SBRINT
Syllabus C. Reporting The Financial Performance Of A Range Of Entities C8. Share Based Payments

# ACCA SBR INT Syllabus C. Reporting The Financial Performance Of A Range Of Entities - C8a. SBP with a Choice of Settlement - Notes4 / 8

### Syllabus C8a)

Discuss and apply the recognition and measurement of share-based payment transactions.

### Share-based payment with a choice of settlement

#### Entity has the choice

Is there a present obligation to settle in cash?

1. Yes

Treat as cash-settled

2. No

Treat as equity-settled

### The transaction is a compound financial instrument which needs splitting into debt and equity

• Debt Portion

This must be calculated first..the FV of the cash option at grant date

Then it is treated just like a normal cash-settled SBP

• Equity Portion

This is the FV of the option less the debt portion calculated above at grant date

#### Illustration 1

An entity grants an employee a right to receive either 8,000 shares or cash to the value, on that date, of 7,000 shares. She has to remain in employment for 3 years.

The market price of the entity's shares is \$21 at grant date, \$27 at the end of year 1, \$33 at the end of year 2 and \$42 at the end of the vesting period, at which time the employee elects to receive the shares.

The entity estimates the fair value of the share route to be \$19.

Show the accounting treatment.

#### Solution

The fair value of the cash route at grant date is: 7,000 × \$21 = \$147,000
The fair value of the share route is: 8,000 × \$19 = \$152,000 - 147,000 = \$5,000

We then treat them as cash and equity settled SBPs as appropriate:

Year Cash Equity I/S
1 7,000 x \$27 x 1/3 = 63,000 5,000 x 1/3 = 1,667 64,667
2 7,000 x \$33 x 2/3 = 154,000 5,000 x 1/3 = 1,667 92,667
3 7,000 x \$42 x 3/3 = 294,000 5,000 x 1/3 = 1,667 141,667

#### Entity has the choice of issuing shares or cash

1. Option 1 - Obligated to pay cash

The entity is prohibited from issuing shares or where it has a stated policy, or past practice, of issuing cash rather than shares.

Treat as a cash-settled SBP

2. Option 2 - Not obligated to pay cash

Treat as if it was purely an equity-settled transaction.

If on settlement, cash was actually paid, the cash should be treated as if it was a repurchase of the equity instrument by a deduction against equity.