IFRS 2 Determination of the vesting period

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Overview IFRS 2 Determination of the vesting period

Employee service costs are recognised in profit or loss over the vesting period from the service commencement date until vesting date. The following topics are of importance in IFRS 2 Determination of the vesting period

Service commencement date and grant date

The ‘vesting period’ is the period during which all of the specified vesting conditions are to be satisfied in order for the employees to be entitled unconditionally to the equity instrument. Normally, this is the period between grant date and the vesting date (see IFRS 2 Definitions).

However, services are recognised when they are received and grant date may occur after the employees have begun rendering services. … Read more

IFRS 2 How to easily determine the grant date

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IFRS 2 How to easily determine the grant date – The determination of grant date is important because this is the date on which the fair value of equity instruments granted is measured. Usually, grant date is also the date on which recognition of the employee cost begins. However, this is not always the case (see 6.4.10) (reference will follow). (IFRS 2 11)

‘Grant date’ is the date at which the entity and the employee agree to a share-based payment arrangement, and requires that the entity and the employee have a shared understanding of the terms and conditions of the arrangement. (IFRS 2 Definitions) IFRS 2 How to easily determine the grant dateRead more

IFRS 2 Employee equity-settled share-based payment

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IFRS 2 Employee equity-settled share-based payment – Headlines

Employee services are recognised as expenses, unless they qualify for recognition as assets, with a corresponding increase in equity.

  • Employee service costs are recognised over the vesting period from the service commencement date until vesting date.
  • Employee services are measured indirectly with reference to the fair value of the equity instruments granted; this is done by applying the modified grant-date method. If, in rare circumstances, the fair value of the equity instruments granted cannot be measured reliably, then the intrinsic value method is applied.
  • Under the modified grant-date method, the grant-date fair value of the equity instruments granted is determined once at grant date, which may be after the
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The 2 essential types of share-based payments

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The 2 essential types of share-based payments – Snapshot

Share-based payments are classified based on whether the entity’s obligation is to deliver its own equity instruments (equity-settled) or cash or other assets (cash-settled).

1. Equity-settled share-based payments

For equity-settled transactions, an entity recognises a cost and a corresponding entry in equity.

Measurement is based on the grant-date fair value of the equity instruments granted.

Market and non-vesting conditions are reflected in the initial measurement of fair value, with no subsequent true-up for differences between expected and actual outcome.

The estimate of the number of equity instruments for which the service and non-market performance conditions are expected to be satisfied is revised during the vesting period such that Read more

IFRS 2 Quick-start best share-based payments

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IFRS 2 Quick-start best share-based payments – A share-based payment is accounted for under IFRS 2 if it meets the definition of a share-based payment transaction and the transaction is not specifically scoped out of the standard.

The standard does not contain a stand-alone definition of a share-based payment but provides a complex two-step definition using the terms ‘share-based payment arrangement’ and ‘share-based payment transaction’. The definitions are as follows. (IFRS 2 A Defined terms)

A ‘share-based payment arrangement’ is an agreement between the entity (or another group entity or any shareholder of any group entity) and another party, including an employee, that entitles the other party to receive:

  1. cash or other assets of the entity for
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Leveraged buyout IFRS 3 best reporting

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Leveraged buyout IFRS 3 best reporting – In corporate finance, a leveraged buyout (LBO) is a transaction where a company is acquired using debt as the main source of consideration. These transactions typically occur when a private equity (PE) firm borrows as much as they can from a variety of lenders (up to 70 or 80 percent of the purchase price) and funds the balance with their own equity. Leveraged buyout IFRS 3 best reporting

1 The process and business reason

The use of leverage (debt) enhances expected returns to the private equity firm. By putting in as little of their own money as possible, PE firms can achieve a large return on equity (ROE) and internal … Read more

Consolidated financial statements

IFRS 10 Definition of consolidated financial statements

The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.

ParentAn entity that controls one or more entities.

The other types of financial statements are unconsolidated financial statements (or company accounts) and combined financial statements.

Single economic entity concept

The concept of a single economic entity is illustrated in the example below:

Example – Single economic entity concept

A subsidiary buys an asset from a third party for CU 100. It subsequently sells the asset on to its parent for CU 130. The subsidiary records a profit

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IAS 32 Clearly distinguishing liability and equity

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IAS 32 Clearly distinguishing liability and equity – When an entity issues a financial instrument, it must determine its classification either as a liability (debt) or as equity. That determination has an immediate and significant effect on the entity’s reported results and financial position. Liability classification affects an entity’s gearing ratios and typically results in any payments being treated as interest and charged to earnings.

Equity classification avoids these impacts but may be perceived negatively by investors if it is seen as diluting their existing equity interests. Understanding the classification process and its effects is therefore a critical issue for management and must be kept in mind when evaluating alternative financing options.

IAS 32 Financial Instruments: Presentation … Read more

Accounting treatment acquisition of a business or assets

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Accounting treatment acquisition of a business or asset(s)Accounting treatment acquisition of a business or assets – An entity has to determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition.

Whether the simplified (optional) concentration tests is applied or a detailed assessment applying the normal requirements in IFRS 3 is applied, in IFRS 3 (simplified in May 2019) the result of the assessment of what was acquired is the acquirer obtained control over a business (business combination or business acquisition) or a (group of similar) identifiable asset(s) (asset Read more

Accounting Policies to First IFRS Financial statements

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Accounting Policies to First IFRS Financial statements – An entity must use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements. Those accounting policies must comply with each IFRSs effective at the end of its first IFRS reporting period, unless there is a mandatory exception to retrospective application or an optional exemption from the requirements of IFRSs.

[IFRS 1, paras 7 – 9]Accounting Policies to First IFRS Financial statements

Note that:

  • An entity may apply a new IFRS that is not yet mandatory if that IFRSs permits early application.
  • The transitional provisions in IFRSs do not apply to a first-time adopter’s transition to IFRSs.

Mandatory Exceptions to Retrospective Application Read more