
Example 9: Vesting conditions.
Example 10: Non-vesting conditions.
Example 14: Award with service conditions – no change in assumptions.
Example 15: Award with service conditions – change in assumptions.
Example 16: Equity instruments vesting in installments (Section 26.7 to 26.9 of FRS 102).
Example 17: Equity instruments – non market vesting conditions.
Example 19: Award of equity with a market condition.
Example 20: Award of equity with a market condition.
Example 21: Modification – repricing.
Example 22: Modification – increase in number of options.
Example 23: Cancellation and settlement of a share option during vesting period.
Example 25: Cash settled share based payment.
Example 28: Extract from the accounting policy notes.
Example 29: Extract from the notes to the financial statements.
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