IFRS 2 Group Share-based Payment provides GUIDANCE on when ‘the Parent grants Equity-Settled SBP to the Subsidiary Co. Employee(s)‘.
Table of Contents
1. Without Any Recharge Agreement
The parent receives goods/services indirectly through the subsidiary in the form of increased investment in the subsidiary.
This is due to the fact that Subsidiary receives goods/services from employee(s) that are paid for by the Parent, thereby INCREASING the value of the subsidiary. The amount recognized as an additional ‘Investment in the Subsidiary‘ is based on the grant date fair value (FV) of the SBP.
| Parent Co. | Subsidiary Co. |
|---|---|
| Debit: Investment in Subsidiary Credit: SBPR | Debit: Expense – P&L Credit: Equity (Capital Contribution by Parent) |
2. With Recharge Agreement
When Parent grants SBP to employee(s) of Subsidiary, the parent May require the subsidiary to Make the payment to REIMBURSE it for granting the SBP.
| Parent Co. | Subsidiary Co. |
|---|---|
| Parent RECOGNIZES its ‘Capital Contribution’ to the Subsidiary as an increase in its investment, the parent should recognize a ‘Recharge Asset‘ and a corresponding adjustment (credit) to the carrying amount of the investment in the subsidiary. Debit: Recharge Asset Credit: Investment in Subsidiary | As the subsidiary RECOGNIZES a ‘Capital Contribution’ as part of the SBP, it should recognize its Reimbursement of the capital contribution to the parent as an Adjustment. The subsidiary should therefore recognize a Recharge Liability and a corresponding adjustment (debit) in equity for the capital contribution recognized in respect of the SBP. Debit: Equity (Capital Contribution by Parent) Credit: Recharge Liability |
2.1 Fixed Recharges – Recharge Based on Grant Date FV
The ‘Parent’ and ‘Subsidiary’ should recognize the FV of the Recharge Asset and Recharge Liability as the services are provided by the employee in respect of the SBP.
2.2 Varying Recharges – Recharge Based on Exercise Date Intrinsic Value
| Recharge Amount Smaller than SBP Expense |
|---|
| – The asset and liability arising from the Recharge Agreement should be Measured at the reporting date and ultimately at the settlement date for the changes in fair value (FV). – The nature of the Recharge Agreement is of ‘Reimbursement of Capital Transaction‘, therefore any changes in the FV from initial recognition to settlement should be treated as a true-up of the initial estimate of the net capital contribution (should NOT be charged to P&L). |
| Recharge Amount Greater than SBP Expense |
|---|
| Recharged amount May be greater than the increase in investment recognized by the ‘Parent’ in respect of the SBP. Subsidiary – The EXCESS should be treated by the subsidiary as a Net Capital Distribution. Parent – In the absence of ‘Specific Guidance’ in IFRS 2, one of the following two approaches May-be adopted by the parent. Approach 1 – Adjustment of Capital Contribution The ‘Initial’ recognition and ‘Subsequent’ Re-Measurement of recharge amount would be recognized as a reduction in cost of investment in the subsidiary & the excess of the recharge would cause a reduction in the net investment in subsidiary. Approach 2 – Dividend Income The recharge amount in excess of the capital contribution recognized in respect of SBP could be recognized as dividend income. |
Chartered Accountant – ICAP
Bachelor of Accounting (Honours) – AeU, Malaysia