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Contents
26.1.1 Extract from FRS102: Section 26.1 – 26.2.
26.1.2.1.1 What is meant by goods?
26.1.2.1.2 What are share appreciation rights?
26.1.2.1.3 Examples of arrangements that do or do not come within the remit of Section 26.
26.2 Recognition with or without vesting conditions.
26.2.1 Extract from FRS102: Section 26.3 – 26.6.
26.2.2.1.2 Journal required where equity settled.
26.2.2.1.3 Journal required where cash settled.
26.2.2.1.4 Example of vesting conditions.
26.3 Measurement of equity-settled share-based payment transactions.
26.3.1 Extract from FRS102: Section 26.7 – 26.9.
26.3.2.1 Overview – Equity settled share -based payment transactions.
26.3.2.1.1 Equity settled share-based payment transactions – Defined.
26.3.2.1.3 Grant date defined.
26.3.2.2.1 Service date and fair valuing a non-employee service.
26.3.2.2.2 Determining the grant date.
26.3.2.3 Service conditions – defined.
26.3.2.4 Performance conditions – vesting and non-vesting market conditions.
26.3.2.4.2 Market conditions – defined.
26.3.2.4.2.1 Examples of market vesting conditions (section 26.9 of FRS 102 refers).
26.3.2.4.2.2 Examples of non-market vesting conditions (section 26.9 of FRS 102 refers).
26.3.2.4.2.3 Non-vesting conditions.
26.3.2.5 Accounting for market and non-market vesting conditions – Fair valuing rules.
26.3.2.5.1 All market vesting and non-vesting market conditions incorporated into fair values.
26.3.2.5.1.1 Once fair value determined – it cannot change subsequently.
26.3.2.6 Examples – Accounting for equity settled share based payments.
26.3.2.6.1 Award with service conditions – no change in assumptions (Section 26.9 of FRS 102).
26.3.2.6.2 Award with service conditions – change in assumptions (Section 26.9 of FRS 102).
26.3.2.6.4 Equity instruments – non market vesting conditions.
26.3.2.6.6 Award of equity with a market condition.
26.4 Valuation of shares, Share options and equity-settled share appreciation rights.
26.4.1 Extract from FRS102: Section 26.10 to 26.11.
26.4.2.2 Fair valuing shares, share options and equity-settled share appreciation rights.
26.4.2.4 Examples of option pricing model and how they work.
26.5 Modifications to the terms and conditions on which equity instruments were granted.
26.5.1 Extract from FRS102: Section 26.12.
26.5.2.1.1 Modification increases value to the employee.
26.5.2.1.1.1 What is meant by incremental value.
26.5.2.1.2 Modification decreases value to the employee.
26.5.2.2 Examples of modifications.
26.5.2.2.1 Worked examples of modifications – repricing/increase in number of options.
26.6 Cancellations and settlements.
26.6.1 Extract from FRS102: Section 26.13.
26.6.2.1 Overview and application.
26.6.2.2 Examples of cancellation and settlement – accounting.
26.6.2.3.1 What is a forfeiture?
26.6.2.3.2 Accounting for forfeitures.
26.7 Cash-settled share-based payment transactions (and cash alternatives).
26.7.1 Extract from FRS102: Section 26.14-26.15B.
26.7.2.1.1 Entity has choice to settle in cash or by issuance of equity.
26.7.2.1.2 Counterparty has choice to settle in cash or by issuance of equity.
26.7.2.2 Examples of cash settled share based payment transactions.
26.7.2.3 Accounting examples of cash settled share based payments.
28.8.1 Extract from FRS102: Section 26.16.
26.8.2.1 Share based payments where shares issued in parent in return for service in Subsidiary.
26.8.2.1.1 Accounting for the SBC in the subsidiary.
26.8.2.1.1.1 Recharge of costs by parent subsequently.
26.8.2.1.2 Accounting for the SBC in the parent.
26.8.2.1.2.1 Recharge of costs by parent subsequently.
26.8.2.2 Allocation of share based payment charge within a group.
26.8.2.3 Share based payment accounting in Groups.
26.10.1 Extract from FRS102: Section 26.18 – 26.23.
26.10.2.2 Accounting policy notes.
26.10.2.3 Extract from the notes to the financial statements.
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The below extracts and guidance is applicable for periods beginning before 1 January 2019 and are based on the September 2015 version of FRS 102. For periods beginning on or after 1 January 2019, the March 2018 version of FRS 102 applies which incorporates the changes made by the Triennial review of FRS 102. Note the March 2018 version of FRS 102 can be voluntarily applies for periods beginning before 1 January 2019. For the extracts from the March 2018 version of FRS 102 and the related guidance please click on the following link. For details of a summary of the main changes as a result of the triennial review please see the following link.
26.1 Scope of this section
26.1.1 Extract from FRS102: Section 26.1 – 26.2.
26.1 Section 26 specifies the accounting for all share-based payment transactions including:
(a) equity-settled share-based payment transactions, in which the entity:
(i) receives goods or services as consideration for its own equity instruments (including shares or share options); or
(ii) receives goods or services but has no obligation to settle the transaction with the supplier;
(b) cash-settled share-based payment transactions, in which the entity acquires goods or services by incurring a liability to transfer cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of the entity’s shares or other equity instruments of the entity or another group entity; and
(c) transactions in which the entity receives or acquires goods or services and the terms of the arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments.
26.1A A share-based payment transaction may be settled by another group entity (or a shareholder of any group entity) on behalf of the entity receiving or acquiring the goods or services. Paragraph 26.1 also applies to an entity that:
(a) receives goods or services when another entity in the same group (or shareholder of any group entity) has the obligation to settle the share-based payment transaction; or
(b) has an obligation to settle a share-based payment transaction when another entity in the same group receives the goods or services unless the transaction is clearly for a purpose other than payment for goods or services supplied to the entity receiving them.
26.2 Cash-settled share-based payment transactions include share appreciation rights.
For example, an entity might grant share appreciation rights to employees as part of their remuneration package, whereby the employees will 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 an entity might grant to its employees a right to receive a future cash payment by granting to them a right to shares (including shares to be issued upon the exercise of share options) that are redeemable, either mandatorily (e.g. upon cessation of employment) or at the employee’s option.
26.1.2 OmniPro comment
26.1.2.1 Overview
Share based payment transactions are classified into three categories all of which come within the scope of Section 26 as stated in Section 26.1 to 26.2 of FRS 102 as follows:
- Equity settled share based payment transactions where the entity receives goods or services and the consideration for the provision is the provision of equity. This extends to instances where another group company settles the obligation but issuing shares to the providers by issuance of shares in that group entity (See 26.3.2 for further details); Section 26.1(a) of FRS 102 refers.
- Cash settled share based payment transactions (Section 26.1(b) of FRS 102). This is where the entity acquires goods or services by incurring a liability to transfer cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of the entity’s shares or other equity instruments of the entity or another group entity. This includes share appreciation rights (see further details at 26.1.2.1.2);
- Transactions with settlement alternatives (i.e. cash or equity settled share based transactions) as stated in Section 26.1(c) of FRS 102.
- Transaction by a group entity where it has the obligation to settle by issuance of equity or the settlement is linked to equity items for other group entities, Section 26.1A of FRS 102
26.1.2.1.1 What is meant by goods?
Although not made clear above, IFRS 2 makes it clear that goods (as per Section 26.1 (c) of FRS 102) include the following:
- Inventories;
- Consumables;
- Property, plant and equipment;
- Intangibles; and
- Other financial assets.
26.1.2.1.2 What are share appreciation rights?
Share appreciation rights arise where an entity:
- grant share appreciation rights to employees as part of their remuneration package,
- whereby the employees will 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
- an entity might grant to its employees a right to receive a future cash payment by granting to them a right to shares (including shares to be issued upon the exercise of share options) that are redeemable, either mandatorily (e.g. upon cessation of employment) or at the employee’s option.
26.1.2.1.3 Examples of arrangements that do or do not come within the remit of Section 26
Example 1: Shares issued for services rendered
Mr X performed work for Company A upon completion of this work Company A will issue 100 shares in its itself to Mr X.
This transaction comes within the scope of Section 26 as Mr X has received equity shares in return for services rendered.
Example 2: Shares issued in return for stock
Mr X supplied inventory to Company A, and in return for this inventory Company A issued 500 shares in itself to Mr X.
This transaction comes within the scope of Section 26. Note if in this instance, the entity could settle the liability net, i.e. using it as a hedging instrument, it would not come within the scope of Section 26.
Example 3: Share appreciation
Company A entered into an agreement with some of its employees whereby they would pay a cash bonus if the share price increases, the value to be placed on the shares is based on EBITA. In this case it is unlikely this will come within the remit of Section 26 as this formula would not equate to fair value, instead this would be accounted for under Section 28.
Example 4: Share options
Company A provides its employees with the option to purchase shares at a set rate in the future if the employees stay with the company for 3 years. This will be accounted for under Section 26.
Example 5: Shares issued to employees as part of a business combination
Company A acquired Company B and as part of the agreement, Company A issued share options in itself to those employees of Company B if they remain in service for three years.
In this case the options come within the scope of Section 26
Example 6: Shares issued to the previous owner as part of a business combination
Company A acquired Company B and in return for Mr X transferring ownership, Mr X was issued shares in Company A and a right to receive further shares in the future.
This does not come within the remit of Section 26.
Example 7: Issuance of share rights/options in other group companies
Company A entered into an arrangement with its employees whereby they had the option to subscribe for its parent company shares at a set price in the future.
In this case, this comes within the remit of Section 26.
Example 8: Phantom share scheme
Company A enters into an arrangement with employees where if the value per share increases by a certain amount over a period of time, the entity will pay the employee a bonus equivalent to that amount. This would be a cash settled share based payment, and hence would be accounted for under Section 26.
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Examples:
Example 1: Shares issued for services rendered.
Example 2: Shares issued in return for stock.
Example 3: Share appreciation.
Example 5: Shares issued to employees as part of a business combination.
Example 6: Shares issued to the previous owner as part of a business combination.
Example 7: Issuance of share rights/options in other group companies.
Example 8: Phantom share scheme.
Example 9: Vesting conditions.
Example 10: Non-vesting conditions.
Example 14: Award with service conditions – no change in assumptions.
Example 15: Award with service conditions – change in assumptions.
Example 16: Equity instruments vesting in installments (Section 26.7 to 26.9 of FRS 102).
Example 17: Equity instruments – non market vesting conditions.
Example 19: Award of equity with a market condition.
Example 20: Award of equity with a market condition.
Example 21: Modification – repricing.
Example 22: Modification – increase in number of options.
Example 23: Cancellation and settlement of a share option during vesting period.
Example 25: Cash settled share based payment.
Example 28: Extract from the accounting policy notes.
Example 29: Extract from the notes to the financial statements.
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