IFRS 2 Share-Based Payments: Cash vs. Equity + Journal Entries

IFRS 2 share-based payments: when do you record equity, and when do you record a liability? Follow Professor Farhat's examples of employee stock options, cash-settled awards, vesting, compensation expense, and settlement journal entries. This international accounting lesson is for accounting students and learners comparing IFRS concepts, including CPA and CMA candidates. Use the study notes below alongside this archived lecture; its U.S. GAAP comparisons need updating. Practice with lectures, questions and study resources: https://farhatlectures.com CHAPTERS 00:00 Introduction and course resources 01:28 What is a share-based payment? 02:31 Three types of share-based arrangements 05:45 Equity-settled transactions and entries 06:44 Non-employee awards: measurement 09:03 Employee awards and grant-date fair value 10:25 Stock options and intrinsic value 13:23 Graded vesting: $75,000 and $25,000 expense 15:03 Cash-settled awards and liabilities 17:03 Who chooses cash or equity settlement? 19:01 Worked example: options and forfeitures 22:41 Year 1 compensation expense 24:47 Year 2 liability and expense 27:03 Cash settlement journal entry 28:03 Equity settlement journal entry WORKED EXAMPLE Five employees receive 100 options each; four complete the service requirement, leaving 400 vested options. Using the $11 year-1 value in the lecture's calculation, the year-1 liability is 400 × $11 × 1/2 = $2,200. At a $12 final value, the liability is $4,800 and year-2 expense is $2,600. Cash settlement: debit the liability $4,800 and credit cash $4,800. Equity settlement at an $18 exercise price and $1 par value: debit cash $7,200 and the liability $4,800; credit share capital $400 and additional paid-in capital $11,600. STUDY NOTES AND CLARIFICATIONS • Intrinsic value is not option fair value: an out-of-the-money option can still have time value. Vesting and exercise are different events. Under the usual equity-award model, expense for vested awards is not reversed merely because options expire unexercised. • Equity-settled employee awards generally use grant-date fair value. Cash-settled liabilities are remeasured through settlement. Graded vesting requires attention to each tranche; straight-line treatment is not a blanket IFRS choice. • A stock appreciation right pays the increase above its base price, according to its terms. For 100 rights with a $20 base and $30 settlement price, that increase is $1,000, not $3,000. • The worked calculation uses $11 for year 1; follow that assumption when reconciling the figures. IFRS reference: https://standards.xrb.govt.nz/standar... U.S. GAAP update: do not generalize the recording's claim that cash-choice awards are equity. ASC 718's employee-choice tandem-award example recognizes a liability when employees can demand cash. ASU 2018-07 also changed nonemployee award accounting, including grant-date measurement for equity-classified awards; the older commitment/performance-date comparison is not a current rule. FASB reference: https://storage.fasb.org/ASU%202018-0... CONTINUE LEARNING IFRS Accounting Part 2:    • IFRS Accounting Part 2: Provisions, Pensio...   International Accounting:    • International Accounting Course: IFRS, For...   #IFRS2 #ShareBasedPayments #Accounting