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Other standards · IFRS 2

IFRS 2 Share-based Payment

Summary, key points, exam traps and a worked example — written for ICAP, ACCA, ICAI, CIMA and ICAEW students.

On this page
  1. Objective
  2. Scope
  3. Key definitions
  4. Recognition & measurement
  5. Key disclosures
  6. Common exam traps
  7. Worked example
  8. Related standards
  9. Practise MCQs

Objective

Requires an entity to reflect the effects of share-based payment transactions, including employee share options, in profit or loss and financial position.

Scope

  • Equity-settled transactions (paid in the entity's own equity instruments), cash-settled transactions (cash based on share price), and transactions with a choice of settlement.
  • Includes group arrangements where another group entity settles. Excludes shares issued in a business combination (IFRS 3).

Key definitions

Grant date
The date the entity and counterparty agree to the arrangement and share a common understanding of its terms.
Vesting period
The period over which all specified vesting conditions are to be satisfied.
Market condition
A performance condition linked to the share price (e.g. a target share price or total shareholder return).
Non-market condition
A vesting condition not linked to share price, such as remaining in service or hitting a profit target.

Recognition & measurement

Equity-settled

  • Dr expense (or asset), Cr equity.
  • For employees, measure at the fair value of the equity instruments at grant date; this is not remeasured later.
  • For other parties, measure at the fair value of goods or services received (rebuttable presumption that this is reliable).
  • Spread the expense over the vesting period.
  • True-up for non-market conditions: revise the estimated number of instruments expected to vest each period.
  • Market conditions are reflected in grant-date fair value only; no true-up if they are not met (provided service is rendered).
  • Modifications that increase fair value add the incremental amount over the remaining period; cancellations accelerate the remaining charge.

Cash-settled

  • Dr expense, Cr liability.
  • Remeasure the liability at fair value at each reporting date and at settlement, with changes in profit or loss.
  • Spread recognition over the vesting period based on service received.

Key disclosures

  • Nature and extent of arrangements during the period.
  • How fair value was determined (option pricing model and inputs).
  • Effect on profit or loss and financial position.

Common exam traps

  • Equity-settled: grant-date fair value is fixed — never update it for later share price changes.
  • Cash-settled: use the fair value at each reporting date, so share price movements hit profit or loss.
  • Employees leaving reduces the expected number vesting; missing a market condition does not.

Worked example: Equity-settled share options

Scenario. On 1 January Year 1 an entity grants 500 options each to 100 employees, vesting after 3 years' service. Grant-date fair value is $12 per option. At the end of Year 1 it expects 85 employees to stay; at the end of Year 2, 88.

  1. Year 1 cumulative = 85 × 500 × 12 × 1/3 = $170,000 → expense $170,000.
  2. Year 2 cumulative = 88 × 500 × 12 × 2/3 = $352,000.
  3. Year 2 expense = 352,000 − 170,000 = $182,000.

Answer: Expense $170,000 in Year 1 and $182,000 in Year 2, with the credit to equity.

Practise MCQs on this standard

Test your understanding of IFRS 2 with free chapter-wise MCQs and explanations in these question banks.

CAF-6 Corporate ReportingICAP CAFACCA FR Financial ReportingACCACA Inter P1 Advanced AccountingICAI CA Intermediate

ICAI CA Intermediate examines Indian Accounting Standards, which are based on but can differ from IFRS. Check your syllabus.

Read the official IFRS 2 text on ifrs.org