IFRS 2 Group Share Based Payment provides GUIDANCE on when ‘the parent grants Equity-Settled SBP to the subsidiary company employees‘.
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In this case, the parent receives goods/services indirectly through the subsidiary in the form of increased investment in the subsidiary.
This is because the subsidiary receives goods/services from employees 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 of the SBP.
|Parent Co.||Subsidiary Co.|
|Debit: Investment in Subsidiary|
|Debit: Expense – P&L|
Credit: Equity (Capital Contribution by Parent)
When a parent grants SBP to employees of a 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 in the subsidiary, 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 arrangement, the subsidiary should recognize its reimbursement of the capital contribution to the parent as an adjustment of that capital contribution.|
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
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. 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 a Recharge Agreement is that of Reimbursement of a Capital Transaction, therefore any changes in the FV of the recharge liability and asset 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 the 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, one of the following two approaches may be adopted by the parent. The parent should choose an accounting policy to be applied consistently with respect to the treatment of the excess of recharge over the capital contribution recognized in respect of the SBP in its separate financial statements.
Approach 1 – Adjustment of Capital Contribution
Under this approach, 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
Under this approach, the recharge amount in excess of the capital contribution recognized in respect of SBP could be recognized as dividend income.]
IFRS 2 Group Share based Payment EXPLAINED (IFRS 2) PUBLISHED in February 2004 requires an entity to recognize Share-Based Payment transactions (such as granted shares, share 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.
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)