STUDY NOTES

CFAP 1: ADVANCED ACCOUNTING AND FINANCIAL REPORTING

CHAPTER 10: IFRS 02 – SHARE BASED PAYMENTS

The accounting treatment of modifications and repricing is as follows

a) Continue to recognize the original fair value of the instrument in the normal way (even where the
modification has reduced the fair value).

b) Recognize any increase in fair value at the modification date (or any increase in the number of instruments
granted as a result of modification) spread over the period between the modification date and vesting date.

c) If a modification occurs after the vesting date, then the additional fair value must be recognized
immediately unless there is, for example, an additional service period, in which case the difference is spread
over this period.

Cancellations and settlement

An entity may settle or cancel an equity instrument during the vesting period. Where this is the case, the
correct accounting treatment is as follows:
a) To immediately charge any remaining fair value of the instrument that has not been recognized in profit
or loss (the cancellation or settlement accelerates the charge and does not avoid it).
b) Any amount paid to the employees by the entity on a settlement should be treated as a buyback of shares
and should be recognized as a deduction from equity. If the amount of any such payment is in excess of
the fair value of the equity instrument granted, the excess should be recognized immediately in profit or
loss.

Cancellation and reissuance

Where an entity has been through a capital restructuring or there has been a significant downturn in the equity
market through external factors, an alternative to repricing the share options is to cancel them and issue new
options based on revised terms. The end result is essentially the same as an entity modifying the original
options and therefore should have recognized in the same way.

Cancellation by parties other than the entity

As well as the entity, other parties may cancel an equity instrument, for example, the counterpart (e.g., the
employee) may cancel.

Cancellations by the employee must be treated in the same way as cancellations by the employer, resulting in
an accelerated charge to profit or loss of the unamortized balance of the options granted.

Determining the fair value of equity instruments granted

Where a transaction is measured by reference to the fair value of the equity instruments granted, fair value is
based on market prices where available.

If market prices are not available, the entity should estimate the fair value of the equity instruments granted
using a suitable valuation technique

07. Cash settled share-based payment transactions

• The credit entry in respect of a cash-settled share-base payment transaction reported as a liability.
• The fair value of the liability should be remeasured at each reporting date until settled
• Changes in the fair value are recognized in profit or toss.

Introduction
Cash-settled share-based payment transactions are transactions where the amount of cash paid for goods and
services is based on the value of an entity's equity instruments.
Examples of this type of transaction include:
a) Share Appreciation Rights (SARs): the employees become entitled to a future cash payment (rather than
an equity instrument), based on the increase in the entity's share price from a specified level over a
specified period of time; or

From the desk of Hassnain R. Badami, ACA

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