SHARE BASED PAYMENTS.docx - QUIZ 2 SHARE-BASED PAYMENTS PFRS 2 Arrangement wherein corp is either issuing shares[equity settled to settle a liability or


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QUIZ 2 SHARE-BASED PAYMENTS : PFRS 2 Arrangement wherein corp is either issuing shares [equity settled] to settle a liability or paying cash [cash settled] whose value depends on the share. Equity settled : share option/warrant/rights – equity instrument that gives the holder the right to acquire share of stock of a corporation at a fixed price and fixed number of shares based on the terms. Difference is in purpose Warrants: freshener, makes instrument attractive, cannot be issued without host instrument [ex sa bonds payable, you have the chance to become an owner] Option: compensatory in nature [bonds with share options are used as payment] RECOGNITION: Vested immediately – right of holder in the share option can be exercised right away upon receipt. Not vested immediately – vesting period when you have to wait, may have vesting condition [where you can’t exercise without meeting condition] - Service condition [if employees don’t resign within the vesting period, they can be the shareholders.] - Nonmarket condition [share option based on profit] - Market condition [share option based on MARKET PRICE, value changed] Ex: 100K -> year 1, 2, 3, 4 Fully recognized sa y1, 0 sa 234 Sa not vested immediately Y1 25K for each year Recognition Compensation/Salary Expense/Remuneration expense Share Option Outstanding VALUE OF EQUITY INSTRUMENT STAYS THE SAME. ONLY CHANGES BASED ON THE CONDITIONS SET MEASUREMENT Recipient Employee 1. FV of equity instrument at date of grant > share option 2. Intrinsic value
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MP of shares > exercise price > shares of stock FV of services is not reliable. Different compensation as payment for services. Nonemployee 1. FV of noncash asset received 2. FV of equity instrument issued 3. Par Cash-settled INSERT PROBLEM 1 PROBLEM 2 Vesting period: 3 years; provided employee remains in company.
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