Chapter 14 — Accounting for Share-Based Payments Issued as Sales Incentives to Customers

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.

Pending Content (Transition Guidance: ASC 718-10-65-17)

Issuing (or offering to issue) its shares, share options, or other equity instruments to an employee or a nonemployee
Incurring liabilities to an employee or a nonemployee that meet either of the following conditions:
1. 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.)
2. 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

See paragraph BC17 of ASU 2019-08.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.