Impact of AASB 2 on Share-Based Payment Transactions
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This essay discusses the impact of AASB 2 on share-based payment transactions in Australia, including its effect on financial reporting and the identification of services or products purchased. It also explores the responsibilities of companies and the criteria for recording expenditures.
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Running head: ESSAY0 ADVANCE ACCOUNTING PRINCIPLE AND PRACTICE DECEMBER 29, 2018 STUDENT DETAILS:
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ESSAY1 Assignment 1 In Australia, before the issue of AASB 2 in the year 2005, if the company provided the workers and administrative share options, no entries in the journal were practised. It resulted in companies making remuneration the workers and the administration by means of share options as there was no effect on the profits that lead to the provisions of inexact and false data on the company’s act. AASB 2 states the impact of the transactions related to share- based payment in financial systems such as profit and loss, and balance sheet (Smith, 2018). AASB 2 is applicable to the transaction related to share-based payment where company purchases or takes services and products. The products include the inventory, properties, consumable, equipment, plants, intangible assets, and various non-financial assets. The services involve the service given by the workers or outer persons such as advisors. As per the AASB 2, share-based payment transactions refer to the transactions where the company- (a)Accepts service or product from a dealer of the products and services in the share- based payment arrangements, or (b)Gets the duty to reconcile transactions regarding share-based payment arrangement where other group company takes the service and product. AASB 2 describes the share-based payment arrangement. As per AASB 2, share-based payment arrangement refers to the contract between companies and other people like personnel of the company that companies the other people to take or accept: (a)cash or other asset of the company, which are based on equity instrument's value of a companyorothergroupcompanies;or
ESSAY2 (b)Equity instruments such as shares and share options of the company, and other group company,given the particular vesting conditions are fulfilled (Lovell, 2014). The share-based payment transactions may be settled by other group entity (the shareholders of the group company) on behalf of a company taking and purchasing the service and product. Further, paragraph 2 is very relevant. It is applicable to the company that: (a)Takes service or product when another company in a similar group has the duty for the settlement of transactions related to share-based payment; or (b)Has a duty to make the settlement of the transactions related to share-based payment whenanothercompanyinsimilargroupstakeservicesandproducts, except the transactions are simply for the objective other than payments for the products or services delivered to the company taking them (Wall, 2015). Furthermore, the purpose of the AASB 2 is to state the financial reporting by the company while this carries out the transactions related to share-based payment. Particularly, this needs the company to reveal in the profits or losses and economic position the effect of transactions related to share-based payments, involving the expenditures connected with the transactions where the share options are provided to the personnel of company(Jin, Shan and Taylor, 2015). The company should apply the AASB 2 in accounting for transactions related to share-based payment, whether or not a company may recognise particularly certain or all products or services taken, involving: (a) Transaction-related to share-based payment settled with equity, (b) Transaction-related to share-based payment settled with cash, and
ESSAY3 (c) Transactions where the company purchases or accepts products or services and terms of arrangement render either the company or the dealer of those products or services with the option of whether the company settles transactions in cash and asset or by allotting equity, except as stated in paragraph 3A–6. In absence of particularly recognised products or service, other situations can specify that services or products will be received, where this Standard is applied(Sugiyama and Islam, 2016). After the introduction of AASB 2, the company should identify the services or products purchased or taken in the transactions related to share-based payment while this gets the products or as services are taken. The company should identify the equivalent increment in the equity if services or products were taken in the equity-settled transactions related to share- based payment, or the liabilities if services or products were purchased in the cash-settled transactions. At what time the services or products purchased or taken in the transactions related to share-based payment don’t fulfil criteria for the identification as assets, they must be recorded as the expenditures (Ahmed and Ndayisaba, 2016). Characteristically, the expenditure incurs from the utilization of the service or product. For an instance, the services are normally used instantly, in the matter where the expenditure is identified as the counterparty makes the services. The products may be used over the time, in case of inventory, traded afterwards, where case an expenditure is identified when the products are used or traded (AASB, 2015). Though, at times this is essential to identify the expenditure before the services or products are utilised or traded because they don't fulfil the conditions for identification as the asset. Regarding the cash-settled transactions related to share-based payment, a company should examine the services or products purchased and the responsibility raised at the fair value of the liabilities. In anticipation of the liabilities are settled, the company should measure again FV of the liabilities at end of every reporting time or on settlement date, with modifications in FVidentified in profit or loss for relevant time.
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ESSAY4 It is required that the company should identify the services taken, and the legal responsibility to pay for these services, as the workers give services (Mackay, 2015).
ESSAY5 References Ahmed, A. D., and Ndayisaba, G. A. (2016) Effect of corporate governance on CEO pay-risk taking association: empirical evidence from Australian financial institutions.The Journal of Developing Areas,50(4), pp.309-344. Jin, K., Shan, Y., and Taylor, S. (2015) Matching between revenues and expenses and the adoption of International Financial Reporting Standards.Pacific-Basin Finance Journal,35, pp. 90-107. Lovell,H.(2014)Climatechange,marketsandstandards:thecaseoffinancial accounting.Economy and Society,43(2), pp.260-284. Mackay, W. C. (2015)The impact of equity-based remuneration on corporate risk strategy in the Australian mining sector. USA: Springer Smith, R. (2018)Crime in the digital age: Controlling telecommunications and cyberspace illegalities. New York: Routledge. Sugiyama, S., and Islam, J. (2016) Empirical findings from the reconciliations in the first IFRS compliant reports prepared by Japanese-owned subsidiaries in Australia.Advances in accounting,35(2), pp. 143-158. Wall, D. S. (2015)The Internet as a conduit for criminal activity.Cambridge: Cambridge University Press