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This document provides an internal assessment of advanced financial reporting for the academic year 2019-2020. It includes details of the student's name, roll number, and section. The main body summarizes key concepts related to share-based payments including equity settled payments, cash settled payments, employee stock option plans, employee stock purchase plans, and examples of companies that have used share-based payments. It also outlines the advantages and disadvantages of share-based payments and defines important concepts such as grant date, exercise price, vesting period, expiration period, expected life, and volatility. Finally, it discusses the disclosure requirements for share-based payments under IFRS 2.

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Sibika Gadia
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134 views

Zoom Assignment PDF

This document provides an internal assessment of advanced financial reporting for the academic year 2019-2020. It includes details of the student's name, roll number, and section. The main body summarizes key concepts related to share-based payments including equity settled payments, cash settled payments, employee stock option plans, employee stock purchase plans, and examples of companies that have used share-based payments. It also outlines the advantages and disadvantages of share-based payments and defines important concepts such as grant date, exercise price, vesting period, expiration period, expected life, and volatility. Finally, it discusses the disclosure requirements for share-based payments under IFRS 2.

Uploaded by

Sibika Gadia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Advanced Financial Reporting

Internal Assessment

(Academic Year 2019-20)

Name: SIBIKA GADIA

Roll No: 19MBAR0399

Section: 19IFA

----------------------------------------------------------------------------------------------------------------

Submitted To: Dr. Preetha Chandran

Score:

Faculty Signature:
Introduction

Share-based Payment, applies when a company acquires or receives goods and services in
exchange for an equity-based payment. These goods can include inventories, property, plant and
equipment, intangible assets, and other non-financial assets. Services can include that provided
by employees in exchange for an equity-based payment eg share options.
The accounting requirements for the share-based payment depend on how the transaction will be
settled, that is, by the issuance of:

 Equity Settled Payments: It is that type of share-based payments in which employees


provide service and company gives them his equity shares or other equity instruments.
 Cash Settled Payments: Under this system, we pay cash payment to employees for his
duty but its price will be based on the share equity of company.

Equity Settled Payments may include ESOP and ESPP which are further elaborated as below:

Employee Stock Option Plan (ESOP):

An employee stock ownership plan (ESOP) is an employee benefit plan that gives workers
ownership interest in the company. It provides a right to an employee to purchase company’s
shares at a pre-determined price at a pre-determined future date. ESOPs give the sponsoring
company, the selling shareholder, and participants receive various tax benefits, making them
qualified plans.

Employee Stock Purchase Plan (ESPP):

An employee stock purchase plan (ESPP) is a tax-efficient means by which employees of a


corporation can purchase the corporation's stock, often at a discount. It is a program in which
employees can purchase company stock at discount price. Employees contribute to the plan
through payroll deductions which build until the purchase date.

Any five companies that has made share-based payments during the period 2010-2019 are as
follows:

 Wipro  KPMG
 Amazon  Ernst and Young
 Mahindra tech

Advantages of Share Based Payment:

 Remuneration of employees can be settled in a non-cash form as per the agreement.


 Aligns the performance of individuals with the performance of the company as a whole.
 Can be used to settle liabilities of the company where cash flow is considered tight.
 Driver of overall business value.
 Can be used as a sign on benefit to key prospects in terms of key management
appointments.

Disadvantages of Share Based Payment:

 Accounting can be complex as there is a number of considerations to cover off under


IND AS 102.
 Valuations due to complexity will need to be valued.
 Is effectively diluting current ownership as you are giving away rights to ownership.
 Significant consideration will need to be included in agreements to avoid any unintended
consequences.

Various Concepts

 Grant Date

The grant date is the date on which a stock option or other equity-based award is granted
to the recipient. The grant date is considered to be that date on which an employer and an
employee agree upon the most essential terms and conditions associated with the award.
For example:

 Exercise Price
Exercise price is the pre-determined price at which the employee will buy the shares. It
means the price payable by the employee for exercising the option granted.

 Vesting Period

The right to exercise the option may get vested in the employee in the next future date/s.
The dates on which the employee becomes entitled to exercise the right to acquire the
shares is called as “vesting date.” The rights may vest fully or partially over the vesting
period. The minimum period that the employee has to serve to be entitled to the stock
option. The average vesting period ranges between 3 - 5 years.

 Expiration Period

The period after which the options lapses or the period after which the ESOP can no
longer be exercised. Expiration typically occurs within 90 days of the end of your
employment or 10 years from the original grant date. If they expire, they become
worthless. To prevent that, you need to exercise the option grant which means you buy
the stock for the price listed in your option grant agreement.

 Expected Life

Expected life is the expected time from grant date to exercise the option. It is the period
of time from grant date to the date on which the option is expected to be exercised.

 Volatility

Volatility refers to the variance of the firm’s stock price. It may be a sharp rise in stock
market volatility (which can be interpret as a sharp fall in stock price).
Concepts Grant Date Exercise Price Expected Expected life
Volatility
Ernst and Young 1 January 2009 Rs.418.13 Not Available 4 years
ESOS 2009
KPMG ESOS May 2006 Rs.280 20% to 60% 3.5 years
2006
Wipro Equity 30-05-2013 Rs 349.81 Not Available 3.50 to 4.51
Reward, 2013 Years

Tech Mahindra March 31,2010 Rs10 per share 39.50% 2.5 years
ESOP 2010

Disclosure

IFRS 2 requires extensive disclosures under three main headings:

 Information that enables users of financial statements to understand the nature and extent of the
share-based payment transactions that existed during the period.
 Information that allows users of financial statements to understand how the fair value of the
goods or services received, or the fair value of the equity instruments which have been granted
during the period, was determined.
 Information that allows users of financial statements to understand the effect of expenses, which
have arisen from share-based payment transactions, on the entity’s profit or loss in the period.

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