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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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26.6 Cancellations and settlements
26.6.1 Extract from FRS102: Section 26.13
26.13 An entity shall account for a cancellation or settlement of an equity-settled share-based payment award as an acceleration of vesting, and therefore shall recognise immediately the amount that otherwise would have been recognised for services received over the remainder of the vesting period.
26.6.2 OmniPro comment
26.6.2.1 Overview and application
Section 26.13 of FRS 102 deals with cancellations and settlements of equity settled share based payments.
IFRS 2 requires cancellation accounting to be applied to a reduction in the number of equity instruments when a modification reduces both the number of equity instruments granted and the total fair value of the award. Section 26 is silent in this regard however it is likely IFRS 2 guidance should be used based on the hierarchy stated in this section of FRS 102.
IFRS 2 requires the following approach which should be followed when similar issues occur under FRS 102:
(a) if the cancellation or settlement occurs during the vesting period, it is treated as an acceleration of vesting and the entity recognises immediately the amount that would otherwise have been recognised for services received over the remainder of the vesting period (as per Section 26.13 of FRS 102).
(b) Where an entity pays compensation for a cancelled award:
- any compensation up to the fair value of the award at cancellation or settlement date (whether before or after vesting) is accounted for as a deduction from equity, as being equivalent to the redemption of the equity instruments.
- Any compensation paid in excess of the fair value of the award at cancellation or settlement date (whether before or after vesting) is accounted for as an expense in profit or loss; and
- If the share based payment arrangement includes liability components, the fair value of the liability is remeasured at the date of cancellation or settlement. Any payment made to settle the liability component is accounted for as an extinguishment of the liability.
(c) If the entity grants new equity instruments during the vesting period and on the date that they are granted, identifies them as replacing the cancelled or settled instruments, the entity is required to account for the new equity instruments as if they were a modification of the cancelled or settled award. Otherwise it accounts for the new instruments as an entirely new award.
26.6.2.2 Examples of cancellation and settlement – accounting
See example below illustrating the requirements of Section 26.13 of FRS 102.
Example 23: Cancellation and settlement of a share option during vesting period
At the start of year 1, Company A granted 10 share options to each of its 100 employees on the condition that they stay in employment for four years (i.e. option exercisable after that period).
The fair value of the option is determined to be CU10. At the end of year 1 the entity estimates 90% of employees will remain in service for the vesting period. The expense estimated to be recognised at year 1 is as follows:
Year 1 = 10 shares * CU10 * 100 employees = CU10,000*90% of employees expected to remain in service = CU9,000. Therefore CU9,000 should be recognised over the four year period. Hence CU2,250 (CU9,000/4yrs) should be recognised as an expense for each year based on assumptions at the end of year 1.
At the end of year 2, the company encountered very tough trading conditions and as a result there was a significant fall in the company’s value. Company A decided to cancel the share options which had a fair value of CU5 at that date and in return provide a payment to employees of CU7. The number of employees still employed by the company at that time was 80.
| Cumulative Expense | Expense for Year | |
| Year 1 | CU2,250 | CU2,250 |
| Year 2 | CU8,000* | CU5,750 (CU8,000-CU2,250) |
* Year 2= under Section 26.13 the full amount has to be recognised immediately. 80 employees *10 share options per employee * CU10= CU8,000
The journal required in year 2 is:
| CU | CU | |
| Dr Employee Costs | 8,000 | |
| Cr Shares Based Payment Reserve | 8,000 |
The payment of the CU7 per share option on cancellation should be accounted for as follows:
| CU | CU | |
| Dr Share Based Payment Reserve (CU5 being the fair value of the original grant at the date of cancellation*80 employees *10 share options) | 4,000 | |
| Dr Employee Costs (CU7 being the amount paid-CU5 being the fair value of the original grant at the date of cancellation * 80 employees * 10 share options) | 1,600 | |
| Cr Bank (CU7*80 employees*10 share options per employee) | 5,600 |
26.6.2.3 Forfeitures
26.6.2.3.1 What is a forfeiture?
A forfeiture occurs where either a service or non-market performance condition is not met during the vesting period, because this effects the number of awards vested. A market or non vesting condition is not a forfeiture.
The treatment for forfeitures differs from that of a cancellation. It does not result in an acceleration of the expense as the entity could not avoid cancelling the options.
26.6.2.3.2 Accounting for forfeitures
See examples illustrating the requirements stated in Section 26.12 of FRS 102:
Example 24: Forfeiture
At the start of year 1, Company A granted 10 share options to an employee on the condition that they stay in employment for four years (i.e. option exercisable after that period).
The fair value of the option is determined to be CU15. At the end of year 1 the entity estimates the employee will remain in service for the vesting period. The expense estimated to be recognised for year 1 is as follows:
| CU | CU | |
|
Dr Employee Cost (10 Share Options*CU15) |
150 | |
| Cr Share Based Payment inequality | 150 |
At the end of year 2, the company’s performance decreased and the company had to lay off this employee. In this instance as the employee was made redundant for genuine reasons, the expense recognised to date for that employee is reversed similar to the way in which a change in estimate occurs. i.e. the journal will be to:
| CU | CU | |
| Dr Share based Payment Reserve | 150 | |
| Cr Employee Cost | 150 |
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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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