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

Zeta plc grants an employee a share-based payment under which Zeta can choose at vesting either to issue 1,000 shares or to pay cash equal to the value of 1,000 shares. Zeta has no past practice of cash settlement and no obligation to settle in cash. How should Zeta account for the award under IFRS 2?

The award is accounted for as equity-settled. Where the entity holds the settlement choice, IFRS 2 requires a liability only if it has a present obligation to settle in cash, for example through past practice or stated policy. Zeta has none, so it recognises equity.

  1. AAs an equity-settled share-based paymentCorrect
  2. BAs a cash-settled share-based payment
  3. CAs a compound instrument with separate liability and equity components
  4. DAs an employee benefit under IAS 19

Explanation

Under IFRS 2, where the entity has the choice of settlement, it determines whether it has a present obligation to settle in cash. Zeta has no such obligation (no past practice, no commitment), so the award is treated as equity-settled. A cash-settled treatment applies only where a present obligation exists.

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