HKFRS 2 - Share-based Payment

1. OBJECTIVE AND SCOPE

Objective (Paragraph 1)

The objective of HKFRS 2 is to specify the financial reporting by an entity when it undertakes a share-based payment transaction. The Standard requires an entity to reflect in its profit or loss and financial position the effects of share-based payment transactions, including expenses associated with transactions in which share options are granted to employees.

Scope (Paragraphs 2-6A)

Paragraph 2 - General Scope:

An entity shall apply this HKFRS in accounting for all share-based payment transactions, whether or not the entity can identify specifically some or all of the goods or services received, including:

(a) Equity-settled share-based payment transactions - where the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options)

(b) Cash-settled share-based payment transactions - where the entity acquires goods or services by incurring liabilities to the supplier for amounts based on the price (or value) of the entity's shares or other equity instruments

(c) Transactions with a choice of settlement - where the terms of the arrangement provide either the entity or the supplier with a choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments

Paragraph 3A - Group Entity Settlements:

A share-based payment transaction may be settled by another group entity (or a shareholder of any group entity) on behalf of the entity receiving or acquiring the goods or services. Paragraph 2 also applies to an entity that:

(a) Receives goods or services when another entity in the same group (or a shareholder of any group entity) has the obligation to settle the share-based payment transaction, OR

(b) Has an obligation to settle a share-based payment transaction when another entity in the same group receives the goods or services

Unless the transaction is clearly for a purpose other than payment for goods or services supplied to the entity receiving them.

Paragraph 4 - Exclusions:

A transaction with an employee (or other party) in his/her capacity as a holder of equity instruments of the entity is NOT a share-based payment transaction. For example, if an entity grants all holders of a particular class of its equity instruments the right to acquire additional equity instruments at a price less than fair value, and an employee receives such a right because he/she is a holder of that particular class, the granting or exercise of that right is not subject to HKFRS 2.

Paragraph 5 - Business Combinations:

Goods includes inventories, consumables, property, plant and equipment, intangible assets and other non-financial assets. However, an entity shall NOT apply this HKFRS to transactions in which the entity acquires goods as part of the net assets acquired in:

A business combination as defined by HKFRS 3

A combination of entities or businesses under common control

The contribution of a business on the formation of a joint venture as defined by HKFRS 11

Equity instruments issued in a business combination in exchange for control of the acquiree are NOT within the scope of HKFRS 2. However, equity instruments granted to employees of the acquiree in their capacity as employees (e.g., in return for continued service) ARE within the scope of HKFRS 2.

Paragraph 6 - Financial Instruments:

This HKFRS does NOT apply to share-based payment transactions in which the entity receives or acquires goods or services under a contract within the scope of paragraphs 8-10 of HKAS 32 or paragraphs 2.4-2.7 of HKFRS 9.

Paragraph 6A - Fair Value Definition:

This HKFRS uses the term 'fair value' in a way that differs in some respects from the definition of fair value in HKFRS 13. Therefore, when applying HKFRS 2, an entity measures fair value in accordance with this HKFRS, NOT HKFRS 13.

2. RECOGNITION (Paragraphs 7-9)

Paragraph 7 - Basic Recognition Principle:

An entity shall recognise the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. The entity shall recognise:

A corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction

A liability if the goods or services were acquired in a cash-settled share-based payment transaction

Paragraph 8 - Expense Recognition:

When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they shall be recognised as expenses.

Paragraph 9 - Consumption Timing:

Typically, an expense arises from the consumption of goods or services. For example:

Services are typically consumed immediately → expense recognised as the counterparty renders service

Goods might be consumed over time or sold at a later date → expense recognised when goods are consumed or sold

Sometimes it is necessary to recognise an expense before goods or services are consumed or sold because they do not qualify for recognition as assets (e.g., goods acquired as part of the research phase of a project)

3. EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS (Paragraphs 10-29)

3.1 Overview (Paragraphs 10-13A)

Paragraph 10 - Measurement Principle:

For equity-settled share-based payment transactions, the entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.

Paragraph 11 - Transactions with Employees:

To apply the requirements of paragraph 10 to transactions with employees and others providing similar services, the entity shall measure the fair value of the services received by reference to the fair value of the equity instruments granted, because typically it is not possible to estimate reliably the fair value of the services received. The fair value of those equity instruments shall be measured at grant date.

Paragraph 12 - Rationale for Employee Transactions:

Typically, shares, share options or other equity instruments are granted to employees as part of their remuneration package. Usually, it is not possible to measure directly the services received for particular components of the employee's remuneration package. Because of the difficulty of measuring directly the fair value of the services received, the entity shall measure the fair value of the employee services received by reference to the fair value of the equity instruments granted.

Paragraph 13 - Transactions with Non-Employees:

To apply the requirements of paragraph 10 to transactions with parties other than employees, there shall be a rebuttable presumption that the fair value of the goods or services received can be estimated reliably. That fair value shall be measured at the date the entity obtains the goods or the counterparty renders service. In rare cases, if the entity rebuts this presumption because it cannot estimate reliably the fair value of the goods or services received, the entity shall measure the goods or services received, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders service.

Paragraph 13A - Unidentifiable Goods or Services:

If the identifiable consideration received (if any) by the entity appears to be less than the fair value of the equity instruments granted or liability incurred, typically this situation indicates that other consideration (i.e., unidentifiable goods or services) has been (or will be) received by the entity. The entity shall:

Measure the identifiable goods or services received in accordance with HKFRS 2

Measure the unidentifiable goods or services received (or to be received) as the difference between the fair value of the share-based payment and the fair value of any identifiable goods or services received (or to be received)

Measure the unidentifiable goods or services received at the grant date

For cash-settled transactions, the liability shall be remeasured at the end of each reporting period until it is settled

3.2 Transactions in Which Services Are Received (Paragraphs 14-15)

Paragraph 14 - Immediate Vesting:

If the equity instruments granted vest immediately, the counterparty is not required to complete a specified period of service before becoming unconditionally entitled to those equity instruments. In the absence of evidence to the contrary, the entity shall presume that services rendered by the counterparty as consideration for the equity instruments have been received. In this case, on grant date the entity shall recognise the services received in full, with a corresponding increase in equity.

Paragraph 15 - Graded Vesting:

If the equity instruments granted do not vest until the counterparty completes a specified period of service, the entity shall presume that the services to be rendered by the counterparty as consideration for those equity instruments will be received in the future, during the vesting period. The entity shall account for those services as they are rendered by the counterparty during the vesting period, with a corresponding increase in equity.

Examples:

(a) If an employee is granted share options conditional upon completing three years' service, the entity shall presume that the services to be rendered by the employee as consideration for the share options will be received in the future, over that three-year vesting period.

(b) If an employee is granted share options conditional upon the achievement of a performance condition and remaining in the entity's employ until that performance condition is satisfied, and the length of the vesting period varies depending on when that performance condition is satisfied, the entity shall presume that the services to be rendered by the employee as consideration for the share options will be received in the future, over the expected vesting period. The entity shall estimate the length of the expected vesting period at grant date, based on the most likely outcome of the performance condition.

If the performance condition is a market condition, the estimate of the length of the expected vesting period shall be consistent with the assumptions used in estimating the fair value of the options granted, and shall not be subsequently revised.

If the performance condition is not a market condition, the entity shall revise its estimate of the length of the vesting period, if necessary, if subsequent information indicates that the length of the vesting period differs from previous estimates.

3.3 Transactions Measured by Reference to the Fair Value of the Equity Instruments Granted (Paragraphs 16-25)

3.3.1 Determining the Fair Value of Equity Instruments Granted (Paragraphs 16-18)

Paragraph 16 - Market Prices:

For transactions measured by reference to the fair value of the equity instruments granted, an entity shall measure the fair value of equity instruments granted at the measurement date, based on market prices if available, taking into account the terms and conditions upon which those equity instruments were granted (subject to the requirements of paragraphs 19-22).

Paragraph 17 - Valuation Techniques:

If market prices are not available, the entity shall estimate the fair value of the equity instruments granted using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an arm's length transaction between knowledgeable, willing parties. The valuation technique shall be consistent with generally accepted valuation methodologies for pricing financial instruments, and shall incorporate all factors and assumptions that knowledgeable, willing market participants would consider in setting the price (subject to the requirements of paragraphs 19-22).

Paragraph 18 - Application Guidance:

Appendix B contains further guidance on the measurement of the fair value of shares and share options, focusing on the specific terms and conditions that are common features of a grant of shares or share options to employees.

3.3.2 Treatment of Vesting Conditions (Paragraphs 19-21)

Paragraph 19 - Vesting Conditions (Other Than Market Conditions):

A grant of equity instruments might be conditional upon satisfying specified vesting conditions. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the shares or share options at the measurement date. Instead, vesting conditions, other than market conditions, shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

Hence, on a cumulative basis, no amount is recognised for goods or services received if the equity instruments granted do not vest because of failure to satisfy a vesting condition, other than a market condition (e.g., the counterparty fails to complete a specified service period, or a performance condition is not satisfied).

Paragraph 20 - Estimation Process:

To apply the requirements of paragraph 19, the entity shall:

Recognise an amount for the goods or services received during the vesting period based on the best available estimate of the number of equity instruments expected to vest

Revise that estimate, if necessary, if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates

On vesting date, revise the estimate to equal the number of equity instruments that ultimately vested

Paragraph 21 - Market Conditions:

Market conditions, such as a target share price upon which vesting (or exercisability) is conditioned, shall be taken into account when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with market conditions, the entity shall recognise the goods or services received from a counterparty who satisfies all other vesting conditions (e.g., services received from an employee who remains in service for the specified period of service), irrespective of whether that market condition is satisfied.

3.3.3 Treatment of Non-Vesting Conditions (Paragraph 21A)

Paragraph 21A:

Similarly, an entity shall take into account all non-vesting conditions when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with non-vesting conditions, the entity shall recognise the goods or services received from a counterparty that satisfies all vesting conditions that are not market conditions (e.g., services received from an employee who remains in service for the specified period of service), irrespective of whether those non-vesting conditions are satisfied.

3.3.4 Treatment of a Reload Feature (Paragraph 22)

Paragraph 22:

For options with a reload feature, the reload feature shall not be taken into account when estimating the fair value of options granted at the measurement date. Instead, a reload option shall be accounted for as a new option grant, if and when a reload option is subsequently granted.

3.3.5 After Vesting Date (Paragraph 23)

Paragraph 23:

Having recognised the goods or services received in accordance with paragraphs 10-22, and a corresponding increase in equity, the entity shall make no subsequent adjustment to total equity after vesting date. For example, the entity shall not subsequently reverse the amount recognised for services received from an employee if the vested equity instruments are later forfeited or, in the case of share options, the options are not exercised. However, this requirement does not preclude the entity from recognising a transfer within equity (i.e., a transfer from one component of equity to another).

3.3.6 If the Fair Value of the Equity Instruments Cannot Be Estimated Reliably (Paragraphs 24-25)

Paragraph 24 - Intrinsic Value Method:

In rare cases where the entity may be unable to estimate reliably the fair value of the equity instruments granted at the measurement date, the entity shall instead:

(a) Measure the equity instruments at their intrinsic value:

Initially at the date the entity obtains the goods or the counterparty renders service

Subsequently at the end of each reporting period and at the date of final settlement

Any change in intrinsic value recognised in profit or loss

For share options, the arrangement is finally settled when the options are exercised, forfeited (e.g., upon cessation of employment) or lapse (e.g., at the end of the option's life)

(b) Recognise the goods or services received based on the number of equity instruments that ultimately vest or (where applicable) are ultimately exercised:

Recognise goods or services received during the vesting period in accordance with paragraphs 14 and 15

The requirements in paragraph 15(b) concerning a market condition do NOT apply

Amount recognised during vesting period based on number of share options expected to vest

Revise estimate if necessary

On vesting date, revise to equal number of equity instruments that ultimately vested

After vesting date, reverse the amount recognised if share options are later forfeited or lapse

Paragraph 25 - Modifications Under Intrinsic Value Method:

If an entity applies paragraph 24, it is not necessary to apply paragraphs 26-29, because any modifications to the terms and conditions on which the equity instruments were granted will be taken into account when applying the intrinsic value method. However, if an entity settles a grant of equity instruments to which paragraph 24 has been applied:

(a) If the settlement occurs during the vesting period, the entity shall account for the settlement as an acceleration of vesting, and shall therefore recognise immediately the amount that would otherwise have been recognised for services received over the remainder of the vesting period.

(b) Any payment made on settlement shall be accounted for as the repurchase of equity instruments (i.e., as a deduction from equity), except to the extent that the payment exceeds the intrinsic value of the equity instruments, measured at the repurchase date. Any such excess shall be recognised as an expense.

3.4 Modifications to Terms and Conditions, Including Cancellations and Settlements (Paragraphs 26-29)

Paragraph 26 - Scope of Modification Requirements:

An entity might modify the terms and conditions on which the equity instruments were granted. For example, it might reduce the exercise price of options granted to employees (i.e., reprice the options), which increases the fair value of those options. The requirements in paragraphs 27-29 to account for the effects of modifications are expressed in the context of share-based payment transactions with employees. However, the requirements shall also be applied to share-based payment transactions with parties other than employees that are measured by reference to the fair value of the equity instruments granted. In the latter case, any references in paragraphs 27-29 to grant date shall instead refer to the date the entity obtains the goods or the counterparty renders service.

Paragraph 27 - Minimum Recognition Requirement:

The entity shall recognise, as a minimum, the services received measured at the grant date fair value of the equity instruments granted, unless those equity instruments do not vest because of failure to satisfy a vesting condition (other than a market condition) that was specified at grant date. This applies irrespective of any modifications to the terms and conditions on which the equity instruments were granted, or a cancellation or settlement of that grant of equity instruments. In addition, the entity shall recognise the effects of modifications that increase the total fair value of the share-based payment arrangement or are otherwise beneficial to the employee.

Paragraph 28 - Cancellation or Settlement During Vesting Period:

If a grant of equity instruments is cancelled or settled during the vesting period (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied):

(a) The entity shall account for the cancellation or settlement as an acceleration of vesting, and shall therefore recognise immediately the amount that otherwise would have been recognised for services received over the remainder of the vesting period.

(b) Any payment made to the employee on the cancellation or settlement of the grant shall be accounted for as the repurchase of an equity interest (i.e., as a deduction from equity), except to the extent that the payment exceeds the fair value of the equity instruments granted, measured at the repurchase date. Any such excess shall be recognised as an expense. However, if the share-based payment arrangement included liability components, the entity shall remeasure the fair value of the liability at the date of cancellation or settlement. Any payment made to settle the liability component shall be accounted for as an extinguishment of the liability.

(c) If new equity instruments are granted to the employee and, on the date when those new equity instruments are granted, the entity identifies the new equity instruments granted as replacement equity instruments for the cancelled equity instruments, the entity shall account for the granting of replacement equity instruments in the same way as a modification of the original grant of equity instruments, in accordance with paragraph 27 and the guidance in Appendix B. The incremental fair value granted is the difference between the fair value of the replacement equity instruments and the net fair value of the cancelled equity instruments, at the date the replacement equity instruments are granted. The net fair value of the cancelled equity instruments is their fair value, immediately before the cancellation, less the amount of any payment made to the employee on cancellation of the equity instruments that is accounted for as a deduction from equity. If the entity does not identify new equity instruments granted as replacement equity instruments for the cancelled equity instruments, the entity shall account for those new equity instruments as a new grant of equity instruments.

Paragraph 28A - Non-Vesting Condition Failure:

If an entity or counterparty can choose whether to meet a non-vesting condition, the entity shall treat the entity's or counterparty's failure to meet that non-vesting condition during the vesting period as a cancellation.

Paragraph 29 - Repurchase of Vested Equity Instruments:

If an entity repurchases vested equity instruments, the payment made to the employee shall be accounted for as a deduction from equity, except to the extent that the payment exceeds the fair value of the equity instruments repurchased, measured at the repurchase date. Any such excess shall be recognised as an expense.

4. CASH-SETTLED SHARE-BASED PAYMENT TRANSACTIONS (Paragraphs 30-33D)

Paragraph 30 - Measurement Principle:

For cash-settled share-based payment transactions, the entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability, subject to the requirements of paragraphs 31-33D. Until the liability is settled, the entity shall remeasure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognised in profit or loss for the period.

Paragraph 31 - Examples:

For example, an entity might grant share appreciation rights (SARs) to employees as part of their remuneration package, whereby the employees will become entitled to a future cash payment (rather than an equity instrument), based on the increase in the entity's share price from a specified level over a specified period of time. Alternatively, an entity might grant to its employees a right to receive a future cash payment by granting to them a right to shares (including shares to be issued upon the exercise of share options) that are redeemable, either mandatorily (for example, upon cessation of employment) or at the employee's option.

Paragraph 32 - Recognition of Services and Liability:

The entity shall recognise the services received, and a liability to pay for those services, as the employees render service. For example:

Some share appreciation rights vest immediately → entity shall recognise immediately the services received and a liability to pay for them

If the share appreciation rights do not vest until the employees have completed a specified period of service → entity shall recognise the services received, and a liability to pay for them, as the employees render service during that period

Paragraph 33 - Measurement of Liability:

The liability shall be measured, initially and at the end of each reporting period until settled, at the fair value of the share appreciation rights, by applying an option pricing model, taking into account:

The terms and conditions on which the share appreciation rights were granted

The extent to which the employees have rendered service to date

Subject to the requirements of paragraphs 33A-33D

An entity might modify the terms and conditions on which a cash-settled share-based payment is granted. Guidance for a modification of a share-based payment transaction that changes its classification from cash-settled to equity-settled is given in paragraphs B44A-B44C in Appendix B.

4.1 Treatment of Vesting and Non-Vesting Conditions (Paragraphs 33A-33D)

Paragraph 33A - Vesting Conditions (Other Than Market Conditions):

A cash-settled share-based payment transaction might be conditional upon satisfying specified vesting conditions. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the cash-settled share-based payment at the measurement date. Instead, vesting conditions, other than market conditions, shall be taken into account by adjusting the number of awards included in the measurement of the liability arising from the transaction.

Paragraph 33B - Estimation Process:

To apply the requirements in paragraph 33A, the entity shall:

Recognise an amount for the goods or services received during the vesting period

That amount shall be based on the best available estimate of the number of awards that are expected to vest

Revise that estimate, if necessary, if subsequent information indicates that the number of awards that are expected to vest differs from previous estimates

On the vesting date, revise the estimate to equal the number of awards that ultimately vested

Paragraph 33C - Market Conditions and Non-Vesting Conditions:

Market conditions, such as a target share price upon which vesting (or exercisability) is conditioned, as well as non-vesting conditions, shall be taken into account when:

Estimating the fair value of the cash-settled share-based payment granted

Remeasuring the fair value at the end of each reporting period and at the date of settlement

Paragraph 33D - Cumulative Amount:

As a result of applying paragraphs 30-33C, the cumulative amount ultimately recognised for goods or services received as consideration for the cash-settled share-based payment is equal to the cash that is paid.

5. SHARE-BASED PAYMENT TRANSACTIONS WITH A NET SETTLEMENT FEATURE FOR WITHHOLDING TAX OBLIGATIONS (Paragraphs 33E-33H)

Paragraph 33E - Net Settlement Feature:

Tax laws or regulations may oblige an entity to withhold an amount for an employee's tax obligation associated with a share-based payment and transfer that amount, normally in cash, to the tax authority on the employee's behalf. To fulfil this obligation, the terms of the share-based payment arrangement may permit or require the entity to withhold the number of equity instruments equal to the monetary value of the employee's tax obligation from the total number of equity instruments that otherwise would have been issued to the employee upon exercise (or vesting) of the share-based payment (i.e., the share-based payment arrangement has a 'net settlement feature').

Paragraph 33F - Classification Exception:

As an exception to the requirements in paragraph 34, the transaction described in paragraph 33E shall be classified in its entirety as an equity-settled share-based payment transaction if it would have been so classified in the absence of the net settlement feature.

Paragraph 33G - Accounting for Withholding:

The entity applies paragraph 29 of this Standard to account for the withholding of shares to fund the payment to the tax authority in respect of the employee's tax obligation associated with the share-based payment. Therefore, the payment made shall be accounted for as a deduction from equity for the shares withheld, except to the extent that the payment exceeds the fair value at the net settlement date of the equity instruments withheld.

Paragraph 33H - Exceptions to the Exception:

The exception in paragraph 33F does NOT apply to:

(a) A share-based payment arrangement with a net settlement feature for which there is no obligation on the entity under tax laws or regulations to withhold an amount for an employee's tax obligation associated with that share-based payment; OR

(b) Any equity instruments that the entity withholds in excess of the employee's tax obligation associated with the share-based payment (i.e., the entity withheld an amount of shares that exceeds the monetary value of the employee's tax obligation). Such excess shares withheld shall be accounted for as a cash-settled share-based payment when this amount is paid in cash (or other assets) to the employee.

6. SHARE-BASED PAYMENT TRANSACTIONS WITH CASH ALTERNATIVES (Paragraphs 34-43)

Paragraph 34 - General Principle:

For share-based payment transactions in which the terms of the arrangement provide either the entity or the counterparty with the choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments, the entity shall account for that transaction, or the components of that transaction:

As a cash-settled share-based payment transaction if, and to the extent that, the entity has incurred a liability to settle in cash or other assets

As an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred

6.1 Counterparty Has Choice of Settlement (Paragraphs 35-40)

Paragraph 35 - Compound Financial Instrument:

If an entity has granted the counterparty the right to choose whether a share-based payment transaction is settled in cash or by issuing equity instruments, the entity has granted a compound financial instrument, which includes:

A debt component (i.e., the counterparty's right to demand payment in cash)

An equity component (i.e., the counterparty's right to demand settlement in equity instruments rather than in cash)

For transactions with parties other than employees, in which the fair value of the goods or services received is measured directly, the entity shall measure the equity component of the compound financial instrument as the difference between the fair value of the goods or services received and the fair value of the debt component, at the date when the goods or services are received.

Paragraph 36 - Measurement for Other Transactions:

For other transactions, including transactions with employees, the entity shall measure the fair value of the compound financial instrument at the measurement date, taking into account the terms and conditions on which the rights to cash or equity instruments were granted.

Paragraph 37 - Measurement Approach:

To apply paragraph 36, the entity shall:

First measure the fair value of the debt component

Then measure the fair value of the equity component—taking into account that the counterparty must forfeit the right to receive cash in order to receive the equity instrument

The fair value of the compound financial instrument is the sum of the fair values of the two components

If the fair values of the settlement alternatives are the same, the fair value of the equity component is zero, and hence the fair value of the compound financial instrument is the same as the fair value of the debt component. Conversely, if the fair values differ, the fair value of the equity component usually will be greater than zero.

Paragraph 38 - Separate Accounting:

The entity shall account separately for the goods or services received or acquired in respect of each component of the compound financial instrument:

For the debt component: recognise the goods or services acquired, and a liability to pay for those goods or services, as the counterparty supplies goods or renders service, in accordance with the requirements applying to cash-settled share-based payment transactions (paragraphs 30-33)

For the equity component (if any): recognise the goods or services received, and an increase in equity, as the counterparty supplies goods or renders service, in accordance with the requirements applying to equity-settled share-based payment transactions (paragraphs 10-29)

Paragraph 39 - Settlement:

At the date of settlement, the entity shall remeasure the liability to its fair value. If the entity issues equity instruments on settlement rather than paying cash, the liability shall be transferred direct to equity, as the consideration for the equity instruments issued.

Paragraph 40 - Cash Settlement:

If the entity pays in cash on settlement rather than issuing equity instruments, that payment shall be applied to settle the liability in full. Any equity component previously recognised shall remain within equity. By electing to receive cash on settlement, the counterparty forfeited the right to receive equity instruments. However, this requirement does not preclude the entity from recognising a transfer within equity.

6.2 Entity Has Choice of Settlement (Paragraphs 41-43)

Paragraph 41 - Determining Present Obligation:

For a share-based payment transaction in which the terms of the arrangement provide an entity with the choice of whether to settle in cash or by issuing equity instruments, the entity shall determine whether it has a present obligation to settle in cash and account for the share-based payment transaction accordingly. The entity has a present obligation to settle in cash if:

The choice of settlement in equity instruments has no commercial substance (e.g., because the entity is legally prohibited from issuing shares), OR

The entity has a past practice or a stated policy of settling in cash, OR

The entity generally settles in cash whenever the counterparty asks for cash settlement

Paragraph 42 - Cash-Settled Treatment:

If the entity has a present obligation to settle in cash, it shall account for the transaction in accordance with the requirements applying to cash-settled share-based payment transactions (paragraphs 30-33).

Paragraph 43 - Equity-Settled Treatment:

If no such obligation exists, the entity shall account for the transaction in accordance with the requirements applying to equity-settled share-based payment transactions (paragraphs 10-29). Upon settlement:

(a) If the entity elects to settle in cash, the cash payment shall be accounted for as the repurchase of an equity interest (i.e., as a deduction from equity), except as noted in (c) below.

(b) If the entity elects to settle by issuing equity instruments, no further accounting is required (other than a transfer from one component of equity to another, if necessary), except as noted in (c) below.

(c) If the entity elects the settlement alternative with the higher fair value, as at the date of settlement, the entity shall recognise an additional expense for the excess value given, i.e., the difference between the cash paid and the fair value of the equity instruments that would otherwise have been issued, or the difference between the fair value of the equity instruments issued and the amount of cash that would otherwise have been paid, whichever is applicable.

7. SHARE-BASED PAYMENT TRANSACTIONS AMONG GROUP ENTITIES (Paragraphs 43A-43D)

Paragraph 43A - General Principle:

For share-based payment transactions among group entities, in its separate or individual financial statements, the entity receiving the goods or services shall measure the goods or services received as either an equity-settled or a cash-settled share-based payment transaction by assessing:

(a) The nature of the awards granted, and

(b) Its own rights and obligations

The amount recognised by the entity receiving the goods or services may differ from the amount recognised by the consolidated group or by another group entity settling the share-based payment transaction.

Paragraph 43B - Equity-Settled Classification for Recipient:

The entity receiving the goods or services shall measure the goods or services received as an equity-settled share-based payment transaction when:

(a) The awards granted are its own equity instruments, OR

(b) The entity has no obligation to settle the share-based payment transaction

The entity shall subsequently remeasure such an equity-settled share-based payment transaction only for changes in non-market vesting conditions in accordance with paragraphs 19-21. In all other circumstances, the entity receiving the goods or services shall measure the goods or services received as a cash-settled share-based payment transaction.

Paragraph 43C - Classification for Settling Entity:

The entity settling a share-based payment transaction when another entity in the group receives the goods or services shall recognise the transaction as an equity-settled share-based payment transaction only if it is settled in the entity's own equity instruments. Otherwise, the transaction shall be recognised as a cash-settled share-based payment transaction.

Paragraph 43D - Intragroup Repayment Arrangements:

Some group transactions involve repayment arrangements that require one group entity to pay another group entity for the provision of the share-based payments to the suppliers of goods or services. In such cases, the entity that receives the goods or services shall account for the share-based payment transaction in accordance with paragraph 43B regardless of intragroup repayment arrangements.

8. DISCLOSURES (Paragraphs 44-52)

Paragraph 44 - Principle:

An entity shall disclose information that enables users of the financial statements to understand the nature and extent of share-based payment arrangements that existed during the period.

Paragraph 45 - Minimum Disclosures for Nature and Extent:

To give effect to the principle in paragraph 44, the entity shall disclose at least the following:

(a) A description of each type of share-based payment arrangement that existed at any time during the period, including:

General terms and conditions of each arrangement

Vesting requirements

Maximum term of options granted

Method of settlement (e.g., whether in cash or equity)

An entity with substantially similar types of arrangements may aggregate this information

(b) The number and weighted average exercise prices of share options for each of the following groups of options:

(i) Outstanding at the beginning of the period

(ii) Granted during the period

(iii) Forfeited during the period

(iv) Exercised during the period

(v) Expired during the period

(vi) Outstanding at the end of the period

(vii) Exercisable at the end of the period

(c) For share options exercised during the period:

The weighted average share price at the date of exercise

If options were exercised on a regular basis throughout the period, the entity may instead disclose the weighted average share price during the period

(d) For share options outstanding at the end of the period:

The range of exercise prices

Weighted average remaining contractual life

If the range of exercise prices is wide, the outstanding options shall be divided into ranges that are meaningful for assessing the number and timing of additional shares that may be issued and the cash that may be received upon exercise

Paragraph 46 - Principle for Fair Value Determination:

An entity shall disclose information that enables users of the financial statements to understand how the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was determined.

Paragraph 47 - Disclosures for Indirect Measurement:

If the entity has measured the fair value of goods or services received as consideration for equity instruments of the entity indirectly, by reference to the fair value of the equity instruments granted, to give effect to the principle in paragraph 46, the entity shall disclose at least the following:

(a) For share options granted during the period:

Weighted average fair value of those options at the measurement date

Information on how that fair value was measured, including:

(i) The option pricing model used and the inputs to that model (weighted average share price, exercise price, expected volatility, option life, expected dividends, risk-free interest rate, and any other inputs, including the method used and assumptions made to incorporate the effects of expected early exercise)

(ii) How expected volatility was determined, including an explanation of the extent to which expected volatility was based on historical volatility

(iii) Whether and how any other features of the option grant were incorporated into the measurement of fair value, such as a market condition

(b) For other equity instruments granted during the period (i.e., other than share options):

The number and weighted average fair value of those equity instruments at the measurement date

Information on how that fair value was measured, including:

(i) If fair value was not measured on the basis of an observable market price, how it was determined

(ii) Whether and how expected dividends were incorporated into the measurement of fair value

(iii) Whether and how any other features of the equity instruments granted were incorporated into the measurement of fair value

(c) For share-based payment arrangements that were modified during the period:

(i) An explanation of those modifications

(ii) The incremental fair value granted (as a result of those modifications)

(iii) Information on how the incremental fair value granted was measured, consistently with the requirements set out in (a) and (b) above, where applicable

Paragraph 48 - Disclosures for Direct Measurement:

If the entity has measured directly the fair value of goods or services received during the period, the entity shall disclose how that fair value was determined, e.g., whether fair value was measured at a market price for those goods or services.

Paragraph 49 - Rebuttal of Presumption:

If the entity has rebutted the presumption in paragraph 13, it shall disclose that fact, and give an explanation of why the presumption was rebutted.

Paragraph 50 - Principle for Effect on Financial Statements:

An entity shall disclose information that enables users of the financial statements to understand the effect of share-based payment transactions on the entity's profit or loss for the period and on its financial position.

Paragraph 51 - Minimum Disclosures for Effect:

To give effect to the principle in paragraph 50, the entity shall disclose at least the following:

(a) The total expense recognised for the period arising from share-based payment transactions in which the goods or services received did not qualify for recognition as assets and hence were recognised immediately as an expense, including separate disclosure of that portion of the total expense that arises from transactions accounted for as equity-settled share-based payment transactions

(b) For liabilities arising from share-based payment transactions:

(i) The total carrying amount at the end of the period

(ii) The total intrinsic value at the end of the period of liabilities for which the counterparty's right to cash or other assets had vested by the end of the period (e.g., vested share appreciation rights)

Paragraph 52 - Additional Disclosures:

If the information required to be disclosed by this Standard does not satisfy the principles in paragraphs 44, 46 and 50, the entity shall disclose such additional information as is necessary to satisfy them. For example, if an entity has classified any share-based payment transactions as equity-settled in accordance with paragraph 33F, the entity shall disclose an estimate of the amount that it expects to transfer to the tax authority to settle the employee's tax obligation when it is necessary to inform users about the future cash flow effects associated with the share-based payment arrangement.

9. TRANSITIONAL PROVISIONS (Paragraphs 53-59B)

Paragraph 53 - Equity-Settled Transactions:

For equity-settled share-based payment transactions, the entity shall apply this HKFRS to grants of shares, share options or other equity instruments that were granted after 7 November 2002 and had not yet vested at the effective date of this HKFRS.

Paragraph 54 - Encouraged Application:

The entity is encouraged, but not required, to apply this HKFRS to other grants of equity instruments if the entity has disclosed publicly the fair value of those equity instruments, determined at the measurement date.

Paragraph 55 - Restatement:

For all grants of equity instruments to which this HKFRS is applied, the entity shall restate comparative information and, where applicable, adjust the opening balance of retained earnings for the earliest period presented.

Paragraph 56 - Disclosures for Non-Applied Grants:

For all grants of equity instruments to which this HKFRS has not been applied (e.g., equity instruments granted on or before 7 November 2002), the entity shall nevertheless disclose the information required by paragraphs 44 and 45.

Paragraph 57 - Modifications After Effective Date:

If, after the HKFRS becomes effective, an entity modifies the terms or conditions of a grant of equity instruments to which this HKFRS has not been applied, the entity shall nevertheless apply paragraphs 26-29 to account for any such modifications.

Paragraph 58 - Liabilities:

For liabilities arising from share-based payment transactions existing at the effective date of this HKFRS, the entity shall apply the HKFRS retrospectively. For these liabilities, the entity shall restate comparative information, including adjusting the opening balance of retained earnings in the earliest period presented for which comparative information has been restated, except that the entity is not required to restate comparative information to the extent that the information relates to a period or date that is earlier than 7 November 2002.

Paragraph 59 - Encouraged Retrospective Application:

The entity is encouraged, but not required, to apply retrospectively the HKFRS to other liabilities arising from share-based payment transactions, for example, to liabilities that were settled during a period for which comparative information is presented.

Paragraph 59A - Amendments Application:

An entity shall apply the amendments in paragraphs 30-31, 33-33H and B44A-B44C as set out below. Prior periods shall not be restated.

(a) The amendments in paragraphs B44A-B44C apply only to modifications that occur on or after the date that an entity first applies the amendments.

(b) The amendments in paragraphs 30-31 and 33-33D apply to:

Share-based payment transactions that are unvested at the date that an entity first applies the amendments

Share-based payment transactions with a grant date on or after the date that an entity first applies the amendments

For unvested share-based payment transactions granted prior to the date that an entity first applies the amendments, an entity shall remeasure the liability at that date and recognise the effect of the remeasurement in opening retained earnings (or other component of equity, as appropriate) of the reporting period in which the amendments are first applied

(c) The amendments in paragraphs 33E-33H and the amendment to paragraph 52 apply to:

Share-based payment transactions that are unvested (or vested but unexercised) at the date that an entity first applies the amendments

Share-based payment transactions with a grant date on or after the date that an entity first applies the amendments

For unvested (or vested but unexercised) share-based payment transactions (or components thereof) that were previously classified as cash-settled share-based payments but now are classified as equity-settled in accordance with the amendments, an entity shall reclassify the carrying value of the share-based payment liability to equity at the date that it first applies the amendments

Paragraph 59B - Retrospective Application Option:

Notwithstanding the requirements in paragraph 59A, an entity may apply the amendments in paragraph 63D retrospectively, subject to the transitional provisions in paragraphs 53-59 of this Standard, in accordance with HKAS 8 if and only if it is possible without hindsight. If an entity elects retrospective application, it must do so for all of the amendments made by Classification and Measurement of Share-based Payment Transactions (Amendments to HKFRS 2).

10. EFFECTIVE DATE (Paragraphs 60-63E)

Paragraph 60 - Original Effective Date:

An entity shall apply this HKFRS for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies the HKFRS for a period beginning before 1 January 2005, it shall disclose that fact.

Paragraph 61 - HKFRS 3 Amendments:

HKFRS 3 (as revised in 2008) and Improvements to HKFRSs issued in May 2009 amended paragraph 5. An entity shall apply those amendments for annual periods beginning on or after 1 July 2009. Earlier application is permitted.

Paragraph 62 - 2009 Amendments:

An entity shall apply the following amendments retrospectively in annual periods beginning on or after 1 January 2009:

(a) The requirements in paragraph 21A in respect of the treatment of non-vesting conditions

(b) The revised definitions of 'vest' and 'vesting conditions' in Appendix A

(c) The amendments in paragraphs 28 and 28A in respect of cancellations

Paragraph 63 - Group Cash-Settled Amendments:

An entity shall apply the following amendments made by Group Cash-settled Share-based Payment Transactions issued in July 2009 retrospectively for annual periods beginning on or after 1 January 2010:

(a) The amendment of paragraph 2, the deletion of paragraph 3 and the addition of paragraphs 3A and 43A-43D and of paragraphs B45, B47, B50, B54, B56-B58 and B60 in Appendix B

(b) The revised definitions in Appendix A of: cash-settled share-based payment transaction, equity-settled share-based payment transaction, share-based payment arrangement, and share-based payment transaction

Paragraph 63A - HKFRS 10 and HKFRS 11 Amendments:

HKFRS 10 and HKFRS 11, issued in June 2011, amended paragraph 5 and Appendix A. An entity shall apply those amendments when it applies HKFRS 10 and HKFRS 11.

Paragraph 63B - 2010-2012 Cycle Amendments:

Annual Improvements to HKFRSs 2010-2012 Cycle, issued in January 2014, amended paragraphs 15 and 19. An entity shall prospectively apply that amendment to share-based payment transactions for which the grant date is on or after 1 July 2014.

Paragraph 63C - HKFRS 9 Amendments:

HKFRS 9, as issued in September 2014, amended paragraph 6. An entity shall apply that amendment when it applies HKFRS 9.

Paragraph 63D - 2016 Amendments:

Classification and Measurement of Share-based Payment Transactions (Amendments to HKFRS 2), issued in August 2016, amended paragraphs 19, 30-31, 33, 52 and 63 and added paragraphs 33A-33H, 59A-59B, 63D and B44A-B44C. An entity shall apply those amendments for annual periods beginning on or after 1 January 2018.

Paragraph 63E - Conceptual Framework Amendments:

Amendments to References to the Conceptual Framework in HKFRS Standards, issued in 2018, amended the footnote to the definition of an equity instrument in Appendix A. An entity shall apply that amendment for annual periods beginning on or after 1 January 2020.

11. APPENDIX A - DEFINED TERMS

Term	Definition
Cash-settled share-based payment transaction	A share-based payment transaction in which the entity acquires goods or services by incurring a liability to transfer cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of equity instruments (including shares or share options) of the entity or another group entity
Employees and others providing similar services	Individuals who render personal services to the entity and either (a) are regarded as employees for legal or tax purposes, (b) work for the entity under its direction in the same way as employees, or (c) render services similar to those rendered by employees. Includes all management personnel
Equity instrument	A contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities
Equity instrument granted	The right (conditional or unconditional) to an equity instrument of the entity conferred by the entity on another party, under a share-based payment arrangement
Equity-settled share-based payment transaction	A share-based payment transaction in which the entity (a) receives goods or services as consideration for its own equity instruments (including shares or share options), or (b) receives goods or services but has no obligation to settle the transaction with the supplier
Fair value	The amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm's length transaction
Grant date	The date at which the entity and another party (including an employee) agree to a share-based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement. At grant date the entity confers on the counterparty the right to cash, other assets, or equity instruments of the entity, provided the specified vesting conditions, if any, are met. If that agreement is subject to an approval process (e.g., by shareholders), grant date is the date when that approval is obtained
Intrinsic value	The difference between the fair value of the shares to which the counterparty has the (conditional or unconditional) right to subscribe or which it has the right to receive, and the price (if any) the counterparty is (or will be) required to pay for those shares. For example, a share option with an exercise price of CU15, on a share with a fair value of CU20, has an intrinsic value of CU5
Market condition	A performance condition upon which the exercise price, vesting or exercisability of an equity instrument depends that is related to the market price (or value) of the entity's equity instruments (or the equity instruments of another entity in the same group), such as: (a) attaining a specified share price or a specified amount of intrinsic value of a share option; or (b) achieving a specified target that is based on the market price (or value) of the entity's equity instruments relative to an index of market prices of equity instruments of other entities. A market condition requires the counterparty to complete a specified period of service (i.e., a service condition); the service requirement can be explicit or implicit
Measurement date	The date at which the fair value of the equity instruments granted is measured for the purposes of this HKFRS. For transactions with employees and others providing similar services, the measurement date is grant date. For transactions with parties other than employees (and those providing similar services), the measurement date is the date the entity obtains the goods or the counterparty renders service
Performance condition	A vesting condition that requires: (a) the counterparty to complete a specified period of service (i.e., a service condition); the service requirement can be explicit or implicit; and (b) specified performance target(s) to be met while the counterparty is rendering the service required in (a). The period of achieving the performance target(s) shall not extend beyond the end of the service period and may start before the service period on the condition that the commencement date of the performance target is not substantially before the commencement of the service period. A performance target is defined by reference to: (a) the entity's own operations (or activities) or the operations or activities of another entity in the same group (i.e., a non-market condition); or (b) the price (or value) of the entity's equity instruments or the equity instruments of another entity in the same group (including shares and share options) (i.e., a market condition)
Reload feature	A feature that provides for an automatic grant of additional share options whenever the option holder exercises previously granted options using the entity's shares, rather than cash, to satisfy the exercise price
Reload option	A new share option granted when a share is used to satisfy the exercise price of a previous share option
Service condition	A vesting condition that requires the counterparty to complete a specified period of service during which services are provided to the entity. If the counterparty, regardless of the reason, ceases to provide service during the vesting period, it has failed to satisfy the condition. A service condition does not require a performance target to be met
Share-based payment arrangement	An agreement between the entity (or another group entity or any shareholder of any group entity) and another party (including an employee) that entitles the other party to receive (a) cash or other assets of the entity for amounts that are based on the price (or value) of equity instruments (including shares or share options) of the entity or another group entity, or (b) equity instruments (including shares or share options) of the entity or another group entity, provided the specified vesting conditions, if any, are met
Share-based payment transaction	A transaction in which the entity (a) receives goods or services from the supplier of those goods or services (including an employee) in a share-based payment arrangement, or (b) incurs an obligation to settle the transaction with the supplier in a share-based payment arrangement when another group entity receives those goods or services
Share option	A contract that gives the holder the right, but not the obligation, to subscribe to the entity's shares at a fixed or determinable price for a specified period of time
Vest	To become an entitlement. Under a share-based payment arrangement, a counterparty's right to receive cash, other assets or equity instruments of the entity vests when the counterparty's entitlement is no longer conditional on the satisfaction of any vesting conditions
Vesting condition	A condition that determines whether the entity receives the services that entitle the counterparty to receive cash, other assets or equity instruments of the entity, under a share-based payment arrangement. A vesting condition is either a service condition or a performance condition
Vesting period	The period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied

12. APPENDIX B - APPLICATION GUIDANCE (Key Points)

Estimating the Fair Value of Equity Instruments Granted (B1-B41)

B1 - Scope of Guidance:

Paragraphs B2-B41 discuss measurement of the fair value of shares and share options granted, focusing on the specific terms and conditions that are common features of a grant of shares or share options to employees. Many of the valuation issues also apply in the context of estimating the fair value of shares or share options granted to parties other than employees.

Shares (B2-B3):

Fair value of shares shall be measured at the market price of the entity's shares (or an estimated market price), adjusted to take into account the terms and conditions upon which the shares were granted (except for vesting conditions excluded from fair value measurement)

If the employee is not entitled to receive dividends during the vesting period, this factor shall be taken into account

Post-vesting transfer restrictions shall be taken into account only to the extent they affect the price a market participant would pay

Restrictions on transfer during the vesting period shall NOT be taken into account

Share Options (B4-B10):

If traded options with similar terms and conditions do not exist, fair value shall be estimated by applying an option pricing model

Factors to consider in selecting the option pricing model include: long lives of employee options, exercisability between vesting date and end of option life, and early exercise patterns

The Black-Scholes-Merton formula may not be appropriate for options with long lives or where early exercise is expected

All option pricing models take into account: exercise price, life of the option, current price of underlying shares, expected volatility, expected dividends, and risk-free interest rate

Other factors that market participants would consider shall also be taken into account (except for vesting conditions and reload features)

The inability to exercise during vesting periods shall be taken into account

The possibility of early exercise shall be taken into account

Inputs to Option Pricing Models (B11-B41):

Expected volatility, dividends, and exercise behaviour should be based on expectations, not just historical information

Expected early exercise should be taken into account using either expected life as an input or by modelling in a binomial model

Factors to consider in estimating early exercise include: length of vesting period, average life of similar options, share price levels, employee level within the organisation, and expected volatility

Expected volatility should consider: implied volatility from traded options, historical volatility, length of time shares have been publicly traded, and tendency of volatility to revert to its mean

For newly listed entities, consider historical volatility of similar entities

For unlisted entities, consider internal market prices, volatility of similar listed entities, or volatility derived from valuation methodology

Expected dividends should be considered based on whether the counterparty is entitled to dividends or dividend equivalents

The risk-free interest rate is typically the implied yield on zero-coupon government issues with a remaining term equal to the expected term of the option

The potential dilutive effect of future exercise of share options should be considered

Modifications to Equity-Settled Share-Based Payment Arrangements (B42-B44)

B42 - Minimum Recognition:

Irrespective of any modifications, the entity should recognise, as a minimum, the services received measured at the grant date fair value of the equity instruments granted, unless those equity instruments do not vest because of failure to satisfy a vesting condition (other than a market condition) that was specified at grant date.

B43 - Application of Modification Requirements:

(a) If the modification increases the fair value of the equity instruments granted: include the incremental fair value granted (difference between fair value of modified and original equity instrument, both estimated as at the date of modification) in the measurement of the amount recognised for services received. If modification occurs during vesting period, incremental fair value is recognised over the period from modification date until the modified equity instruments vest. If modification occurs after vesting date, incremental fair value is recognised immediately (or over any additional vesting period).

(b) If the modification increases the number of equity instruments granted: include the fair value of the additional equity instruments granted, measured at the date of modification, in the measurement of the amount recognised for services received.

(c) If the entity modifies the vesting conditions in a manner that is beneficial to the employee (e.g., reducing the vesting period or modifying/eliminating a performance condition other than a market condition): take the modified vesting conditions into account when applying paragraphs 19-21.

B44 - Modifications That Reduce Fair Value:

If the entity modifies the terms or conditions in a manner that reduces the total fair value of the share-based payment arrangement, or is not otherwise beneficial to the employee, the entity shall nevertheless continue to account for the services received as if that modification had not occurred (other than a cancellation of some or all the equity instruments granted).

(a) If the modification reduces the fair value of the equity instruments granted: do not take into account that decrease in fair value.

(b) If the modification reduces the number of equity instruments granted: account for that reduction as a cancellation of that portion of the grant.

(c) If the entity modifies the vesting conditions in a manner that is not beneficial to the employee (e.g., increasing the vesting period or adding a performance condition): do not take the modified vesting conditions into account.

Accounting for a Modification Changing Classification from Cash-Settled to Equity-Settled (B44A-B44C)

B44A - Modification from Cash-Settled to Equity-Settled:

If the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as such from the date of the modification. Specifically:

(a) The equity-settled share-based payment transaction is measured by reference to the fair value of the equity instruments granted at the modification date. The equity-settled share-based payment transaction is recognised in equity on the modification date to the extent to which goods or services have been received.

(b) The liability for the cash-settled share-based payment transaction as at the modification date is derecognised on that date.

(c) Any difference between the carrying amount of the liability derecognised and the amount of equity recognised on the modification date is recognised immediately in profit or loss.

B44B - Modified Vesting Period:

If, as a result of the modification, the vesting period is extended or shortened, the application of the requirements in paragraph B44A reflect the modified vesting period. The requirements in paragraph B44A apply even if the modification occurs after the vesting period.

B44C - Cancellation and Replacement:

A cash-settled share-based payment transaction may be cancelled or settled (other than a transaction cancelled by forfeiture when the vesting conditions are not satisfied). If equity instruments are granted and, on that grant date, the entity identifies them as a replacement for the cancelled cash-settled share-based payment, the entity shall apply paragraphs B44A and B44B.

Share-Based Payment Transactions Among Group Entities (B45-B61)

B45-B47 - Introduction:

Paragraphs 43A-43C address the accounting for share-based payment transactions among group entities in each entity's separate or individual financial statements. When the entity receiving the goods or services has no obligation to settle the transaction, the transaction is a parent's equity contribution to the subsidiary, regardless of any intragroup repayment arrangements.

B48-B50 - Own Equity Instruments:

An entity shall account for share-based payment transactions in which it receives services as consideration for its own equity instruments as equity-settled. This applies regardless of whether:

The entity chooses or is required to buy those equity instruments from another party

The employee's rights were granted by the entity itself or by its shareholder(s)

The arrangement was settled by the entity itself or by its shareholder(s)

If the shareholder has an obligation to settle the transaction with its investee's employees, it provides equity instruments of its investee rather than its own. Therefore, if its investee is in the same group, the shareholder shall measure its obligation in accordance with the requirements applicable to cash-settled share-based payment transactions in the shareholder's separate financial statements and those applicable to equity-settled share-based payment transactions in the shareholder's consolidated financial statements.

B51-B55 - Equity Instruments of the Parent:

Two scenarios:

(a) Parent grants rights to its equity instruments to employees of its subsidiary:

Subsidiary: measures services received as equity-settled (no obligation to settle), recognises corresponding increase in equity as a contribution from the parent

Parent: measures its obligation as equity-settled (settling in its own equity instruments)

(b) Subsidiary grants rights to equity instruments of its parent to its employees:

Subsidiary: accounts for the transaction as cash-settled (does not meet conditions in paragraph 43B)

This applies irrespective of how the subsidiary obtains the equity instruments

B56-B58 - Cash-Settled Payments to Employees:

When the parent (not the entity itself) has an obligation to make the required cash payments to the employees of the entity:

Subsidiary: accounts for the transaction as equity-settled, recognises corresponding increase in equity as a contribution from its parent. Subsequently remeasures only for changes resulting from non-market vesting conditions not being met.

Parent: measures its obligation as cash-settled

B59-B61 - Transfer of Employees Between Group Entities:

If subsidiaries have no obligation to settle the share-based payment transaction with their employees, they account for it as an equity-settled transaction. Each subsidiary shall measure the services received from the employee by reference to the fair value of the equity instruments at the date the rights were originally granted by the parent, and the proportion of the vesting period the employee served with each subsidiary.

If the subsidiary has an obligation to settle the transaction with its employees in its parent's equity instruments, it accounts for the transaction as cash-settled.

If an employee fails to satisfy a vesting condition other than a market condition (e.g., leaves the group before completing the service period), each subsidiary shall adjust the amount previously recognised. No amount is recognised on a cumulative basis for the services received from that employee in the financial statements of any group entity.

KEY TAKEAWAYS SUMMARY TABLE

Topic	Key Principle
Scope	Applies to all share-based payment transactions: equity-settled, cash-settled, and those with choice of settlement
Recognition	Recognise goods/services when obtained/received; increase equity (equity-settled) or liability (cash-settled)
Equity-settled - Employees	Measure at fair value of equity instruments granted at grant date
Equity-settled - Non-employees	Rebuttable presumption to measure at fair value of goods/services received at date obtained
Vesting conditions (non-market)	Adjust number of equity instruments expected to vest; no amount recognised if conditions not met
Market conditions	Taken into account in fair value estimation; recognise services even if market condition not met
Non-vesting conditions	Taken into account in fair value estimation
After vesting date	No subsequent adjustment to total equity
Modifications	Minimum: recognise grant date fair value; recognise incremental fair value if beneficial
Cancellations	Account as acceleration of vesting; recognise remaining amount immediately
Cash-settled	Measure liability at fair value; remeasure at each reporting date; changes in profit or loss
Cash-settled vesting conditions	Non-market conditions: adjust number of awards; Market conditions: included in fair value
Net settlement for tax	Classify as equity-settled if would have been equity-settled without net settlement feature
Counterparty choice	Compound financial instrument: debt component + equity component
Entity choice	Determine if present obligation to settle in cash; if not, equity-settled
Group entities - Recipient	Equity-settled if own equity instruments or no obligation to settle; otherwise cash-settled
Group entities - Settlor	Equity-settled only if settled in own equity instruments; otherwise cash-settled
Disclosures	Nature and extent of arrangements; fair value determination; effect on financial statements