Introduction to Share Based Payment, Study notes of Accounting

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11 January 2021 15: ACT3128 [FAR 4] Page 1

Share Based Payment [MFRS 2] 11 January 2021 15:38 Objective: * financial reporting by an entity when it undertakes a share-based payment transaction. + MFRS 2 requires an entity to reflect the effect of share-based payment transactions (including share options to employees} in its profit or loss and statement of financial position. * Applies when company buy or receive goods and services for equity-based payment Goods & Inventories, PPE, intangible services: asset, & other non-financial asset Exeeptions: -Share issued in business combination (MFRS 3) -Contract for the purchase of goods and services within MFRS 132 & MFRS 139 -Purchase of treasury share -Right issue Arrangemen -Call options tunder -Share appreciation rights MERS 2: -Share ownership schemes -Payments for services made to external consultants based on company's equity capital ¢ What is share based payment transaction? — The transaction in which the entity: ° receives goods or services from the supplier {including employee) in a share-based payment arrangomant; or ® incurs an obligation to settle the transaction with the supplier in a share-based payment arrangement when another group entity receives those goods or services. — Simply put: Transaction where it needs to be for reeeiving goods or services and in return the company gives {1} its own shares or {2) cash based upon the prices of its own shares ¢ What is share based payment arrangement? — an agreement between the entity and another party {including an employee} whereby the other party receives: {1} Cash or other assets: > of the entity for amounts that are based on the price (or yalue) of equity instruments {including shares or share options) of the entity or another group entity. > This type of arrangement is cash- settled share-based payment transaction. {2) Equity instruments > {including shares or share options) of the entity or another group entity. > equitysettled share-based payment. = fransaetions in which either the entity or the supplier has a choice of settlement {to receive equity instruments or cash / other assets}. > If there is some vesting conditions specified that must be met before receiving any share-based payments * Vesting Condition — Some share-based payment transactions inelude vesting conditions that must be met before any payment is made — payments not immediate — 2 types of vesting conditions: {I} Service conditions: they require the counterparty to complete a specified period or service; (2) Performance conditions: they require the counterparty to complete a specified period of services AND specified performance targets to be met. ° might include a market condition that is linked to the market price of shares in some way, ° for example, vesting might depend on achieving a minimum inerease in the share price of the entity. ACT3128 [FAR 4] Page 1