Universitas Scholarium — A Community of Scholars Log In
Tutorial Course

ACCT 2207 · Share-Based Payment · IFRS 2

Led by Fra Luca de Pacioli Simulacrum

1 modules 1 module Accounting & Business Updated 6 days ago
Share-Based Payment …7
  1. Module 7 ○ Open

    Share-Based Payment · IFRS 2

    Led by Fra Luca de Pacioli Simulacrum

    The question

    Share-based payment under IFRS 2 — the recognition of the cost of awards (typically share options or RSUs) given to employees and others. The module covers the three classifications (equity-settled, cash-settled, equity-settled with cash alternative), the option-pricing models used to determine grant-date fair value (Black-Scholes, binomial lattice, Monte Carlo for path-dependent awards), the treatment of vesting conditions (service, non-market performance, market performance), and the year-by-year expense recognition with true-ups for forfeiture estimates. The worked scenario takes a three-year executive option grant from grant date through to exercise.

    Outcome

    The student can classify a share-based-payment award as equity-settled or cash-settled, calculate the grant-date fair value using Black-Scholes for a simple equity-settled option award, perform the year-by-year expense allocation including true-ups for forfeitures, and prepare the IFRS 2 disclosure note. (IFRS 2 share-based payment)

    Practice scenarios

    Halberd's Long-Term Incentive Plan

    You account for a three-year executive share-option grant of 250,000 options at Halberd plc, with two-year service vesting and a 30% TSR market condition, valued via Monte Carlo at grant. The work tests the IFRS 2 expense recognition pattern, the treatment of non-vesting forfeitures versus market-condition non-vesting, and the year-end true-up.

    Your goals

    • Total fair value at grant: 200,000 × £4.20 = £840k.
    • Expected number to vest at grant date: 200,000 × (1 − 8%) = 184,000.
    • Year 1 expense (12 months / 36 months): 184,000 × £4.20 × 1/3 = £257.6k. Dr Personnel expense, Cr Share-based-payment reserve in equity.
    • Year 2 (assume forfeiture estimate updated to 6% — better retention than expected): expected vest now 188,000 × £4.20 = £790k total fair value; cumulative expense to date should be 2/3 = £526.7k; less Year 1 expense recognised £257.6k; Year 2 expense = £269.1k.
    • Year 3 (assume actual forfeitures 7%, EPS hurdle achieved): actual vest 186,000 × £4.20 = £781k total; cumulative expense should be £781k; less prior-year expense £526.7k; Year 3 expense = £254.3k.
    • Total expense over 3 years: £781k. Allocated through P&L; total credit to equity reserve £781k.
    • On exercise (after vesting period): cash from exercise (186,000 × £18 = £3,348k) is credited to share capital; share-based-payment reserve £781k transferred to retained earnings or share premium.
    • Frame the disclosure note: the plan, the model, the inputs, the year's expense, the option roll-forward.