- June 18, 2020 at 3:58 am
Regarding IFRS 2, I have quite not been able to comprehend why do we need to recognise expenses even if market based condition is not fulfilled? How is it already factored into fair value of equity instrument at grant date? Should this also not be treated like Non Market Based Condition? Or do we later reverse the entries later when market based conditions are not fulfilled? Not able to grasp it conceptually.
ThanksJuly 4, 2020 at 2:45 pm
In IFRS2 share based payment
when share based payments are linked to some vesting conditions then these must be fullfilled before share based payments
these are of two types
1. Service conditions:they require the counterparty to complete a specified period or service;
2. Performance conditions: they require the counterparty to complete a specified period of services AND specified performance targets to be met.
A performance condition might include a market condition that is linked to the market price of shares in some way, for example, vesting might depend on achieving a minimum increase in the share price of the entity.
If the performance condition is a market condition, the estimate of the length of the expected vesting period shall be consistent with the assumptions used in estimating the fair value of the options granted, and shall not be subsequently revised. If the performance condition is not a market condition, the entity shall revise its estimate of the length of the vesting period, if necessary, if subsequent information indicates that the length of the vesting period differs from previous estimates.
“Market conditions, such as a target share price upon which vesting (or exercisability) is conditioned, shall be taken into account when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with market conditions, the entity shall recognise the goods or services received from a counterparty who satisfies all other vesting conditions (eg services received from an employee who remains in service for the specified period of service), irrespective of whether that market condition is satisfied.”
in simplified form we spread the fair value of option price at grand date over vesting period and we consider market price only at exercise date. see example 6 page 59 of OT notes.
I hope that will help you little.
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