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Chapter 26:

Share Appreciation
Cash Settled Transaction
A cash settled transaction is a share-based
payment transaction whereby an entity incurs
a liability for services received and the liability
is based on the entitys equity instruments.

PFRS 2, paragraph 30, provides that for a

cash settled share-based compensation, the
entity shall measure the services acquired
and the liability incurred at the fair value of
the liability.
Share Appreciation Right
A share appreciation right entitles an
employee to receive cash which is equal to
the excess of the market value of the entitys
share over a predetermined price for a stated
number of shares.
Measurement of
The compensation is based on the fair value
of the liability at the reporting date and shall
be measured at every year-end until it is
finally settled. Any changes in fair value are
included in profit or loss.
The fair value of liability is equal to the
excess of the market value of share over a
predetermined price for a given number of
shares over a definite vesting period.
The compensation in a share appreciation
right is the cash paid by the entity.
Recognition of
a. If the share appreciation right vests
immediately, the compensation is
recognized immediately on the date of

b. If the share appreciation right does not vest

until the employee completes a definite
vesting period, the compensation is
recognized over the service or vesting
An entity granted a share appreciation right to the general manager
on January 1, 2016.
After a four year service period, the employee is entitled to receive
cash equal to the appreciation in share price over the market value
on January 1, 2016.
Thus, the market value on January 1, 2016 is the predetermined
price for purposes of determining the compensation.
The share appreciation right had the following terms:
Service period January 1, 2016 to December 31, 2019
Number of shares 20,000 shares
Exercise date January 1, 2020
The quoted prices of the entitys share are:
January 1, 2016 200
December 31, 2016 210
December 31, 2017 220
December 31, 2018 240
December 31, 2019 250
Suppose in the preceding illustration, the market value of the
share unfortunately drops to P200 on December 31, 2019.
Since the predetermined price is also P200, the entity has no
obligation because there is no appreciation or increase in
market value on exercise date.
In this case, the accrued compensation on December 31,
2018 of P600,000 shall be reversed on December 31, 2019
as follows:
Accrued Salaries Payable 600,000
Gain on Reversal of share appreciation right 600,000
Cash and Share
Some share-based payment transactions allow the
employee the choice as to whether to settle the
transaction in cash, or by issuing equity shares. An
employee may have the right to choose between:

a. Cash Alternative cash payment equal to

the market value of a certain number of
shares subject to certain conditions.

b. Share Alternative equity shares given to

the employee.
Cash and Share Alternative (cont.)
The accounting for this type of instrument
depends on which party has the choice of
Ifthe entity has the choice of settlement,
there is no accounting problem. The entity
shall account for the instrument initially either
as liability or equity, but not both.
Ifthe employee has the right to choose the
settlement, the entity is deemed to have
issued a compound financial instrument.