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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.
26.8 Group plans
26.8.1 Extract from FRS102: Section 26.16
26.16 If a share-based payment award is granted by an entity to the employees of one or more members in the group, the members are permitted, as an alternative to the treatment set out in paragraphs 26.3 to 26.15, to recognise and measure the share- based payment expense on the basis of a reasonable allocation of the expense for the group.
26.8.2 OmniPro comment
26.8.2.1 Share based payments where shares issued in parent in return for service in Subsidiary
It is very common for employees of subsidiary companies to be granted shares/options in the subsidiary’s parent company in return for their service in the subsidiary company. As the service is provided to the subsidiary company, the expense must also be accounted for in the subsidiary financial statements.
26.8.2.1.1 Accounting for the SBC in the subsidiary
Where the employees of subsidiary companies are to be granted shares/options in the subsidiary’s parent company in return for their service in the subsidiary company as the service is provided to the subsidiary company, the expense must also be accounted for in the subsidiary financial statements.
There are a number of circumstances where the entity receiving goods or services would be expected to account for the awards as equity settled. These are where:
- The entity has no obligation to settle the share based payment transaction; or
- The awards granted are settled with the entity’s own equity instruments.
For all other arrangements the subsidiary will account for them as cash settled share based payment arrangements.
26.8.2.1.1.1 Recharge of costs by parent subsequently
Where the parent subsequently recharges the subsidiary a number of years later then the accounting in the subsidiary company for the recharge would be to:
| CU | CU | |
| Dr Share Based Payment Reserve | XXX | |
| Dr Profit and loss with any excess | XXX | |
| Cr Intercompany/Bank | XXX |
26.8.2.1.2 Accounting for the SBC in the parent
Where the parent company issues shares/share options in itself to employees of a subsidiary the deemed cost is debited as an investment in the subsidiary (i.e. akin to a capital contribution) in the parent entity financial statements (not in the consolidated financial statements) subject to this not increasing the investment in the subsidiary above its recoverable amount. The journal entry would be as follows:
Dr Investment in Subsidiary
Cr Share Based Payment Reserve or provisions depending on whether it is cash settled or not.
26.8.2.1.2.1 Recharge of costs by parent subsequently
Where the parent subsequently recharges the subsidiary a number of years later then the accounting in the parent company for the recharge would be to:
| CU | CU | |
| Dr Share Based Payment Reserve | XXX | |
| Cr Investment in Subsidiary | XXX |
26.8.2.2 Allocation of share based payment charge within a group
Section 26.16 of FRS 102 allows a subsidiary undertaking to recognise and measure the cost of the SBC (Share Based Payment Charge) on a reasonable allocation of the expense for the group as a whole which will reduce the administrative burden on subsidiaries to provide detailed calculations.
26.8.2.3 Share based payment accounting in Groups
Example 26: SBC and groups
Parent A issues shares/options in itself to the employees of Subsidiary A and B for the services provided to the subsidiaries. The parent does not charge the subsidiaries. In the consolidated financial statements these would be treated as equity settled as they are settled by the issuance of shares. Under Section 26, the parent can recharge subsidiaries A and B on a reasonable basis. In the consolidated financial statements the following journals would be included:
| CU | CU | |
| Dr Employee Costs – SBC | XXX | |
| Cr Share Based Payment Reserve | XXX |
In the parent entity financial statements the journal would be
| CU | CU | |
| Dr Investment in Subsidiary with Deemed Capital Contribution | XXX | |
| Cr Share Based Payment Reserve | XXX |
In the books for the subsidiaries the journal would be to:
| CU | CU | |
| Dr Employee Costs with the Share Based Payment Cost for the Service Provided in Year | CU | |
| Cr Share Based Payment Reserve | CU |
Example 27: SBC and groups
If we take the above example and assume the group does recharge the subsidiary (usually done for tax purposes as the subsidiary will get a tax deduction in the UK, if a UK subsidiary is recharged for the cost by the parent). Then the accounting in the subsidiary company would be to:
| CU | CU | |
| Dr Share Based Payment Reserve | XXX | |
| Dr Profit and loss with any excess | XXX | |
| Cr Intercompany/Bank | XXX |
In the books of the parent entity the journals would be:
| CU | CU | |
| Dr Share Based Payment Reserve | XXX | |
| Cr Investment in Subsidiary | XXX |
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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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