prepare any necessary entries in e s financial statements as on dec 31 01 e regards 613328

Award with non-vesting condition only

An entity grants a director share options on condition that the director does not compete with the reporting entity for a period of at least three years. The ‘non-compete’ clause is considered to be a non-vesting condition (see above and below). As this is the only condition to which the award is subject, the award has no vesting conditions and therefore vests immediately. The fair value of the award at the date of grant, including the effect of the ‘non-compete’ clause, is determined to be €150,000. Accordingly, the entity immediately recognises a cost of €150,000.

This cost can never be reversed, even if the director goes to work for a competitor and loses the award. This is discussed more fully at above and at and below.

Where equity instruments are granted subject to vesting conditions (as in many cases they will be, particularly where payments to employees are concerned), IFRS 2 creates a presumption that they are a payment for services to be received in the future, during the ‘vesting period’, with the transaction being recognised during that period, as illustrated in . [IFRS 2.15].

Award with service condition only

An entity grants a director share options on condition that the director remain in employment for three years. The requirement to remain in employment is a service condition, and therefore a vesting condition, which will take three years to fulfil. The fair value of the award at the date of grant, ignoring the effect of the vesting condition, is determined to be €300,000. The entity will record a cost of €100,000 a year in profit or loss for three years, with a corresponding increase in equity.