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1. IFRS 2 applies to all share-based payment transactions, which are defined as follows:

• Equity-settled, in which the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options)

• Cash-settled, in which the entity receives goods or services by incurring a liability to the supplier that is based on the price (or value) of the entity's shares or other equity instruments of the entity

• Transactions in which the entity receives goods or services and either the entity or the supplier of those goods or services have a choice of settling the transaction in cash (or other assets) or equity instrument.

2. Outside the scope

• Cash/assets provided in terms of a Long Term Incentive which are not based on the fair value of group equity instruments are outside IFRS 2 scope - they are typically IAS 19. 'Other long-term employee benefits'

• Transactions in which the entity acquires goods as part of the net assets acquired in a business combination to which IFRS 3 Business Combinations applies

3. RECOGNITION

• Recognise the goods or services received or acquired in a share-based payment transaction when the goods are obtained or as the services are received.
• Recognise an increase in equity for an equity settled share-based payment transaction.
• Recognise a liability for a cash-settled share based payment transaction.
• When the goods or services received or acquired do not qualify for recognition as assets, recognise an expense.

Shares
(Source: EY)

4. Grant Date

IFRS 2: "the date at which the entity and another party (including an employee) agree to a share-based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement"

Shares

5. CLASSIFICATION

Equity settled: settled in equity instruments of the entity (or another entity in the group)
Cash settled: settled in cash, based on the price (or value) of the entity's shares

Settlement alternatives:

- Counterparty (e.g. LTI participant) has choice:
• Treat as compound instrument
• Measure debt and equity as separate parts

- Company has choice:
• Treat as equity-settled unless past practice or policy is to settle in cash.

6. MEASUREMENT

A. Equity Settled

Transaction with employees
• Measure fair value at grant date of equity instrument
• Fair value is never measured
• Recognised Assets or Expenses over vesting period Transaction with non-employee
• Measured at fair value of goods or services which are obtained or received.
• If the fair value of the goods or services received cannot be estimated reliably, measure by reference to the fair value of the equity instruments granted.

B. Cash Settled

• Measure the liability at the fair value at grant date.
• Fair value shall be re measure at each reporting date, if any differences transfer to Profit and loss account.
• Liability is recognized over the vesting period.

C. Choice of Settlement

Counterparty (e.g. LTI participant) has choice:

• Treat as compound instrument
• Measure debt and equity as separate parts
Company has choice:
• Treat as equity-settled unless past practice or policy is to settle in cash.

7. Valuation

Equity settled:- Measured at fair value at grant date.
Cash settled:- Fair value of Liability incurred.

8. Group settled share-based payments (IFRS Para 43C)

The entity receiving the goods or services will recognise the transaction as equity-settled only if:

• The awards granted are its own equity instruments; or
• It has no obligation to settle the transaction

In all other circumstances, the entity will measure the transaction as cash-settled.

9. Practical application

Shares ​​​​​​​
SBPR-Share Based payment reserve A/c

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