Cash Settled Share Based Payment

Cash Settled Share Based Payment

In cash settled share based payments, the price of payment of goods is linked to the share prices. The share prices are expected to change, therefore liability will also vary until it is settled and liability is measured at each reporting date. In case of vesting condition are attached to liability, then liability is spread out like equity based transactions.

Some important characteristics of cash settled share based transaction are listed below

a)    Liability is linked with share price.

b)   Liability is re-measured at each reporting date based on share price.

c)    Liability is fully reported in case of no vesting conditions.

d)   Liability is speared out in case of vesting conditions are attached.

e)    Term Cash appreciation right is used for cash settled share based payments.

Accounting Treatment Example

Cash Appreciation Rights= 100

No of Employees= 600

Condition= 3 year working

Fair Value = $10, $ 12, $ 15

Expectation of Employee = 500 and 520 (First Year & 2^nd Year respectively).

Actual employees avail appreciation= 530

Solution

First year Cost of Service & Liability (500 Employees)

500 x 100 x 1/3 x $ 10= 166,667

Date	Particulars	Dr	Cr
	Cost of Service A/c	166,667
	Liability A/c		166,667

2^nd Year Cost of Service & Liability (520 Employees)

520 x 100 x 2/3 x $ 12= 416,000

416,000-166,667= 249,333 (Acc. Liability this year- acc. Liability last year)

Date	Particulars	Dr	Cr
	Cost of Service A/c	249,333
	Liability A/c		249,333

3^nd Year Cost of Service & Liability (530 Employees)

530 x 100 x $ 15= 795,000 (accumulated Liability 3^rd year)

795,000-416,000=378,333

(Accumulated liability 3^rd Year- Accumulated Liability 2^nd Year)

Date	Particulars	Dr	Cr
	Cost of Service A/c	379,000
	Liability A/c		379,000

Statement of Financial Position (Balance Sheet)

First Year	2nd Year	3rd Year
166,667	416,000	795,000

Statement of Comprehensive Income (Profit & Loss)

First Year	2nd Year	3rd Year
166,667	249,333	379,000