Spreading the expense over the vesting period

Learning objectives

• Explain that services are presumed to be received during the vesting period and that the expense is spread over that period.L1
• Calculate the cumulative expense at a date, using the elapsed portion of the period provided by the case.L2, L3
• Account for the expense of the period with a corresponding credit to the reserve.L2

Normative references

• IFRS 2Vesting period (Appendix A): the period during which all the specified vesting conditions of the arrangement are to be satisfied. Services rendered in exchange for instruments that do not vest immediately are presumed to be received during that period (para. 15).
• IFRS 2 §15If the equity instruments do not vest until the counterparty completes a specified period of service, the entity presumes that the services will be received during the vesting period and accounts for them as they are rendered, with an increase in equity; if the length of the period depends on a performance condition, it estimates the expected length at the grant date (not subsequently revised for a market condition, revised otherwise).

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

5 questions

• Options granted to employees vest only after three years of service. How does the entity account for the services received?L1
• Lumen SA has granted options that vest after five years of service. The expected total cost of the plan, the grant-date fair value multiplied by the number of options expected to vest, is {total_expected_cost} (case data). Case convention: services are received evenly, and two years out of five have elapsed, i.e. {elapsed_share} of the vesting period. Compute the cumulative expense at the closing date.L2
• For an equity-settled option plan vesting over five years, the cumulative expense at the end of year two is {cumulative_expense_end_y2}; the expense recognised in year one is {expense_recognised_y1}. Record the entry for the year-two expense.L2
• In a business combination, Altaïr SA, the acquirer, replaces awards held by employees of the acquiree with replacement awards whose fair value is {replacement_award_fair_value}. The share of pre-combination service, determined under IFRS 3, is {pre_combination_service_percent} (case data); the market-based measure of the acquiree awards replaced equals that of the replacement awards (case data). Compute the part included in the consideration transferred and the part that will be a post-combination expense.L4
• In a business combination, a colleague takes the whole fair value of a replacement award, 500,000, to the consideration transferred, on the ground that it replaces an award held by employees of the acquiree. What is the error?L4