The Nature Of The Transaction

Published Date: 02 Nov 2017

No, for the purposes of this Standard, a transaction with an employee or other party in his/her ability as a holder of equity instrument of the entity is not a share-based payment transaction. For example, if an entity grant all holders of a scrupulous class of its equity instrument the right to acquire further equity instrument of the entity at a price that is less than the fair value of those equity instruments, and an employee receive such a right since he/she is a holder of equity instrument of that specific class, the yielding or do exercises of that right is not subject matter to the necessities of this Standard (AASB 2, Page 14, Para 12). Also share based payments are those payments which are given on the basis of company’s equity or shares, however it does not only relates to employers but also to other stakeholders such as suppliers when they are counted as the recipient of the cost of goods and services.

Answer 2-B

According to AASB2 (p.11,para 4) "A share-based payment transaction may be settled by another group entity (or a shareholder of any group entity) on behalf of the entity receiving or acquiring the goods or services". It also applies to an entity that:(a) receives goods or services when another entity in the same group (or a shareholder of any group entity) has the responsibility to settlethe share-based payment transaction; or (b) has an requirement to settle a share-based payment transaction when another entity in the same group receives the goods or services, unless the transaction is undoubtedly for a reason other than recompense for goods or services supplied to the entity being paid them.

Answer 2 C

According to AASB2 (119) employee bonuses may be counted as a share based payments. However it may be share based or employee benefit. Share options or other equity instruments are granted to employees as part of their compensation package, in addition to cash earnings and other employment benefits. Usually, it is not possible to measure directly the services expected for specific mechanism of the employee’s compensation package. It might also not be possible to measure the fair value of the total compensation package independently, without measuring directly the fair value of the equity instrument granted.

Furthermore, shares or share options are sometimes granted as part of a bonus arrangement, rather than as a part of basic remuneration, for example, as an incentive to the employees to remain in the entity’s employ or to reward them for their efforts inimproving the entity’s performance. By yielding shares or share option, in addition to other recompense, the entity is paying additional compensation to obtain extra benefits. It is very hard to approximate the fair value of those benefits. Because of the complexity of measuring directly the fair value of the services established, the entity shall measure the fair value of the employee services established by reference to the fair value of the equity instrument arranged (AASB2, P.14, Para 12). Share based payments mainly includes all executive option rather than just employee benefits or employee bonuses.

Answer 2D-

AASB2, P.13, Recognition 7 explains that "An entity shall recognise the goods or services established or acquire in a share-based payment transaction when it obtain the goods or the services are received". The entity shall recognise a subsequent boost in equity if the goods or services were established in an equity-settled share-based payment transaction or a accountability if the goods or services were acquire in a cash-settled share-based payment transaction.

Answer 3-

A corporate company when identifying the share based payments or share options mainly focus on complexity or the controversies which are there in recognizing the expenses share options which involves issue of share, share options or other equity which can affect both employees and supplies (other stakeholder in the company)

For-

Typically, an expense arises from the use of goods or services. For example, services are typically consumed instantaneously, in which case an expense is realise as the counterparty renders service. Goods may be consumed over a phase of time or, in the case of inventory, sold at a later date, in which case an expense is recognised when the goods are consumed or sold.

Against-

However, sometimes it is necessary to recognise an expense before the goods or services are consumed or sold, because they do not qualify for recognition as assets. For example, an entity might acquire goods as part of the research phase of a project to develop a new product. Although those goods have not been consumed, they might not qualify for recognition as assets under the applicable Standard. (AASB, P.13, Recognition 9). Most companies argue against a share option expense recognition and debate on whether the transaction is between the shareholders and the employers or it is between the entity and employees. Question arises whether employees actually provide them services for the share options that are given by the company or not. It may well be argued that the recognition of the expenses is inconsistent.

Answer 4-

The approach AASB use for the valuation of share options is Fair Value approach. (Deegan 2012, p.16, p.17, p.21)

Nature of the transaction

Amount at which the expense (or asset) and equity account are recognized

Transactions where the fair value of the goods or services can be measured reliably

At the fair value of the goods or services received

Transactions with employees (where there is a maintained assumption that the fair value of the services cannot be measured reliably)

At the fair value of the equity instruments being granted

In those ‘rare situations’ where the fair value of goods and services provided by non-employees cannot be measured reliably

At the fair value of the equity instruments being granted

PART B

01/01 2012

Dr Salaries Expense (100000 * $0.90) $90000

Cr Share Options $90000

ii 30/06/2012

Dr Employee benefits expenses $15000

Cr Share Capital $15000

iii 01/01/2015

Dr Share Options (100000 * $3.50) $350000

Cr Share Capital $350000

(b) 31st March 2012

Dr Goodwill/ Patents $40000

Cr Share Capital $40000

Justifying the above entry-

According to AASB (explained in Para 12) "Transactions where the fair value of the goods and services can be measured reliably is the amount at the fair value of the goods and services received, whereas transactions with the employees and where there is a maintained assumption that the fair value of the services cannot be measured reliably is the fair value of the equity instruments being granted".