IFRS-2 Share-Based Payment

• Accounting & Bookkeeping
• ||
• September 24, 2021

International Financial Reporting Standards IFRS 2 outlines the reporting requirements that an entity that undertakes a share-based payment transaction must make in their FS (financial statements). In addition, it outlines the requirements an entity has to reflect in its profit and loss (P/L) account (statement of comprehensive income) and balance sheet (statement of financial position) the effects of share-based payments.

International Financial Reporting Standards (IFRS) 2 covers 3 types of share-based payment transactions:

• Equity-settled share-based payment transactions are where the entity acquires goods or services, including shares and share options, as consideration for the entity’s equity instruments.
• Cash-settled share-based payment transactions are where the entity purchases goods or services by providing liabilities to the supplier of those goods or services for amounts based on the price or value of the entity’s shares or entity’s other equity instruments.
• The transactions where the entity receives or obtains goods or services and the terms of the arrangement provide either the entity or the supplier of those goods or services with an option of whether the entity has settled the transaction by cash or by issuing equity instruments.

Where an entity has equity-settled share-based payment transactions, an entity should determine the goods or services collected together with any corresponding increase in equity, directly at the FV (fair value) of the goods or services received. Where the FV (fair value) may not be reliably estimated, the entity has been essential to determine their value, together with the corresponding increase in equity, indirectly by reference to the FV (fair value) of the equity instruments granted.

This International Financial Reporting Standards (IFRS) also states that:

• Transactions with employees and third parties providing the same services shall be measured at the FV (fair value) of the equity instruments permitted at the allocated date.
• Transactions with parties (other than employees have a repel presumption) that the goods or services received’s FV (fair value) can be reliably estimated. The FV (fair value) has measured at the date when the entity receives the goods or services.
• Where goods or services are measured at the fair value of the equity instruments granted, IFRS 2 specifies that vesting circumstances, other than market conditions, are not taken into account when estimating the FV (fair values) of the shares or options at the date of measurement. Vesting conditions have been taken into account by adjusting the number of instruments of equity (included in the measurement of the transaction).
• International Financial Reporting Standards (IFRS) 2 requires fair values are to be based on market prices, where these are available. Where the market prices are not available, FV (fair value) has been estimated using a valuation technique to arrive at a valuation that evaluates the value of the equity instruments at the date of measurement in an arm’s length transaction with the knowledgeable and willing persons.

Where cash-settled share-based payments have been made, these should be measured by the entity at the liability’s FV (fair value). An entity has also been required under the provisions of International Financial Reporting Standards (IFRS) 2 to measure the liability’s FV (fair value) at each date of reporting until the liability is settled.

Where an entity is entered into a share-based payment transaction where the terms of the arrangement permit the entity to settle the transaction in cash or equity instruments, the entity shall account for these as a cash-settled share-based payment transaction.

At AJSH, we assist our clients in bookkeeping, payroll, auditing, taxation, secretarial compliances and preparation of financial statements ensuring compliance with applicable standards. If you have any questions or wish to know more about IRS-2, kindly contact us.