Activity Activity Solution

Omega grants 120 share options to each of its 460

employees. Each grant is conditional on the
employee working for Omega over the next three Year
years. Omega has estimated that the fair value of
each share option is CU12. Omega estimates that
25% of employees will leave during the three-year 1
period and so forfeit their rights to the share
options. Everything does not turn out exactly as 2
expected.
3
Year 1 : 25 employees leave. Omega revises its
estimate of total leavers over the three-year period
from 25% (115 employees) to 20% (92 employees)

Year 2 : Another 22 employees leave. Omega

revises its estimate of total leavers over the
three-year period from 20% to 15% (69 employees)
1
Year 302/10/2013 A further 13 employees leave.

Exercise price CU 80 , FV CU 10 2

3
Activity Solution

Remuneration Cumulative
Calculation expenses for remuneration
period expense
(120 share Options * 460 no of employees ) CU CU
55,200 options x 80% x CU 12 x 1/3 years 176,640 176,640

55,200 options x 85% x CU12 x 2/3 years - CU 176,640 198,720 375,360

48,000 options x CU12 x 3/3 years - CU 375,360 200,640 576,000

( 400 employees X 12 =48,000)

A total of 60 employees (25+22+13) forfeited their rights to the share options during the
three-year period. Therefore a total of 48,000 share options (400 employees x 120
options per employee) vested at the end of year 3

Debit Credit
Debit Remuneration Expenses 176,640
Credit Employee Share Options 176,640
Being Share options granted
Debit Remuneration Expenses 198,720
Credit Employee Share Options 198,720
Being Share options granted
Debit Remuneration Expenses 200,640
Credit Employee Share Options 200,640
Being Share options granted
Income Statement Year 1 Year 2 Year 3

Staff Cost 176,640 198,720 200,640

Statement of Financial Position

Included in Equity 176,640 375,360 576,000

Mumbai Indians Ltd Granted 300 options to 300 Options Journal Entries
all 150 Employees , on a condition that they 150 Employees
will not leave for next 2 years 1 Debit Remuneration Expense
45000 Credit Employee Stock Option
Grant date 1st April 2010 (Being Share option Granted)

F V of options for ( nominal value of shares

is CU 100 ) at grant date CU 45 2 Debit Remuneration Expense
Credit Employee Stock Option
On grant date the company estimated that (Being Share option Granted)
75 % of the employees will complete the
specified services
Upon exercise
At the end of vesting period 122 employees
completed 2 years of services 122 Employees Employee Stock Option
Bank
All 122 Employees exercised the options At CU 110 Credit Share Capital
Credit Share Premium

Debit S O
Cr R Earningsw
Debit Credit

759,375
759,375

887,625
887,625 1,647,000
13500
297000

1,350,000
3,300,000 =300 * 122 * 110
3,660,000
990,000 Balancing Figure

297,000
297,000
On 1 January 2009 ABC Ltd granted ----------------> 200 Cash Shares Cash Settled SBP

To each of its employees 500

On condition that they continue to work for 4 Years 4

based on past experience it expects that

every year 4 % of its employees will 4% FV - Options Reporting
As at
During 2009 Dec-09 Dec-09
No of Employees left , and it expects that this 20 5
number will leave each year

During 2010 Dec-10 Dec-10

No of Employees left , and it expects that total 24 7
of 44 employees will leave over remaining two-year
period of the scheme

During 2011 Dec-11 Dec-11

No of Employees left , and it expects that further 18 8
of 20 employees will leave in the final year .

During 2012 Dec-12 Dec-12

No of Employees left 10 9

Total Employees Left 72

418
Cash Settled SBP

Credit Debit
Working SOFP Changes SOCI
Liability In liability Expenses
(500-80)*200*5/4 105,000 - 105,000

Note amount per share is Rs 5

(500-20-24-44)*200*7*2/4 288,400 183,400 183,400

Note amount per share is Rs 7

(500-20-24-18-20)*200*8*3/4 501,600 213,200 213,200

Note amount per share is Rs 8

(500-72)*200*9 770,400 268,800 268,800

Note amount per share is Rs 9

Parent issuing options to employees of Subsidiaries

In the Books of Subsidiary

Dr Remuneration Expense XXXXXX

Cr Equity Contributiuon from Parent XXXXXXXX

In the Books of Parents

Dr Investments in Subsidiary XXXXXX

Cr Share Option XXXXXXXX

 EXAMPLE: 1

Description

No. of Shares Granted: 100

No. Of Employees: 500
Condition: The employee should work in the entity for 3 years
Estimated Fair value of each Share Option: CU15
On the basis of weighted average probability, the entity estimates that 20% of employees will
leave during
the three year period and therefore forfeit their rights to the share options

Application of requirements:

Scenario I

If everything turns out exactly as expected, the entity recognises the following amounts during
the vesting period, for services received as consideration for the share options.

Remuneration expense Cumulative

Year Calculation for period remuneration expense
CU CU

1 50,000 options × 80% × CU15 × 1/3 years 200000 200000

2 (50,000 options × 80% × CU15 × 2/3 years) –

200000 400000
CU2,00,000

3 (50,000 options × 80% × CU15 × 3/3 years) –

CU4,00,000 200000 6,00,000

Scenario 2

During year 1, 20 employees leave. The entity revises its estimate of total employee departures o
three-year period from 20 per cent (100 employees) to 15 per cent (75 employees). During year 2
22 employees leave. The entity revises its estimate of total employee departures over the three-y
from 15 per cent to 12 per cent (60 employees). During year 3, a further 15 employees leave. He
of 57 employees forfeited their rights to the share options during the three-year period, and a tota
share options (443 employees × 100 options per employee) vested at the end of year 3.
57
443
Remuneration expense Cumulative
Year Calculation for period remuneration expense
CU CU
1 50,000 options × 85% × CU15 × 1/3 years 212500 2,12,500

2 (50,000 options × 88% × CU15 × 2/3 years) –

#VALUE! 4,40,000
CU2,12,500

3 (44,300 options × CU15) – CU4,40,000 #VALUE! 6,64,500

EXAMPLE: 2

Description

No. of Shares Granted: 10,000

Condition: The employee should work in the entity for 3 years
Exercise Price: CU 40

However, the exercise price drops to CU30 if the entity’s earnings increase by at least an average
per year over the three-year period.

On grant date, the entity estimates that the fair value of the share options, with an exercise price o
is CU16 per option. If the exercise price is CU40, the entity estimates that the share options have
value of CU12 per option.

Duirng Year 1:
Earnings Increased by: 12% (Expected for next 2 years)
Exercise Price: CU30

The entity continues to expect that the earnings target will be achieved.

Duirng Year 2:
Earnings Increased by: 13%

The entity continues to expect that the earnings target will be achieved.

Duirng Year 3:
Earnings Increased by: 3%

Therefore the earnings target was not achieved. The executive completes three year's service, a
satisfies the service condition. Because the earnings target was not achieved, the 10,000 vested
options have an exercise price of CU40.

Application of requirements

Because the exercise price varies depending on the outcome of a performance condition that is n
condition, the effect of that performance condition (ie the possibility that the exercise price might b
and the possibility that the exercise price might be CU30) is not taken into account when estimatin
value of the share options at grant date. Instead, the entity estimates the fair value of the share o
grant date under each scenario (ie exercise price of CU40 and exercise price of CU30) and ultima
 the transaction amount to reflect the outcome of that performance condition, as illustrated below.

Remuneration expense Cumulative

Year Calculation for period remuneration expense
CU CU

1 10,000 options × CU16 × 1/3 53,333 53,333

2 (10,000 options × CU16 × 2/3) – CU53,333 53,334 1,06,667

3 (10,000 options × CU12 × 3/3) – CU1,06,667 13,333 1,20,000

Paragraph 21 of the IFRS requires market conditions, such as a target share price upon which ve
(or exercisability) is conditional, to be taken into account when estimating the fair value of the equ
the goods or services received from a counter party who satisfies all other vesting conditions (eg:
received from an employee who remains in service for thespecified period of service), irrespective
that market condition is satisfied.

EXAMPLE: 3

Description

No. of Shares Granted: 10,000

Condition: The employee should work in the entity for 3 years

· However, the share options cannot be exercised unless the share price has increased from CU5
beginning of year 1 to above CU65 at the end of year 3.

· If the share price is above CU65 at the end of year 3, the share options can be exercised at any
the next seven years, ie by theend of year 10.The entity applies a binomial option pricing model, w
into account the possibility that the share price will exceed CU65 at the end of year 3 (and hence
options become exercisable) and the possibility that the share price will not exceed CU65 at the e
3 (and hence the options will be forfeited). It estimates the fair value of the share options with this
condition to be CU24 per option.

Application of requirements:

Because paragraph 21 of the IFRS requires the entity to recognise the services received from a c
who satisfies all other vesting conditions (eg: services received from an employee who remains in
the specified service period), irrespective of whether that market condition is satisfied, it makes no
whether the share price target is achieved. The possibility that the share price target might not be
has already been taken into account when estimating the fair value of the share options at grant d
Therefore, if the entity expects the executive to complete the three-year service period, and the ex
does so, the entity recognises the following amounts in years 1, 2 and 3:

Remuneration expense Cumulative

Year Calculation for period remuneration expense
Year Calculation for period remuneration expense
CU CU

1 10,000 options × CU24 × 1/3 80,000 80,000

2 (10,000 options × CU24 × 2/3) – CU80,000 80,000 1,60,000

3 (10,000 options × CU24) – CU160,000 80,000 2,40,000

As noted above, these amounts are recognised irrespective of the outcome of the market conditio
However, if the executive left during year 2 (or year 3), the amount recognised during year 1 (and
would be reversed in year 2 (or year 3). This is because the service condition, in contrast to the m
condition, was not taken into account when estimating the fair value of the share options at grant
Instead, the service condition is taken into account by adjusting the transaction amount to be base
number of equity instruments that ultimately vest, in accordance with paragraphs 19 and 20 of the

In the above Example, the outcome of the market condition did not change the length of the vestin
However, if the length of the vesting period varies depending on when a performance condition is
paragraph 15 of the IFRS requires the entity to presume that the services to be rendered by the e
as consideration for the equity instruments granted will be received in the future,over the expecte
period. The entity is required to estimate the length of the expected vesting period at grant date,
the most likely outcome of the performance condition. If the performance condition is a market co
the estimate of the length of the expected vesting period must be consistent with the assumptions
estimating the fair value of the share options granted,and is not subsequently revised.

EXAMPLE: 4

Description

YEAR 1:
No. of Shares Granted: 1,000
Condition: The employee should work in the entity for 3 years
the team selling more than 50,000 units of a partic
product over the 3 period.
Fair value of each Share Option: CU15

YEAR 2:

Sales Target increased by: 1,00,000 Units

End of 3 years entity sold: 55,000 Units

The shares options are forfeited. 12 members of the sales team have remained in service for the

Application of requirements:

Paragraph 20 of the IFRS requires, for a performance condition that is not a market condition, the
recognise market condition, the entity to recognise the services received during the vesting period
the best available vesting period based on the best available estimate of the number of equity ins
expected to vest and to revise that estimate, if necessary, if subsequent information indicates that
of equity instruments expected to vest differs from previous estimates. On vesting date, the entity
estimate to equal the number of equity instruments that ultimately vested. However, paragraph 27
requires, irrespective of any modifications to the terms and conditions on which the equity instrum
granted, or a cancellation or settlement of that grant of equity instruments, the entity to recognise,
minimum, the services received, measured at the grant date fair value of the equity instruments g
unless those equity instruments do not vest because of failure to satisfy a vesting condition (other
market condition) that was specified at grant date. Furthermore, paragraph B44 (c) of Appendix B
that, if the entity modifies the vesting conditions in a manner that is not beneficial to the employee
does not take the modified vesting conditions into account when applying the requirements of par
19–21 of the IFRS. Therefore, because the modification to the performance condition made it less
the share options will vest, which was not beneficial to the employee, the entity takes no account
modified performance condition when recognising the services received. Instead, it continues to r
the services received over the three-year period based on the original vesting conditions. Hence,
ultimately recognises cumulative remuneration expense of CU1,80,000 over the three-year period
(12 employees × 1,000 options × CU15). The same result would have occurred if, instead of mod
performance target, the entity had increased the number of years of service required for the share
vest from three years to ten years. Because such a modification would make it less likely that the
will vest, which would not be beneficial to the employees, the entity would take no account of the
service condition when recognising the services received. Instead, it would recognise the service
from the twelve employees who remained in service over the original three-year vesting period.

EXAMPLE: 5

Description

No. of Shares Granted: 10,000

No. Of Employees: 50
Vesting Period 3years
Condition The employee should work in the entity for 3 years
Estimated Fair value of each Share Option: CU15
Share Option Life 10years
Exercise Price CU60
Entity's Price CU60

At the date of grant, the entity concludes that it cannot estimate reliably the fair value of the share
granted.

Year 1:
· 3 Employees leave during the year.
· The entity estimates that a further seven employees will leave during years 2 and 3.
· The entity estimates that 80% of the share options will vest.

Year 2:
· 2 Employees leave during the year
· The entity estimates that 86% of the share options will vest.
 Year 3:
· 43,000 share leave
2 Employees options vested
during theatyear
the end of
year 3

The entity’s share price during years 1–10, and the number of share options exercised during yea
set out below. Share options that were exercised during a particular year were all exercised at the
year.

Number of shares
Year Share price at year end options exercised at
year end

1 63 0
2 65 0
3 75 0
4 88 6,000
5 100 8,000
6 90 5,000
7 96 9,000
8 105 8,000
9 108 5,000
10 115 2,000

Application of requirements

In accordance with paragraph 24 of the IFRS, the entity recognises the following amounts in year

Expense for period Cumulative Expense

Year Calculation
CU CU

1 50,000 options × 80% × (CU63 – CU60) × 1/3 40,000 4,000

2 50,000 options × 86% × (CU65 – CU60)× 2/3 y

1,03,333 1,43,333
– CU40,000

3 43,000 options × (CU75 – CU60) – CU1,43,33 5,01,667 6,45,000

4 37,000 outstanding options × (CU88 – CU75) +

5,59,000 12,04,000
exercised options × (CU88 – CU75)

5 29,000 outstanding options × (CU100 – CU88) 4,44,000 16,48,000

exercised options × (CU100 – CU88)

6 24,000 outstanding options × (CU90 – CU100)

(2,90,000) 13,58,000
exercised options × (CU90 – CU100)
7 15,000 outstanding options × (CU96 – CU90)+
1,44,000 15,02,000
exercised options × (CU96 – CU90)

8 7,000 outstanding options × (CU105 – CU96)+

1,35,000 16,37,000
exercised options × (CU105 – CU96)

9 2,000 outstanding options × (CU108 – CU105)

21,000 16,58,000
exercised options × (CU108 – CU105)

10 2,000 exercised options × (CU115 – CU108) 14,000 16,72,000

There are many different types of employee share and share option plans. The following example
the application of IFRS 2 to one particular type of plan—an employee share purchase plan. Typica
employee share purchase plan provides employees with the opportunity to purchase the entity’s s
discounted price. The terms and conditions under which employee share purchase plans operate
country to country. That is to say, not only are there many different types of employee share and s
options plans, there are also many different types of employee share purchase plans. Therefore,
example illustrates the application of IFRS 2 to one specific employee share purchase plan.
 in the entity for 3 years

% of employees will

ing amounts during

Cumulative
muneration expense
CU

200000

400000

6,00,000

employee departures over the

ployees). During year 2, a further
artures over the three-year period
5 employees leave. Hence, a total
year period, and a total of 44,300
end of year 3.

Cumulative
muneration expense
CU
 2,12,500

4,40,000

6,64,500

in the entity for 3 years

e by at least an average of 10%

with an exercise price of CU30,

the share options have a fair

xt 2 years)

three year's service, and therefore

ved, the 10,000 vested share

ance condition that is not a market

e exercise price might be CU40
account when estimating the fair
air value of the share options at
ice of CU30) and ultimately revises
n, as illustrated below.

Cumulative
muneration expense
CU

53,333

1,06,667

1,20,000

re price upon which vesting

he fair value of the equity
vesting conditions (eg: services
of service), irrespective of whether

in the entity for 3 years

as increased from CU50 at the

an be exercised at any time during

option pricing model, which takes
d of year 3 (and hence the share
t exceed CU65 at the end of year
e share options with this market

vices received from a counter party

mployee who remains in service for
is satisfied, it makes no difference
rice target might not be achieved
share options at grant date.
rvice period, and the executive

Cumulative
muneration expense
muneration expense
CU

80,000

1,60,000

2,40,000

e of the market condition.

sed during year 1 (and year 2)
tion, in contrast to the market
share options at grant date.
ction amount to be based on the
graphs 19 and 20 of the IFRS.

the length of the vesting period.

erformance condition is satisfied,
o be rendered by the employees
uture,over the expected vesting
g period at grant date, based on
condition is a market condition,
nt with the assumptions used in
ntly revised.

in the entity for 3 years and

50,000 units of a particular

ained in service for the 3 year period.

a market condition, the entity to

uring the vesting period based on 400000 13
he number of equity instruments 400000 13
ormation indicates that the number 410000 13
vesting date, the entity revises the
However, paragraph 27 of the IFRS
which the equity instruments were
the entity to recognise, as a
he equity instruments granted,
vesting condition (other than a
B44 (c) of Appendix B specifies
neficial to the employee, the entity
he requirements of paragraphs
e condition made it less likely that
ntity takes no account of the
nstead, it continues to recognise
ing conditions. Hence, the entity
er the three-year period
urred if, instead of modifying the
e required for the share options to
ke it less likely that the options
take no account of the modified
d recognise the services received
-year vesting period.

in the entity for 3 years

e fair value of the share options

rs 2 and 3.
ns exercised during years 4–10, are
were all exercised at the end of that

owing amounts in years 1–10.

umulative Expense
CU

4,000

1,43,333

6,45,000

12,04,000

16,48,000

13,58,000
 15,02,000

16,37,000

16,58,000

16,72,000

The following example illustrates

e purchase plan. Typically, an
purchase the entity’s shares at a
urchase plans operate differ from
employee share and share
hase plans. Therefore, the following
re purchase plan.
1,733,333 1,733,333
2,311,111 4,044,444
1,285,556

5,330,000