International Financial Reporting Standards IFRS 2- Share-based Payment

1. DEFINITION OF SHARE-BASED PAYMENT 2. SCOPE 3. OBJECTİVE 4. RECOGNİTİON 5. EQUITY-SETTLED TRANSACTIONS 6. CASH-SETTLED TRANSACTIONS 7. DISCLOSURE

1.DEFINITION Share-based payment: Share based payments are those payments which are given to employees on the basis of share or equity of company. Employees are the service provider and company is service receiver. If any payment is given to service provider from service receiver on the basis of shares or equity instrument of company, it is called share based payments. The accounting requirements for the share-based payment depend on how the transaction will be settled, that is, by the issuance of equity or cash. 1.DEFINITION

This standard applies to situations where an entity acquires or receives goods and services for equity-based payment. These goods can include: inventories; property, plant, and equipment; intangible assets; other nonfinancial assets. 2.SCOPE

EXEMPTİONS TO THE SCOPE However, there are two exemptions to the general scope of the standard: First, the issuance of shares in a business combination should be accounted for under IFRS 3- Business Combinations. Second, IFRS 2 does not address share-based payments within the scope of: IAS 32-Financial Instruments: Presentation; IAS 39-Financial Instruments: Recognition and Measurement. EXEMPTİONS TO THE SCOPE

The objective of this IFRS is to specify the financial reporting by an entity when it undertakes a share-based payment transaction. In particular, it 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. 3.OBJECTİVE

The employee services are recognized in profit or loss as employee benefits expenses. The credit entry and the subsequent accounting depend on whether the employee options are part of: an equity-settled share-based payment transaction or, a cash-settled share-based payment transaction. 4.RECOGNİTON

Equity-settled transactions: The entity receives employee services as consideration for options to purchase shares of the entity. Thus, when the share options are exercised, the entity either issues new shares or reacquires its own shares (treasury shares). Cash-settled transactions: The entity receives employee services by incurring a liability to transfer cash or other assets to the employee for amounts that are based on the price or value of the entity’s shares.

5. EQUITY-SETTLED TRANSACTIONS The fair value of the equity instruments granted represents the value of the employee services received by the entity. The fair value is measured at the grant date. The grant date is the date on which the entity and the employee agree to a share-based payment arrangement. The fair value of the equity instruments granted is determined on the basis of market prices, if available. If market prices are not available, a valuation technique is applied. Normally, fair value can be estimated reliably. 5. EQUITY-SETTLED TRANSACTIONS

Vesting Conditions Two different cases have to be distinguished: The equity instruments granted vest immediately: in this situation the entity presumes that the employee services have already been received. In this case, the services received by the entity are recognized in full on the grant date. The equity instruments granted do not vest until the employee completes a specified period of service: in this case, the entity presumes that it will receive the services to be rendered by the employee in the future. The entity accounts for those services as they are rendered by the employee during the vesting period. Vesting Conditions

After the vesting date the amount recognized for employee services is not reserved if employee share options are not exercised. However, this does not preclude the entity from recognizing a transfer within equity. When an employee exercises his options, he receives shares of the entity. Therefore, the entity has to issue shares or reacquire its own shares (treasury shares). Vesting Conditions

6. CASH-SETTLED TRANSACTIONS In the case of cash-settled transactions, the employee services received and the liability incurred are measured at the fair value of the liability. Until the liability is settled, fair value is remeasured at the end of each reporting period and at the date of settlement. Changes in fair value are recognized in profit or loss. 6. CASH-SETTLED TRANSACTIONS

The employee services received and the liability to pay for these services are recognized as the employees render service. For example, equity E grants share appreciation rights to its employees on Jan 01,01. The vesting period is three years. On Dec 31,01 fair value of the share appreciation rights is 3 currency units. Consequently, on Dec 31,01, a liability of 1 currency unit is recognized. The employee services received and the liability are recognized immediately if the share options are granted for employee services that have already been received by the entity. Vesting Conditions

The IFRS prescribes various disclosure requirements to enable users of financial statements to understand: 1. the nature and extent of share-based payment arrangements that existed during the period; 2. how the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was determined; 3. the effect of share-based payment transactions on the entity’s profit or loss for the period and on its financial position. DİSCLOSURE