ifrs 2: share-based payments

OVERVIEW


The objective of the IFRS 2 – Share based payments is to set the accounting treatments of the payments made by an entity either:


=> In the form of shares (Including shares options).

=> In cash, where the amount of cash payable depends upon the company share price.


Key Takeaway Points

 

=> IFRS 2 deals with the accounting treatment of the share based payment that is required by an entity to pay to employees against the good or services received by it from employees.


=> In case of the payments of the equity instruments the entity shall measure the equity instrument shall measure at the fair value at the grant date.


=> It is presumed that employee shall render the services to an entity during the vesting period to earn the share based payments. Therefore, the cost of providing the share based payments is written off in the statement of profit or loss with a corresponding increase in the equity.


=> Estimates involved in the number of the equity instruments to be issued on the vesting date may vary during the vesting period and as the employees continue to satisfy the conditions or fail to satisfy the conditions. Such estimates shall be dealt as per IAS 8 – Accounting policies, changes in accounting estimates and errors.


FEATURES OF IFRS -2


Following important features of the IFRS 2 are worth to note:


=> Shared based payments could be made against the goods and services received by an entity. However, we have to emphasize here that the shared based payments are made to employees.


=> Here it should be clearly distinguish the dates on which an entity and employee agree to the shared based payment arrangements which is preferably the grant date and it is the date on which employee is entitled to receive the payments concerned I –e the vesting date.


The employees with vesting options shall satisfy certain conditions to exercise such option. The main requirements of IFRS 2 in relations to shared based payments to employees are as follows:


=> In case of the payments of the equity instruments the entity shall measure the equity instrument shall measure at the fair value at the grant date.


=> It is presumed that employee shall render the services to an entity during the vesting period to earn the share based payments. Therefore, the cost of providing the share based payments is written off in the statement of profit or loss with a corresponding increase in the equity.


=> Estimates involved in the number of the equity instruments to be issued on the vesting date may vary during the vesting period and as the employees continue to satisfy the conditions or fail to satisfy the conditions. Such estimates shall be dealt as per IAS 8 – Accounting policies, changes in accounting estimates and errors.


=> Any remaining balance of the equity after the vesting option exercised shall be transferred to the other component of the equity preferably retained earnings. This would occur if the employees who satisfy the vesting conditions decides subsequently decide not to exercise the vesting option.


=> In the case of share based payments which are required to be settling in cash, the entity shall measure the liability at the fair value. If the liability is not settled at the end of the reporting period then the liability shall be measured at the fair value and any gain or loss shall be recorded in the statement of profit or loss and other comprehensive income.


=> In case of the equity settled share based payments the cost of providing cash settled shared based payments shall be written off in the statement of profit or loss and other comprehensive income.