Share Based Notes

BASIC CONCEPTS
Share-based payment is a transaction in which the entity acquires

goods or services and pays for them through issuance of its own
equity instruments or through cash based on the value of its own
equity instruments.
A share-based payment transaction can be:
 Equity-settled – A transaction in which the entity receives goods
or services and pays for them by issuing its own shares of
stocks or share options.
 Cash-settled – A transaction in which the entity receives goods
or services and pays for them in cash at an amount that is
based on the fair value of its own equity instruments.
 Choice between equity-settled and cash settled - A transaction in
which the entity receives goods or services and either the
counterparty or the entity is given a choice of settlement in the
form of equity instruments or cash based on the fair value of
equity instruments.
NOTE: PFRS 2 applies to all entities and to all share-based
payment transactions except for the following:
 Transaction with owners acting in their capacity as owners.
 Business combinations (PFRS 3)
 Issuance of shares as settlement of forward contract, futures
and other derivative instruments (PAS 32 and PFRS 9)
RECOGNITION
Goods or services acquired through share-based payment
transactions are recognized as ASSETS or EXPENSES when the
goods are received or as the services are rendered.
In line with this, the entity either recognizes
 A corresponding increase in equity if the goods are services
are received in an EQUITY-SETTLED share-based payment
transaction.
 A liability if the goods are services are received in an CASH-
SETTLED share-based payment transaction.
SHARE-BASED COMPENSATION PLANS – SHARE
OPTIONS
A share-based compensation plan is a compensation arrangement
established by the entity whereby the entity's employees shall
receive equity shares in exchange for their services or the entity
incurs liabilities to the employees in amounts based on the price of
its shares.
Share options are granted to key officers and employees of the
entity to enable them to acquire shares of the entity at a specified
price during a definite period upon fulfilment of certain conditions.
RECOGNITION AND MEASUREMENT OF COMPENSATION
EXPENSE
Since share options plans are EQUITY-SETTLED share-based
payment transactions with EMPLOYEES, the services received by
the entity is measured using the following order of priority:
1) Fair value of share options at GRANT DATE.
2) Intrinsic Value
The compensation expense or salaries expense is recognized as
follows:
 If the share options vest immediately, the entity shall
recognize the compensation as expense in full with
corresponding increase in equity.
 If the share options do not vest until the employee completes
a specified service period, the compensation is recognized as
expense over the vesting period.
NOTE: In the absence of evidence to the contrary, it is presumed
that share options vest immediately.
Vesting condition is a condition that determines whether the entity
receives the services that entitle the counterparty to receive cash,
other assets or equity instruments of the entity under a share-based
payment arrangement. A vesting condition can either be a:
 Service condition – a condition that requires the employee to
render service over a specified period of time in order to be
entitled to receive or subscribe to the shares embodied in the
share options.
 Performance condition – a condition other than service
condition. It can be:
 Market condition – a performance condition that is related
to the market price of the entity’s shares.
 Non-market condition – a condition other than a market
condition.
Type of
Condition Effect of Non-attainment
Non-market Discontinue recognizing further compensation expense
Market Ignored, continue to recognize compensation expense
NOTE: Compensation expenses that have been already recognized
are not subsequently adjusted regardless of the outcome of either a
market or non-market condition. The related share premium is just
reclassified to another share premium account. (TRANSFER
WITHIN EQUITY).
ACCOUNTING FOR MODIFICATIONS
Modification of terms and conditions are accounted only if
BENEFICIAL to the employee. It is considered to be beneficial if
(1) The total fair value of the equity instruments granted increased
or (2) The vesting period is shortened.
 If the modification increased the total fair value of the equity
instruments granted, the INCREMENTAL FAIR VALUE is
recognized as ADDITIONAL COMPENSATION EXPENSE
over the remaining vesting period.
 If the modification shortened the vesting period, any
remaining amount of salaries expense not yet recognized is
recognized over the remaining shortened vesting period.
ACCELERATION OF VESTING
If an entity cancels or settles a grant of share options during the
vesting period, the entity shall account for the cancelation or
settlement as an acceleration of vesting.
The accounting procedures are:
a. The entity shall recognize immediately the compensation
expense that otherwise would have been recognized for
services received over the remainder of the vesting period.
b. Any payment made to the employee on the cancelation or
settlement of the grant shall be accounted for as the repurchase
of equity interest, meaning, deduction from equity or share
options outstanding.
If the payment exceeds the fair value of the share option, the
excess shall be recognized as an expense.
CASH-SETTLED SHARE-BASED PAYMENT

TRANSACTION
The most common form of a cash-settled share-based payment
transaction with an employee is SHARE APPRECIATION
RIGHTS (SARs).
A share appreciation right entitles an employee to receive cash
which is equal to the excess of the market value of the entity's
share over a predetermined price for a stated number of shares.
RECOGNITION AND MEASUREMENT OF COMPENSATION

EXPENSE
Just like share based compensation through share options,
compensation expense on SARs is recognized through the
following:
 If the share appreciation rights vest immediately, the entity
shall recognize the compensation as expense in full with
corresponding increase in liability.
 If the share appreciation rights do not vest until the
employee completes a specified service period, the
compensation is recognized as expense over the vesting
period.
The liability for the for the future cash payment on share
appreciation rights is measured initially and each reporting
period until settlement, at FAIR VALUE OF SARs. Changes in
fair value are recognized in profit or loss.
If the fair value of SARs cannot be determined, the entity is

allowed to use intrinsic value. It is excess of the market value of
share over a predetermined price for a given number of shares over
a specified vesting period.
CHOICE BETWEEN EQUITY-SETTLED AND CASH

SETTLED
A share-based payment transaction may allow the employee the
choice as to whether to settle the transaction in cash or in equity
shares.
An employee may have the right to choose between:
a) Cash alternative - cash payment equal to the market value of a
certain number of phantom shares subject to certain
conditions.
b) Share alternative — equity shares given to the employee.
If the counterparty has the right to choose settlement between

cash or equity instruments, the entity has granted a compound
financial instrument.
If the entity has the right to choose settlement between cash or
equity instrument, the entity accounts for the transaction as either
equity-settled or cash-settled but not both. Accordingly,
 If the entity has present obligation to pay cash, the transaction
is accounted for as cash-settled.
 If the entity has no present obligation to pay cash, the
transaction is accounted for as equity-settled.

Share Based Notes

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BASIC CONCEPTS

Share-based payment is a transaction in which the entity acquires

CASH-SETTLED SHARE-BASED PAYMENT

RECOGNITION AND MEASUREMENT OF COMPENSATION

If the fair value of SARs cannot be determined, the entity is

CHOICE BETWEEN EQUITY-SETTLED AND CASH

If the counterparty has the right to choose settlement between

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