Under IFRS 2, the cost recognized depends on the vesting conditions. A performance target can be defined by reference to the entity’s own operations or activities.
A performance condition is further defined as either a market condition or a non-market condition. A condition linked to a purely internal financial performance measure, such as profit is not a market condition.
Here in this case condition is linked to profits and so it is non-market condition. Such conditions will affect the share price, but are not directly linked to it, and hence are not market conditions.
Non-market vesting conditions are not taken into account when estimating the fair value of the shares or share options at the grant date. Instead, these vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so as to reflect the number of awards that are expected to vest.
To close the entry, if counter party chooses settlement of the award in either shares or cash, IFRS 2 treats it as a compound award. A compound award is split into two components: a liability component and an equity component. Once split, the entity accounts for the two components separately.