Share-Based Payment (IFRS 2)

PROBLEMS ADDRESSEDShare-based payments occur when an entity uses a transfer of shares instead of satisfying anobligation using conventional cash. The standard covers situations where the entity makesany share-based payment transaction, including transactions with employees or other partiesto be settled in cash, equity, or the entitys equity instruments. The main issues relate to if andwhen the share-based payment should be recognized and when these transactions should bereflected as expenses in the income statement.

KEY CONCEPTSA share-based payment transaction is a transaction in which the entity receivesgoods or services as consideration for equity instruments of the entity (including shares orshare options), or acquires goods or services by incurring liabilities to the supplier of thosegoods or services for amounts that are based on the price of the entitys shares or other equi-ty instruments of the entity. Share-based payment transactions include transactions wherethe terms of the arrangement provide either the entity or the supplier of those goods or ser-vices with a choice of whether the entity settles the transaction in cash (or other assets) orthrough the issuance of equity instruments

An equity-settled share-based payment transaction is a share-based payment trans-action in which the entity receives goods or services (including shares or share options) asconsideration for the entitys equity instruments. An equity instrument is a contract that evi-dences a residual interest in the assets of an entity after deducting all of its liabilities. An equi-ty instrument granted is the right to an equity instrument of the entity conferred by the enti-ty on another party, under a share-based payment arrangement.

A cash-settled share-based payment transaction is a share-based payment transac-tion in which the entity acquires goods or services by incurring a liability to transfer cash orother assets to the supplier of those goods or services for amounts that are based on the priceor value of the entitys shares or other equity instruments.

The grant date is the date at which the entity and another party (including anemployee) agree to a share-based payment arrangement. At grant date the entity confers onthe counterparty the right to cash, other assets, or the entitys equity instruments, providedthat the specified vesting conditions are met.

Employees and others providing similar services are individuals who render per-sonal or similar services to the entity.

Under a share-based payment arrangement, a counterpartys right to receive theentitys cash, other assets, or equity instruments vests upon satisfaction of any specified vest-ing conditions. Vesting conditions include service conditions. The vesting period is the peri-od during which all the specified vesting conditions of a share-based payment arrangementshould be satisfied.

Fair value is the amount for which an asset could be exchanged; a liability settled; oran equity instrument granted could be exchanged between knowledgeable, willing parties inan arms length transaction.Intrinsic value is the difference between the fair value of the shares to which thecounterparty has the right to subscribe or which it has the right to receive, and the price thecounterparty is required to pay for those shares.

Market condition is a condition that is related to the market price of the entitysequity instruments.

A share option is a contract that gives the holder the right but not the obligation tosubscribe to the entitys shares at a fixed or determinable price for a specified period of time.-----------------------------------------------------------------------------------EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONSThe fair value of the equity instruments issued or to be issued should be measured at grant date for transactions with employees and others providing similar services; and at the date on which the entity receives the goods or the counterparty renders the ser-vices in all other cases.

The fair value of the equity instruments issued or to be issued should be based onmarket prices, taking into account market vesting conditions (for example, market prices orreference to an index) but not other vesting conditions (for example, service periods). Listedshares should be measured at market price. Options should be measured on the basis of the market price of any equivalent traded options; or using an option pricing model in the absence of such market prices; or at intrinsic value when they cannot be measured reliably on the basis of market pricesor on the basis of an option pricing model.

In the rare cases where the entity is required to measure the equity instruments attheir intrinsic value, it remeasures the instruments at each reporting date until final settle-ment and recognizes any change in intrinsic value in profit or loss.

The entity should recognize an asset (for example, inventory) or an expense (forexample, services received or employee benefits) and a corresponding increase in equity ifthe goods or services were received in an equity-settled share-based payment transaction.Therefore, an entity recognizes an asset or expense and a corresponding increase in equity on grant date if there are no vesting conditions or if the goods or services have alreadybeen received; as the services are rendered if nonemployee services are rendered over a period; or over the vesting period for employee and other share-based payment transactionswhere there is a vesting period.

If the equity instruments granted do not vest until the counterparty completes aspecified period of service, the amount recognized should be adjusted over any vesting peri-od for changes in the estimate of the number of securities that will be issued but not forchanges in the fair value of those securities. Therefore, on vesting date the amount recog-nized is the exact number of securities that can be issued as of that date, measured at the fairvalue of those securities at grant date.

If the entity cancels or settles a grant of equity instruments during the vesting peri-od (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied): The entity accounts for the cancellation or settlement as an acceleration of vesting byrecognizing immediately the amount that otherwise would have been recognized overthe remainder of the vesting period. The entity recognizes in equity any payment made to the employee on the cancellationor settlement to the extent that the payment does not exceed the fair value at repur-chase date of the equity instruments granted. The entity recognizes as an expense the excess of any payment made to the employeeon the cancellation or settlement over the fair value at repurchase date of the equityinstruments granted. The entity accounts for new equity instruments granted to the employee as replace-ment equity instruments for the cancelled equity instruments as a modification of theoriginal grant of equity instruments. The difference between the fair value of thereplacement equity instruments and the net fair value of the cancelled equity instru-ments at the date the replacement equity instruments are granted is recognized as anexpense. ----------------------------------------------------------------------------CASH-SETTLED SHARE-BASED PAYMENT TRANSACTIONThe entity should recognize an asset (for example, inventory) or an expense (forexample, services received or employee benefits) and a liability if the goods or services werereceived in a cash-settled share-based payment transaction.Until the liability is settled, the entity should remeasure the fair value of the liabil-ity at each reporting date and at the date of settlement, with any changes in fair value recog-nized in profit or loss for the period.SHARE-BASED PAYMENT TRANSACTIONS WITH CASH ALTERNATIVESFor share-based payment transactions in which the terms of the arrangement pro-vide either the entity or the counterparty with the choice of whether the entity settles thetransaction in cash (or other assets) or by issuing equity instruments, the entity shouldaccount for that transaction, or the components of that transaction, as a cash-settled share-based payment transaction if, and to the extent that, the entity has incurred a liability to set-tle in cash or other assets, or as an equity-settled share-based payment transaction if, and tothe extent that, no such liability has been incurred.