The credit side: equity or liability

Learning objectives

• Distinguish the corresponding increase in equity for an equity-settled transaction from the corresponding liability for a cash-settled transaction.L1
• Account for the expense of the period for each settlement method.L2

Normative references

• IFRS 2 §7Goods or services received or acquired are recognised when the entity obtains the goods or as the services are received; the corresponding entry is an increase in equity for an equity-settled transaction and a liability for a cash-settled transaction.
• IFRS 2 §30For a cash-settled transaction, the entity measures the goods or services acquired and the liability incurred at the fair value of the liability, subject to paras. 31 to 33D; until the liability is settled, its fair value is remeasured at the end of each reporting period and at the date of settlement, with changes recognised in profit or loss for the period; example: share appreciation rights (para. 31).

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

6 questions

• What is the counterpart of the expense, on the one hand for an equity-settled option plan and on the other for a cash-settled share appreciation rights plan?L1
• A trainee records the annual expense of an executive option plan, settled in shares, by crediting a liability account "amounts owed to executives". What is the error?L2
• Helia SA has granted its executives share appreciation rights settled in cash. At the closing date, the expense for the period, computed from the fair value of the liability, is {period_charge}. Record the entry for the expense of the period.L2
• An equity-settled share plan includes a net settlement clause: the entity withholds part of the shares to be delivered in order to pay the employee's tax to the tax authority. A colleague classifies the whole plan as cash-settled because of this clause. What is the error?L3
• An equity-settled plan of Brisa SA includes a net settlement clause: at vesting, the value of the shares due to an executive is {value_at_settlement} and Brisa withholds, to pay the executive's tax to the tax authority, shares representing {tax_withholding_rate} of that value (withholding rate set by tax law: case data). Compute the amount withheld and the value of the shares delivered to the executive. The 2016 amendment applies to annual periods beginning on or after 1 January 2018.L3
• Verano SA modifies a cash-settled share appreciation rights plan into an equity-settled option plan. At the modification date, the liability of the original award is {liability_derecognised} and the fair value of the modified award at that date, to the extent of services received, is {equity_recognised} (case data). The 2016 amendment applies to annual periods beginning on or after 1 January 2018. Record the modification entry.L4