How to Accrue a Cash-Settled Phantom Share or LTIP Liability for Employees
Accruing a cash-settled long-term incentive plan as a growing liability revalued at fair value each period.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| LTIP / Phantom Share Expense | Expense (+) | 5,000.00 | - |
| LTIP Liability (Accrued) | Liability (+) | - | 5,000.00 |
💡 Accountant's Note
Unlike equity-settled SBC, cash-settled schemes (phantom shares, SARs) are recorded as a liability at fair value each month. The liability grows until the payout date.
Practitioner & Systems Framework
💻 ERP Architecture
The LTIP liability must be remeasured at fair value at each reporting date (IFRS 2 for cash-settled awards). If the underlying share value increases, the liability increases and additional expense is recognized. If value decreases, a gain is recorded. The liability is settled in cash when the employee's vesting period ends — unlike equity-settled plans, there is no APIC impact.
⚠️ Audit Flags
Auditors require fair value remeasurement at each balance sheet date for cash-settled awards. They will verify the valuation methodology (Black-Scholes or similar) and the inputs used. Companies that fail to remeasure the LTIP liability understate or overstate both the liability and the expense depending on share price movements.
📄 Required Documentation
LTIP plan rules (entitlement calculation, vesting conditions, payment mechanics), fair value assessment at each reporting date, LTIP liability roll-forward (opening + expense + remeasurement gains/losses − payments = closing), and employee participant schedule.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.