IFRS 2 - Share Based Payments

Arguments For IFRS 2

Arguments Agianst IFRS 2 it hits the EPS Twice

Dr. Staff Cost Profit goes down

Cr. Equity number of shares go up

EPS = Earnings / Number of Shares

Three Possibilities

Equity Settled Cash Settled Choice -

Equity / Cash

Record the cost Cost Cost

Increase the Eq Record Liab Record Liab

Upon acquisition of Hash, Leigh issued 3 million shares to the previous sharegholders of Hash.
These 3 million shares represent the consideration offered to acquire the new entity
IFRS 2 states that acqusiition transactions are not treated under IFRS 2
This transaction on the other hand should be treated under IFRS3 Business combinaton
However, Leigh further promised to offer further 5000 shares to each of the directors of hash
if only they stayed with leigh until a certain date
This looks like an emplyment arrangement and therefore
the issued shares must be trated under IFRS 2

Made the committemnt - share price was $ 2 Grant Date

Vesting date one year later 31.05.2007 * share price ??

Measurement 5000*$2*5 50000

Dr. Staff Cost - Profit and Loss 50000

Cr. Equity 50000

As for the shares issued to employees as a bonus it looks like that there are
no vesting conditions regarding future. In fact the shares were issued on the same say to employees
Under IFRS2 we should take the value as of the grant date. In this case the grant date and the
issue date is same. So we can take fair value as 3 million
This should debit the profit and loss and credit equity

Dr. Staff Cost 3000

Cr. Equity 3000

The purchase of assets is against shares is allowed under IFRS 2 and in this case
where Leigh company is buying assets by giving an option to supplier
to either get shares or get settled in cash is purely an IFRS 2 based transaction

In such situations we should treat the transaction as a compound financial instrument

and calculate the fair value of liability and if there is any difference
between the asset acquired and the liability recognized … that differece is credited to
equity
On the date of settlement the liability is remeasured and any differences are charged to profit and lo

On the date of purchase of PPE

31.05.2007
Dr. PPE 4000
Cr. Liability 1300*3 3900
Cr Equity 100

On the setllement Date after three months we will remeasure the liability and any diffeences will br c

Shares 50000
Cash 40000

Settlement Date 01.07.2008

FV of Share Alternative 2.5 31.07.2007

Market Price of Share 3

Choice between equity and cash

Share 50000*2.5 125000

Cash 40000*3 120000

Dr. Staff Cost PnL 125000

Cr. Liability 120000
Cr. Equity 5000
ous sharegholders of Hash.
e the new entity

usiness combinaton
h of the directors of hash

Grant Date

d on the same say to employees

case the grant date and the
nd in this case

transaction

ancial instrument

ece is credited to

nces are charged to profit and loss

bility and any diffeences will br charged to profit and loss