assume for version a that the machine s useful life is three years and for version b 613330

Award vesting in instalments (‘graded’ vesting)

An entity is considering the implementation of a scheme that awards 600 free shares to each of its employees, with no conditions other than continuous service. Two alternatives are being considered:

• All 600 shares vest in full only at the end of three years.
• 100 shares vest after one year, 200 shares after two years and 300 shares after three years. Any shares received at the end of years 1 and 2 would have vested unconditionally.

The fair value of a share delivered in one year’s time is €3; in two years’ time €2.80; and in three years’ time €2.50.

For an employee that remains with the entity for the full three year period, the first alternative would be accounted for as follows:

For the second alternative, the analysis is that the employee has simultaneously received an award of 100 shares vesting over one year, an award of 200 shares vesting over two years and an award of 300 shares vesting over 3 years. This would be accounted for as follows:

At first sight, such an approach seems to be taking account of non-market vesting conditions in determining the fair value of an award, contrary to the basic principle of paragraph 19 of IFRS 2 (see 6.1.1 above). However, it is not the vesting conditions that are being taken into account per se, but the fact that the varying vesting periods will give rise to different lives for the award (which are required to be taken into account – see 7.2 and 8 below).