Financial Accounting: Share-based Payment, Consolidation, Business Combination, Lease and Financial Instruments

This article discusses financial and non-financial impacts of financial accounting including share-based payment, accounting for consolidation, business combination, lease and financial instruments. It also covers ESG reporting.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
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Author’s Note

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Table of Contents
Discussion on Financial and Non-Financial Impacts.................................................................2
Financial Aspects...................................................................................................................2
Share-based Payment.........................................................................................................2
Accounting for Consolidation............................................................................................4
Business Combination........................................................................................................5
Lease..................................................................................................................................5
Financial Instruments.........................................................................................................6
Non-Financial Aspects...........................................................................................................6
ESG Reporting...................................................................................................................6
References..................................................................................................................................7

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Discussion on Financial and Non-Financial Impacts
Financial Aspects
Share-based Payment
Share-based payment is considered as a transaction in which a business entity receives
goods or services either as the equity instrument consideration or incurring liabilities for the
amounts on the basis of the share price of the entity or other equity instrument (Voulgaris,
Stathopoulos and Walker 2014). At the same time, share based payments are considered as an
effective technique to reward the organizational employees for meeting certain specified
targets. In Australia, the presence of NZ IFRS 2 can be seen that provide the companies with
the necessary accounting standards to deal with the share based payments. As per this
accounting standard, when an entity undertakes any share-based payment, it is one of the
requirements that the management must disclose the financial position of the business in
association with the expenses specifically related to the transaction.
As per the requirements of the IFRS standard of New Zealand, it is needed for a
business to take into consideration the recognition of share-based payment related operations
in the books of accounts that includes the employee’s and other related party’s transactions
that need to be settled, equity instruments and other assets of the employee. This standard
does not have any expectation, other than for the treatments to which other standards are
applicable. As per NZ IFRS 2, there are certain principles which needs to be followed for
measurement and certain precise requirements in case of share based payments of three
different types of transactions (Roberts, Zaslavsky and McWilliams 2018). They are as
follows:
Equity-settled share-based payment transaction – Under this specific share-based
payment, the entities receive either services or goods as the contemplation in relation to

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equity based instruments of the same business entity and the inclusion of shares and share
options can be seen in this.
Cash Settled payment transactions – Under this particular share-based payment method,
the entities acquire goods or services through experiencing liabilities to the suppliers of those
goods and services for the amounts on the basis of price of the share of the entity or the
entity’s other equipment (Abu Risheh and Al-Saeed 2014).
The last transaction are the transactions in which a business entity acquires or receives
goods and the agreement terms gives either the supplier or the entity of those services or
goods with an option of whether the deal is settled by the entity in money or through the issue
of shares for the business. These are considered as crucial aspect in the accounting of share-
based payment that the companies are needed to take into consideration.
It can be seen from the above discussion that the main aim of NZ IFRS 2 is the
specification of financial reporting by an entity when it involves in a share-based payment
transaction. More specifically, the demands from a business to reflect in the financial report
regarding the impacts of the share-based transactions which includes the related expenses of
the transaction for which the entity grants options to take shares. As per the recognition
criteria of IFRS 2 of New Zealand, it is required for a business to recognize the acquired
goods or services in a transaction related to share-based payment when the business actually
acquires the goods or enjoys the services. In addition, it is needed for entity to undertake the
recognition of a consistent enhancement of equity in case the method which was applied was
equity settled share-based payments for the receipt of goods or services or liability if the
acquisition of the goods or services was settled following cash-based method of settlement
share-based payments. Moreover, in case received or acquired goods or services in a share-

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based payment transaction fails to qualify for the recognition as assets, it is needed for the
entities to ensure their recognition as an expense (Giner and Arce 2014).
It is needed for the management of The Warehouse to take into consideration the
compliance of their share-based payment transactions with the principles, rules and
regulations of NZ IFRS 2. The annual report of the company indicates towards the aspect that
the company has complied with all the rules and regulations of NZ IFRS 2 regarding the
share-based payment transactions. It can be seen from the 2018 Annual Report of The
Warehouse that the company has undertaken certain tractions for share-based payments. The
equity settled share based payment is $353,000 in 2018 and $1,283,000 in 2017 and this can
be seen in page 80 of 2018 Annual Report of The Warehouse. It can also be seen from the
2018 Annual Report that The Warehouse has a share based payment reserve which states that
the company grants the share rights to the employees with the executive share right plan of
the group. The amount of share-based payment reserve is $11,472,000 and ($13,036,000) in
2018 and 2017 respectively; this can be seen in page 89 of 2018 Annual Report of The
Warehouse (thewarehousegroup.co.nz 2019).
Accounting for Consolidation
Accounting in respect of Consolidation is considered as the technique which
combines the financial estimates for a subsidiary company during a period with the
performance of its parent company in a single report. This method is required to be followed
for all consolidated companies for the purpose of representing the financial performance of
the business during a period (Milojević, Vukoje and Mihajlović2013). The same aspect is
also applicable for The Warehouse because of the fact that the company is needed to take into
consideration all these aspects in consolidation accounting. As the effects of consolidation
accounting, it is needed for The Warehouse to combines the assets, liabilities and other
financial items of its subsidiaries into one (thewarehousegroup.co.nz 2019).

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Business Combination
Business combinations are considered as combinations that two or more businesses
form with the aim to achieve certain common objective such as elimination of combination
and others. More specifically, business combination refers to a transaction in which an
acquirer gains control on another business entity; and therefore, business combination is
regarded as a common technique for the companies to grow in size instead of growing
through internal activities (Verrecchia2013). The same aspect is also applicable for The
Warehouse as the firm can also ensure their growth in size through business combination.
Lease
Lease is considered as a lawful arrangement in which the proprietor of a particular
asset allows another party to use that asset for a limited time frame which is agreed in the
exchange of periodic payment. The first personal is called as the lessor and the second person
is called as the lessee (Barone, Birt and Moya 2014). As per 2018 Annual Report of The
Warehouse, the company has been involved in certain lease operations. The company has
taken into consideration the impact of new lease accounting standard of NZ IFRS 16 which
will be effective from the financial year of 2020. Under this new rule, The Warehouse will be
required to recognize lease liability and right-of-use lease assets This can be seen in page 96
of 2018 Annual Report of The Warehouse. In addition, the company has reported both
finance lease and operating lease in the year of 2018. The amount of operating lease in 2018
and 2017 are $712,761,000 and $739,327,000 respectively; and this can be seen in page 95 of
2018 Annual Report of The Warehouse At the same time, the company has made certain
payments for finance lease in 2018 that is $456,000 in 2018 and $1,196,000 in 2017; and this
can be seen in page 76 of 2018 Annual Report of The Warehouse (thewarehousegroup.co.nz
2019).

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Financial Instruments
Financial instruments are considered as the instruments which can be traded; and they
play a crucial role in ensuring that there is a flow of capital among the potential investors
(Blankespooret al.2013). It can be seen from the 2018 Annual Report of The Warehouse that
the company has both current and non-current derivative financial instruments; they are
currency contracts and interest rate swaps. At the same time, the company has taken into
consideration the impact of change in accounting standards for financial instruments. The
new accounting standard is NZ IFRS 9: Financial Instrument (thewarehousegroup.co.nz
2019). The current Financial Instrument standard (NZ IAS 39) is replaced by NZ IFRS 9
‘Financial Instruments’. The new standard addresses certain aspects of financial assets and
liabilities like classification, measurement and recognition while at the same time introducing
new rules for hedging along with a new model which can be used for impairment in respect
to assets which are of financial nature. The two areas could have potential impact on the
hedge accounting as well as impairment provision of trade receivable of the company. This
can be seen in page 96 of 2018 Annual Report of The Warehouse.
Non-Financial Aspects
ESG Reporting
ESG Reporting which stands for Environmental, Social and Governance Reporting
refers to three central issues in the measurement of sustainability as well as ethical impacts of
an investment in a company. This reporting helps the companies in effective determination of
future financial performance of the companies.

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References
Abu Risheh, K.E. and Al-Saeed, M.T.A., 2014. The Impact of IFRS Adoption on Audit Fees:
Evidence from Jordan. Accounting & Management Information
Systems/ContabilitatesiInformatica de Gestiune, 13(3).
Barone, E., Birt, J. and Moya, S., 2014. Lease accounting: A review of recent
literature. Accounting in Europe, 11(1), pp.35-54.
Biondi, Y. and Zambon, S. eds., 2013. Accounting and business economics: Insights from
national traditions. Routledge.
Blankespoor, E., Linsmeier, T.J., Petroni, K.R. and Shakespeare, C., 2013. Fair value
accounting for financial instruments: Does it improve the association between bank leverage
and credit risk?. The Accounting Review, 88(4), pp.1143-1177.
Giner, B. and Arce, M., 2014. National standard-setters’ lobbying: An analysis of its role in
the IFRS 2 due process. In Accounting and regulation (pp. 377-398). Springer, New York,
NY.
Milojević, I., Vukoje, A. and Mihajlović, M., 2013. Accounting consolidation of the balance
by the acquisition method. Economics of Agriculture, 60(297-2016-3534), pp.237-252.
Roberts, E.T., Zaslavsky, A.M. and McWilliams, J.M., 2018. The value-based payment
modifier: program outcomes and implications for disparities. Annals of internal
medicine, 168(4), pp.255-265.
Thewarehousegroup.co.nz. 2019. [online] Available at:
https://www.thewarehousegroup.co.nz/application/files/1015/3748/5553/2018_Annual_Repo
rt_Print.pdf [Accessed 11 Aug. 2019].
Verrecchia, R.E., 2013. Accounting alchemy. Accounting Horizons, 27(3), pp.603-617.

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Voulgaris, G., Stathopoulos, K. and Walker, M., 2014. IFRS and the use of accounting-based
performance measures in executive pay. The International Journal of Accounting, 49(4),
pp.479-514.