Equity-settled award satisfied with market purchase of treasury shares
An entity awards an employee a free share with a fair value at grant date of £5 which has a fair value of £8 at vesting. At vesting the entity purchases a share in the market for £8 for delivery to the employee. If the scheme were treated as cash-settled, there would be a charge to profit or loss of £8 (the fair value at vesting date – see 9.3 below). If it were treated as equity-settled (as required in this case by IFRS 2), profit or loss would show a charge of only £5 (the fair value at grant date), with a further net charge of £3 in equity, comprising the £8 paid for the share accounted for as a treasury share (see Chapter 45 at 9) less the £5 credit to equity (being the credit entry corresponding to the £5 charge to profit or loss – see 4.2 above).