IFRS 2 : Modifications

 Only account for modification is are beneficial to the employee

 E.g longer vesting period
 Share price target lower
 Exercise price
 If not beneficial to employee , IGNORE the modification
 Running two calculation
 Original SBP (options x ee x FV at grant x time)
 Continue as normal
 Modified SBP options x ee x (FV modified SBP less FV original SBP on
modification date ) x time (modification date to vesting date)
 Learn this (below)
 Total SBP = Original + Modified
 Account for movement as normal

Cancellation and settlement

 Cancellation Accounted as an acceleration of vesting and any future expense is
recognised immediately
 Treating cancelation date as if it’s a vesting date
Example (Cancellation)
If a four year scheme is cancelled at the end of two years, this would need to be done
Opening balance (end of yr 1) =1/4 x FV x Equity instrument
New Balance (end of Y2) = 4/4 x FV x Equity instruments
Settlement

 Any payment made shall be accounted for as a repurchase of an equity interest

 Similar to share buy back where we cannot recognise any profit or loss
Exception

 To extent that the payment exceeds the fair value of the equity instruments granted,
measured at the repurchase date, such excess shall be recognised as an expense
 Additional expense
e.g
- FV of share on cancellation = R10/share BUT Employer is paying employee R15 per
share
- The extra R5 need to be expensed
Jounal

Dr : Employee cost (P/L)

Cr : SBP reserve (SCE)
Accelerate of the vesting of the scheme

Dr: SBP reserve (SCE) (new balance)

Dr: expense cost (P/L ) (Cash paid R15 – FV of scheme R10) (additional expense)
Cr Retained earnings (SCE) (Difference between new balance and cash paid)
Cr Bank (SFP) (being the cash paid on termination of scheme)
Payment against the scheme

Cancelation. Settlement and issuing of new shares

 New instruments granted as replacement, will be accounted for as modification

 Incremental fair value = Difference between FV of replacement equity
instruments and net FV of cancelled equity instrument
 i.e( FV of cancelled less any payment accounted as equity reduction)
Practical application
Step 1: Accelerate the vesting of the original scheme
Step 2: Process any payment against the scheme as repurchase
Step 3: Determine the Net fair Value = FV of original scheme less cash paid
Step 4: Determine the Fair value of new grant (modified grant) = fair value of new
scheme less the net FV
Ee’s x options x time x FV of new less (FV of new on the new grant date Less Net
FV)