IFRS 2 Fair value of equity instruments granted

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IFRS 2 Fair value of equity instruments granted – Share-based payment transactions with employees are measured with reference to the fair value of the equity instruments granted (IFRS 2.11).

The fair value of a equity instrument granted is determined as follows (IFRS 2.16-17):

  • If market prices are available for the actual equity instruments granted – i.e. shares or share options with the same terms and conditions – then the estimate of fair value is based on these market prices. IFRS 2 Fair value of equity instruments granted
  • If market prices are not available for the equity instruments granted, then the fair value of equity instruments granted is estimated using a valuation technique.

IFRS … Read more

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 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 Taxes and share-based payments best studies

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IFRS 2 Taxes and share-based payments best studies – In some countries, a share-based payment arrangement may be subject to a tax payment related either to the employee’s own tax obligations or to employee-based taxes levied on the employer. The tax is often based on the difference between the share price and the exercise price, measured at the exercise date.

Alternatively, the tax may be calculated based on the grant-date fair value of the grant.

Tax payments when employee has primary liability

In many cases, the tax obligation is a liability of the employee and not the employer, although the employer may have an obligation to collect it or withhold it.

If the employer has an obligation … Read more

High level overview IFRS 3 Business Combinations

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HIGH LEVEL OVERVIEW IFRS 3 BUSINESS COMBINATIONS

Scope High level overview IFRS 3 Business Combinations

IFRS 3 does not apply to:

  • The accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.
  • Acquisition of an asset or group of assets that is not a business.
  • A combination of entities or businesses under common control.

Definition

A business combination is: A transaction or event in which acquirer obtains control over a business (e.g. acquisition of shares or net assets, legal mergers, reverse acquisitions).

Definition of a “Business”

A business is:

  • Integrated set of activities and assets
  • Capable of being conducted and managed to provide return
  • Returns include dividends and cost savings.

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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

3 powerful capital maintenance concepts

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3 powerful capital maintenance concepts – There are three (or two a matter of definition) concepts of capital: a financial concept of capital (nominal maintenance and purchasing power maintenance) and a physical concept of capital. Under the financial concept, capital is defined as the net assets or equity of the enterprise, while under the physical concept, capital is defined as the productive capacity of the enterprise expressed in some physical units of measurement, as for example units of output per day.

The selection of the appropriate concept of capital by an enterprise should be based on the needs of the users of its financial statements. So, the financial concept of capital should be and mostly is used … Read more

IFRS 3 Reverse acquisitions How to?

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IFRS 3 Reverse acquisitions How to? – or reverse mergers present unique accounting and reporting considerations. Depending on the facts and circumstances, these transactions can be asset acquisitions, capital transactions, or business combinations.

A reverse acquisition that is a business combination can occur only if the accounting acquiree meets the definition of a business under IFRS 3. An entity that is a reporting entity, but not a legal entity, could be considered the accounting acquirer in a reverse acquisition. Like other business combinations, reverse acquisitions must be accounted for using the acquisition method.

A reverse acquisition occurs if the entity that issues securities (the legal acquirer) is identified as the acquiree for accounting purposes and the entity … Read more

IFRS vs US GAAP Share-based payments

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IFRS vs US GAAP Share-based payments – Although the US GAAP and IFRS guidance in this area are similar at a conceptual level, significant differences exist at the detailed application level.

Differences within the two frameworks may result in different classifications of an award as a component of equity or as a liability. This may result in different total compensation cost and it may impact earnings volatility and balance sheet metrics. Classification under IFRS is based solely on whether awards are ultimately settled in equity or cash. However, US GAAP has guidance for certain types of awards that are equity settled but may result in liability classification (e.g., awards with vesting conditions outside of service, performance, or … Read more