14.3 Scope
ASC 718-10
Transactions
15-3 The guidance
in the Compensation — Stock Compensation Topic applies to all
share-based payment transactions in which a grantor acquires
goods or services to be used or consumed in the grantor’s own
operations or provides consideration payable to a customer by
issuing (or offering to issue) its shares, share options, or
other equity instruments or by incurring liabilities to an
employee or a nonemployee that meet either of the following
conditions:
- The amounts are based, at least in part, on the price of the entity’s shares or other equity instruments. (The phrase at least in part is used because an award of share-based compensation may be indexed to both the price of an entity’s shares and something else that is neither the price of the entity’s shares nor a market, performance, or service condition.)
- The awards require or may require settlement by issuing the entity’s equity shares or other equity instruments.
15-5A Share-based
payment awards granted to a customer shall be measured and
classified in accordance with the guidance in this Topic (see
paragraph 606-10-32-25A) and reflected as a reduction of the
transaction price and, therefore, of revenue in accordance with
paragraph 606-10-32-25 unless the consideration is in exchange
for a distinct good or service. If share-based payment awards
are granted to a customer as payment for a distinct good or
service from the customer, then an entity shall apply the
guidance in paragraph 606-10-32-26.
ASC 606-10
32-25 Consideration payable to a
customer includes:
- Cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity’s goods or services from the customer)
- Credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity’s goods or services from the customer)
- Equity instruments (liability or equity classified) granted in conjunction with selling goods or services (for example, shares, share options, or other equity instruments).
An entity shall account for consideration payable to a customer
as a reduction of the transaction price and, therefore, of
revenue unless the payment to the customer is in exchange for a
distinct good or service (as described in paragraphs
606-10-25-18 through 25-22) that the customer transfers to the
entity. If the consideration payable to a customer includes a
variable amount, an entity shall estimate the transaction price
(including assessing whether the estimate of variable
consideration is constrained) in accordance with paragraphs
606-10-32-5 through 32-13.
ASC 718 applies to share-based payments granted in conjunction with the
sale of goods and services to a customer that are not in exchange for a distinct good or
service. However, entities apply ASC 718 only to measure and classify share-based sales
incentives, and they reflect the measurement of such incentives as a reduction of the
transaction price and recognize it in accordance with the guidance in ASC 606 on
consideration payable to a customer. Entities that receive distinct goods or services
from a customer in exchange for share-based payments should account for such payments in
the same manner as they account for other purchases from suppliers (i.e., by applying
the guidance in ASC 718). Any excess of the fair-value-based measure of the share-based
payment award over the fair value of the distinct goods or services received should be
reflected as a reduction to the transaction price and recognized in accordance with the
guidance in ASC 606 on consideration payable to a customer.
See Chapter
6 of Deloitte’s Roadmap Revenue Recognition for additional guidance on consideration
payable to a customer.
Connecting the Dots
ASC 718 applies to share-based sales incentives issued to
customers under ASC 606 but does not directly address similar equity-based
incentives issued by a lessor to a lessee under ASC 840 or ASC 842.1
Footnotes
1
See paragraph BC17 of ASU 2019-08.