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Treatment Of Non Vesting Conditions IFRS 2

Treatment Of Non Vesting Conditions IFRS 2

Treatment Of Non Vesting Conditions IFRS 2 : An entity shall take into account all non-vesting conditions when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with non-vesting conditions, the entity shall recognise the goods or services received from a counterparty that satisfies all vesting conditions that are not market conditions (eg services received from an
employee who remains in service for the specified period of service), irrespective of whether those non-vesting conditions are satisfied

Treatment Of Non Vesting Conditions IFRS 2

Treatment Of Non Vesting Conditions IFRS 2 : For options with a reload feature, the reload feature shall not be taken into account when estimating the fair value of options granted at the measurement date. Instead, a reload option shall be accounted for as a new option grant, if and when a reload option is subsequently granted.

a corresponding increase in equity, the entity shall make no subsequent adjustment to total equity after vesting date. For example, the entity shall not subsequently reverse the amount recognised for services received from an employee if the vested equity instruments are later forfeited or, in the case of share options, the options are not exercised. However, this requirement does not preclude the entity from recognising a transfer within equity, ie a transfer from one component of equity to another.

Treatment Of Non Vesting Conditions IFRS 2

Treatment Of Non Vesting Conditions IFRS 2 : Measure the equity instruments at their intrinsic value, initially at the date the entity obtains the goods or the counterparty renders service and subsequently at the end of each reporting period and at the date of final settlement, with any change in intrinsic value recognised in profit or loss. For a grant of share options, the share-based payment arrangement is finally settled when the options are exercised, are forfeited (eg upon cessation of employment) or lapse.

if an entity settles a grant of equity instruments to which paragraph  has been applied:

  1. if the settlement occurs during the vesting period, the entity shall account for the settlement as an acceleration of vesting, and shall therefore recognise immediately the amount that would otherwise have been recognised for services received over the remainder of the vesting period.
  2. any payment made on settlement shall be accounted for as the repurchase of equity instruments, ie as a deduction from equity, except to the extent that the payment exceeds the intrinsic value of the equity instruments, measured at the repurchase date. Any such excess shall be recognised as an expense.

Treatment Of Non Vesting Conditions IFRS 2

Treatment Of Non Vesting Conditions IFRS 2 :  IFRS 2 describes vesting conditions as including service conditions and performance conditions but is silent on whether other features of a share-based payment transaction are vesting conditions. IFRS 2 also specifies the accounting treatment when an entity cancels a grant of equity instruments. However, it does not state how cancellations by a party other than the entity should be accounted for.

The Board’s initial objective in this project was to amend IFRS 2 Share-based Payment to clarify the definition of vesting conditions and provide guidance on the accounting treatment of cancellations by parties other than the entity.

In light of the comment letters received the Board has also agreed to include clarification of the definition of vesting conditions and the treatment of all non-vesting conditions. In addition, the Board agreed to include some additional Implementation Guidance to clarify the requirements.

Treatment Of Non Vesting Conditions IFRS 2

Treatment Of Non Vesting Conditions IFRS 2 : A grant of equity instruments might be conditional upon satisfying specified vesting conditions. For example, a grant of shares or share options to an employee is typically conditional on the employee remaining in the entity’s employ for a specified period of time. There might be performance conditions that must be satisfied, such as the entity achieving a specified growth in profit or a specified increase in the entity’s share price. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the shares or share options at the measurement date. Instead, vesting conditions shall be taken into account by adjusting the number of equity
instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Hence, on a cumulative basis, no amount is recognised for goods or services received if the equity instruments granted do not vest because of failure to satisfy a vesting condition, eg the counterparty fails to complete a specified service period, or a performance
condition is not satisfied, subject to the requirements.

Treatment Of Non Vesting Conditions IFRS 2

Treatment Of Non Vesting Conditions IFRS 2 :  The entity shall recognise an amount for the goods or services received during the vesting period based on the best available estimate of the number of equity instruments expected to vest and shall revise that estimate, if necessary, if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates. On vesting date, the entity shall revise the estimate to equal the number of equity instruments .

Market conditions, such as a target share price upon which vesting (or exercisability) is conditioned, shall be taken into account when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with market conditions, the entity shall recognise the goods or services received from a counterparty who satisfies all other vesting conditions (eg services received from an employee who remains in service for the specified period of service), irrespective of whether that market condition is satisfied.

Treatment Of Non Vesting Conditions IFRS 2

 

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Treatment Of Non Vesting Conditions IFRS 2

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