IFRS 2 Cash Settled Share Based Payments: Accounting Explained

IFRS 2 Cash Settled Share Based Payments INCLUDE the transactions in which the entity acquires goods or services by incurring liability to transfer cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of ‘equity instruments‘ (including shares or share options) of the entity.

The objective of IFRS 2 is to SPECIFY the financial reporting by an entity when it undertakes a share-based payment transaction.

IFRS 2 Share-Based Payment
(a) Equity Settled
(b) Cash Settled
(c) Settlement Alternative

Cash Settled Share Based Payments (As Per IFRS 2)

An entity might grant its employees a right to receive future cash payments by granting them a Right to Shares that are Redeemable, either mandatorily or at the employee’s option.
An entity might grant Share Appreciation Rights (SAR) to employees whereby the employees will become entitled to a future cash payment (rather than an equity instrument) based on the increase in the entity’s share price from a specified level over a specified period of time.
cash settled share based payments

1. Recognition

Goods or Services should be RECOGNIZED as they are received by the entity.

2. Measurement

Goods or Services acquired should be Measured at the FV of liability. The FV of liability shall be REMEASURED at each reporting date and at the date of settlement with any change to be recognized in P&L.

3. Vesting Conditions

Vesting Conditions should be taken into account in estimating the number of rights to payment that will vest and the FV of the liability at each reporting period.

Service ConditionPerformance Condition
Service condition is taken into account in estimating the number of awards that are expected to vest.[Market Condition]
– Market conditions are taken into account in determining the FV of the liability.
– Share price at the end of each reporting date is the best estimate of final share price.

[Non-Market Condition]
– Non-Market performance conditions are taken into account in estimating the number of awards that are expected to vest.

Cash Settled Share Based Payments – Fair Value Vs Intrinsic Value

Re-Measurement of Liability
(a) Such Re-Measurement is based on the Fair Value (FV) of the instruments.
(b) Fair Value of the liability for SAR’s is the Intrinsic Value + Premium (time value) for the possibility of a future increase in the intrinsic value.

[The final Re-Measurement of the liability is made on the settlement date to equal the ultimate cash payment i.e. Measurement switches from a Fair Value based Measurement to an Intrinsic Value based Measurement.]

Cash Payment
Such Payment is based on an ‘Intrinsic Value’ of the instruments.


Cash Settled Share Based Payments presented by IFRS 2 ISSUED in February 2004 requires an entity to Recognize ‘Share-Based Payment Transactions’ (such as granted SharesShare Options, or Share Appreciation Rights) in its Financial Statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity presented.

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