Share Based Payments

Question 1

What is a share Based payment?

Answer 1

A payment whose value is based on the value of the shares

Question 2

What legislation deals with share Based payments?

Answer 2

IFRS 2

Question 3

What are the things to consider when thinking about share Based payments?

Answer 3

• recognition
• is it a group share Based payment or not?
• how is it going to be measured
• disclosure

Question 4

How does one measure a share Based payment?

Answer 4

• is it equity settled or cash settled?
• if it is equity settled, checked if it’s with employees or not
  > if it is with employees, the goods and services and increase in equity is measured as follows
  / FV of good or service if reliably estimated
  / FV of equity instruments if FV of goods and services can’t be reliably estimated
  / if FV of equity > identifiable consideration, then unidentified goods and services have been received
  / FVs are measured at the date that the entity obtains the good or service but the FV for the unidentified goods and services is measured on the GRANT DATE
  / there is a rebuttable presumption that the fair value of goods and services can be estimated reliably
  > if it is with employees (for staff costs)
  / it must be measured of the equity instrument granted on grant date
  / if it vests immediately, presume services are already received
  / if the vesting is based on vesting conditions
  ~ does not affect the FV of the equity instrument
  ~ expense/equity adjusted for number of instruments expected to vest
  ~ vests more over time as it passes
  / if the vesting conditions are market related, the following happens
  ~ FV takes into account market conditions at grant date but there are no subsequent changes if the market changes
  ~ slsmtbjnf about being related to the market price of entities equity instruments
• if it is cash settled sjdbdbd
  > the must be remeasured at the reporting date every year
  > if there are goods and services being paid for, they must be measured at the Fair value of the liability
  > the intrinsic value = Fair value of the share - strike price
  > if there are conditions, the same rules apply as equity share Based payments
• when it is a share Based payment with cash alternative, the following must be considered
• if there is a liability, it is accounted for as Cash settled, otherwise it’ll be treated as equity settled
• if the choice of settlement lies with the entity
  / there is a present obligation (liability) if any of the following conditions are met
  ~ equity settlement has no commercial substance
  ~ past practice or policy to settle in cash
  ~ entity generally settles in Cash if requested
  / otherwise it’ll be treated as equity settled as that will probably happen
• if the choice of settlement lies with the counterparty
  / it could be a compound instrument
  / if the transaction is not with employees, the equity portion = FV g/s - FV debt
  / if it is with employees, measure the Debt and the equity and if the debt matches the equity, the equity value is NIL
• OTHER ISSUES

Question 5

How does one measure a group share-Based payment?

Answer 5

• if it is for the receipt of goods or services
• determine whether cash or equity settlement accounting should be used by assesing the nature of the awards and our own rights and obligations
• it will be equity settled if awards granted in own equity instruments or entity has no obligation to settle
• all other cases will be considered Cash settled

Question 6

What are the common scenarios that we get when dealing with group share-based payments based on the parent’s and how do we deal with them?

Answer 6

• parent grants equity instruments on behalf of subsidairy
• it’ll be accounted for as equity settled in, sub books, parent books and group books
• subsidiary grants equity instruments of its parent
• it’ll be equity settled in terms of the group
• it’ll be Cash settled in terms of the subsidiary
• there will be no implication for the parent’s own books
• Parent grants cash payments to employees of subsidiary based on price of parents shares and sub doesnt need to reimburse the parent
• sub will account or them as equity settled since there is no obligation to settle for them
• parent will account for them as cash settled
• group will also account for this as cash settled

Question 7

What are the common scenarios that we get when dealing with group share-based payments based on the your own equity instruments and how do we deal with them?

Answer 7

• entity grants rights to own instruments and either chooses or is required to buy its own equity instruments to satisfy the obligation
• the shareholders or the entity grants rights to its own equity instruments to employees, with the shareholders providing the instruments????????????????????????
• group = equity; everyone = equity? Shareholders = cash settled
• parent grants the equity instruments of the subsidiary to the employees
• sub = equity; parent = cash; group = equity

Question 8

Should a share based payment always be expensed?

Answer 8

• the payment should only be expensed it it does not relate to the consideration for an asset that the company will then record