ACCT1054 Chap.6 Share-Based Payment Measurement
Share-Based Payment Measurement
Share-based payment accounting converts employee or supplier service into expense across a vesting period. This chapter distinguishes equity-settled and cash-settled arrangements, separates grant-date fair value from recurring remeasurement and uses a cumulative catch-up schedule for changing vesting estimates. Condition classification explains which assumptions change units and which are embedded in fair value.
What this chapter covers
- 01
Equity and cash settlement
- 02
Grant-date measurement
- 03
Service and performance conditions
- 04
Expected vesting units
- 05
Cumulative expense catch-up
Worked example · free
Revise expected vesting
- +1Use the revised cumulative requirement of $380,000.
- +1Subtract $184,000 already recognised to obtain $196,000.
Key terms
- Grant date
- Grant date fixes the fair-value measurement basis for qualifying equity-settled employee awards.
- Vesting condition
- A vesting condition determines whether the counterparty becomes entitled to the award.
- Cumulative expense
- Cumulative expense measures service received to date under current vesting estimates.
Share-Based Payment Measurement FAQ
Do I update equity-settled fair value?
Grant-date fair value is generally retained for employee equity-settled awards. Later market price changes do not replace it, though service and non-market vesting estimates can change expected units and cumulative expense.
Why calculate cumulative expense first?
The cumulative balance incorporates elapsed service and revised estimates. Subtracting expense already recognised produces the current-period catch-up without double-counting earlier service from prior reporting periods.
How is cash settlement different?
Cash-settled arrangements create a liability that is remeasured at each reporting date and settlement. Current fair value therefore enters the cumulative calculation and changes flow through profit or loss.
Exam move
Write the settlement type above the schedule. Underline the fair-value date, expected vesting units and elapsed service fraction in different colours. Calculate required cumulative expense, subtract the opening cumulative balance and confirm whether the credit belongs to equity or a liability. Start revision by classifying ten short arrangements according to what the entity must deliver.
Equity instruments point toward equity settlement; cash based on share value points toward a liability. Then attach the correct fair-value date to each classification. For equity-settled employee awards, lock grant-date fair value in a box so later market prices cannot leak into the schedule.
Build cumulative calculations with separate factors for employees, awards per employee, expected vesting percentage, unit fair value and elapsed service. Change only the departure estimate and observe how the catch-up expense moves. Practise service, non-market performance and market conditions as separate cards.
Write whether each condition changes expected units, is included in grant-date fair value or affects another part of the analysis. Avoid reversing expense merely because a market target fails when the required service was received. For cash-settled cases, create a liability roll-forward with current fair value at every reporting date.
Compare it with the locked equity-settled example using identical service facts; this exposes the source of the difference. At each year-end, calculate the required cumulative balance first and subtract the amount already recognised. Do not begin from last year's expense.
When actual vesting information arrives, replace estimates only where the condition type permits and reconcile the final cumulative amount to instruments that vest. Keep journal entries beneath the schedule: employee-benefits expense against an equity reserve for equity settlement, or against a liability for cash settlement. Note that settlement entries follow the award terms and existing balance.
Build a mistake log for classification, unit count, fair-value date, service fraction and catch-up subtraction. Before assessment, solve one three-year case without looking at prior-year entries, then prove each annual expense by comparing successive cumulative balances. Finish every written answer with the reason fair value is locked or remeasured.
Add a fact matrix for grant date, service commencement, vesting date, reporting dates and settlement date. Use it to separate elapsed service from contractual life and to prevent a year-end from being mistaken for a valuation date. Work graded examples where only one feature changes: expected employee departures, a profit target, a share-price hurdle, a cash alternative or a modification.
Record which input changes and which remains locked. For graded vesting or tranches, calculate each required service period separately when the facts call for that treatment instead of averaging the award without support. Practise modifications by retaining at least the original grant-date amount for services received and measuring incremental benefit from the relevant comparison.
Treat cancellations and settlements from the stated facts, reconcile any payment with the existing equity or liability balance, and label the portion that may be a deduction from equity. Build a disclosure summary that connects the nature and extent of arrangements, valuation inputs and period expense to the schedule.
For each numerical answer, perform a unit proof: employees multiplied by awards gives instruments, instruments multiplied by fair value gives total service value, and the service fraction gives cumulative recognition. A second proof compares closing cumulative expense with the total amount expected to vest. In final revision, reconstruct all year rows from a blank sheet and explain every change in estimate.
The explanation should name the condition, valuation date and settlement classification, so a correct number is supported by the required accounting logic.
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