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Share Based Payments

>> August 1, 2011

Q:- 1. What are share based payments?

 Share based payments are those payments which are given to employees on the basis of share or equity of company. You know that employees are the service provider and company is service receiver. If any payment is given to service provider from service receiver on the basis of shares or equity instrument of company, it is called share based payments.

As per IFRS 2

“An agreement between the entity and another party (including an employee) to enter into a
share-based payment transaction, which thereby entitles the other party to receive cash or
other assets of the entity for amounts that are based on the price of the entity’s shares or other
equity instruments of the entity, or to receive equity instruments of the entity, provided that the specified vesting conditions, if any, are met.” [IFRS 2 Appendix A]

Q:- 2. What are the Main Types of Share Based Payments?

1. Equity Settled Payments : It is that type of share based payments in which employees provide service and company gives them his equity shares or other equity instruments.

2. Cash Settled Payments : Under this system, we pay cash payment to employees for his duty but its price  will be based on the share equity of company.

Q:- 3. What is accounting treatment of Share Based Payments?

Share based payments for employees' services will be revenue expenses of company and will transfer to the profit and loss account of company. If there is any vesting period, then expenses will be recognize remuneration expenses by dividing that period. Following example may help to you.

(Note : CU means currency unit, you can change it in your own currency unit)

Company will open employees share ownership trust (ESOPs). All money which is received under shares which are bought by employees will be transfer to ESOPs by following entry

Cash account Dr.

ESOPs account Cr.

Q:- 4. What are the main condition of Share based payments?

1. Vesting Conditions : Requirement to be in service for specific time or three years.

2. Non Vesting Conditions : Without vesting conditions.

3. Performance Condition : It means employee has to complete specific target. If he achieved, he will get the reward of share based payment.

Q:- 5. How to Measure Equity Settled Transactions in Share Based Payments?

For measuring equity settled transactions in share based payments, we calculate the fair value of services  received. Same amount is converted to our share value and gives the option to employees to take.

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