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ACCA Strategic Professional · Strategic Business Reporting (International) · Share-based payment

Orion Ltd agrees to give its chief executive a cash bonus at the end of year 3 equal to the value of 10,000 Orion shares at that date, provided she remains employed. How should Orion account for this arrangement?

The arrangement is cash-settled. Orion recognises a liability as services are received over the vesting period, measured at fair value and remeasured at each reporting date until settlement, with changes taken to profit or loss, because the payment depends on its share price.

  1. AEquity-settled; credit equity at grant-date fair value over three years
  2. BCash-settled; recognise a liability, remeasured to fair value at each reporting date until settlementCorrect
  3. COutside IFRS 2; expense the cash as paid at the end of year 3
  4. DCash-settled; recognise a liability at grant-date fair value, never remeasured

Explanation

The entity incurs a liability to transfer cash whose amount depends on its share price, so it is cash-settled. The liability is measured at fair value, spread over the vesting period, and remeasured at each reporting date and at settlement with changes in profit or loss. Fixing it at grant date is the equity-settled approach.

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