Counterparty choice: a compound instrument

Learning objectives

• Explain the split of the award into a liability component and an equity component when the counterparty has the choice.L3
• Calculate the equity component of an award with a counterparty choice and record both components.L3

Normative references

• IFRS 2 §35If the counterparty has the choice between cash and equity instruments, the entity has granted a compound financial instrument: a debt component (the right to demand cash) and an equity component (the right to demand equity instruments rather than cash). For parties other than employees whose goods or services are measured directly, the equity component is the difference between the fair value of the goods or services and that of the debt component, at the date the goods or services are received.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• A plan gives each employee, at vesting, the choice between a sum in cash and a number of shares of the entity. How is the award classified?L3
• An employee may choose between cash and shares when the award vests. Which statements are correct? More than one answer is possible.L3