IFRS2 - cash settled payment

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Leo
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Joined: 05 Apr 2020, 22:31

IFRS2 - cash settled payment

Post by Leo » 20 May 2020, 19:13

Hi,

I would like to ask you a question on cash-settled payments (IFRS2).

The norm stated that if the employee benefits are settled in cash, the company has to recognize a liability that has to be valued by using the fair value method every year.

But, taking an example of phantom shares, if I understand, the fair value of the phantom shares is determined once for all the vesting period. So why do we have to adjust the liability at the fair value? and if we have to, how we do it ?

Thank you for your help !

BR

Marek Muc
Site Admin
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Joined: 15 Oct 2018, 17:21

Re: IFRS2 - cash settled payment

Post by Marek Muc » 20 May 2020, 19:32

Hi, if this is a pure cash settled share based payment, then fair value needs to remeasured for each reporting date
https://ifrscommunity.com/knowledge-bas ... ansactions

phantom shares are used in our knowledge base as an example for share-based payment transactions with cash alternatives, which is a different story

Leo
Posts: 24
Joined: 05 Apr 2020, 22:31

Re: IFRS2 - cash settled payment

Post by Leo » 20 May 2020, 20:09

Hi Marek,

Thank you.

In my case, phantom shares are fully paid in cash.

Does that mean that I have to reevaluate those phantom shares at fair value at each closing date? As the company is not listed, it might a bit complex to do.

Another question is that, if the issuance date of the free shares and phatom shares is in February, and the company performed a fair value valuation on its shares at each closing date, lets say 31 December, is that ok if we take that valuation and apply it to free shares and phatom share issued in February? Or do I have to reperform another valuation in February?

Thank you for your response.

BR

Marek Muc
Site Admin
Posts: 451
Joined: 15 Oct 2018, 17:21

Re: IFRS2 - cash settled payment

Post by Marek Muc » 20 May 2020, 23:59

Please provide more info about this arrangement, ie how it works

Leo
Posts: 24
Joined: 05 Apr 2020, 22:31

Re: IFRS2 - cash settled payment

Post by Leo » 21 May 2020, 17:56

Hi Marek,

The board of directors has authorized the president to attribute to employees a bonus for which the amount will be the value of ordinary shares at the due date. (Theoretical shares)

Those shares are distributed to employees as free shares. And employees have to be present for 4 years.

Please tell me if you need further information.

Thank you

Leo
Posts: 24
Joined: 05 Apr 2020, 22:31

Re: IFRS2 - cash settled payment

Post by Leo » 21 May 2020, 18:47

I do have a further question on your example of alternative payments.

If we have to measure the liability at fair value each year, does that mean that we have to restate the liability already at the end of the first year?

So, the fair value of the phantom share at the end of the first year might not be 30 anymore I guess. Do we need to restate that first year?

Thank you!

Marek Muc
Site Admin
Posts: 451
Joined: 15 Oct 2018, 17:21

Re: IFRS2 - cash settled payment

Post by Marek Muc » 22 May 2020, 11:46

OK so you've got what seems to be a typical cash settled share based payment - you need to digest the page in our knowledge base that I linked to in my previous post
https://ifrscommunity.com/knowledge-bas ... d-payment/

remeasurement is to be done at each reporting date, but of course it is possible to take a simplified approach and conclude that the fair value calculated at previous date did not change significantly and account for vesting conditions only

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