AASB 2 'Share-Based Payment': Implications for Financial Reporting

This essay examines the implications of AASB 2 'Share-based payment' on an entity's financial performance and position, particularly concerning the reporting of expenses associated with share options granted to employees. Before AASB 2, companies often did not record journal entries for share options, leading to inaccurate financial reporting. The essay provides examples illustrating the differences in accounting treatment before and after the introduction of AASB 2, highlighting the standard's impact on recognizing share-based payment transactions, whether equity-settled or cash-settled. It also covers the accounting procedures for both types of transactions, including the valuation of services or products purchased and the recognition of liabilities or equity. The essay concludes by emphasizing the importance of re-examining the fair value of liabilities at the end of each reporting period for cash-settled transactions.

Running head: ESSAY 1
ADVANCE ACCUNTING PRNCIPLE AND PRACTICE
STUDENT DETAILS:
12/29/2018

Essay 2
Assignment 2:
According to AASB 2, the share-based payment transaction refers to a transaction in where a
company takes services or products from the third party in the share-based
payment arrangements. These share-based transactions would be equity settled or cash settled on
basis of type of share-based payment arrangements included. Before issuing AASB 2 in the year
2005 in Australia, if share option is given by the company to employees and administrative, in
this case, no journal entries were provided. It resulted in companies remunerating the
administrative or personnel by sources of share options as it had no effects at the profits that lead
to provisions of wrong data on a company's performance. AASB 2 states the impacts of the
transaction regarding the share-based payment in the financial system like financial statements.
Example 1-
Entity X remunerated the top level staff and managers as below:
 cash remuneration of $500,000
 2,000,000 share options (FV 1 dollar)
In the year 2005, prior to the issue of AASB 2 -
Entity X recorded the following journal regarding this remuneration:
Dr Salaries and wages
(profit and loss)
5,00,000
Cr Cash 5,00,000

Essay 3
The issue of the options had not recorded by the entity. Consequently, the remuneration of
$500,000 was involved in the calculation of profits and only $500,000 was reported as the
remuneration of KMP.
In the year 2005, before the issue of AASB 2 -
Entity X stated the entries regarding this remuneration, which is as below
Dr Salaries and
wages (profit
and loss)
5,00,000
Cr Cash 5,00,000
Dr Salaries and
wages (profit
and loss)
200,000
Cr Share-based
payment reserve
2,00,000
As a result, remuneration of $2,500,000 was involved in evaluation of profit for a year and
2,500,000 $ was stated as the remuneration of key managerial personnel (Smith, 2018).
Example-2

Essay 4
If company A issues share to personnel of subsidiary 1, this will be the transaction related to
share-based payment in record of A. In case the subsidiary 2 issues share options to the
personnel for services given to subsidiary 2, this is the transaction related to share-based
payment in a record of subsidiary 2.
Further, the company is required to recognize the services or products purchased or taken in the
share-based payment transactions when this takes products or as services are accepted. A
company should identify the equivalent liabilities if products or services were purchased in
transaction related to share-based payment on the basis of cash. While product or service
accepted or purchased in the share-based payment don't meet the requirements for record an
asset, they should be identified as an expense (Qu, et. al, 2018). As a result, pro forma entry to
state the share-based payment transactions related to share based payment settled on cash are as
follows:
Date particulars Dr Cr
Parent
entity A
Subsidiary
1
Employees
Subsidiary
2
Employees

Essay 5
29-12-2018 Asset XXXX
30-12-2018 Liability Xxxx
Record share-based payment (cash-settled share based payment)
For transactions related to cash-settled share-based payment, a company should evaluate the
services and products purchased and liabilities raised at FV of liabilities (AASB, 2015).
Furthermore, the company should identify the services or products purchased in share-based
payment transactions when it gets products are accepted. The entity should identify the
corresponding boost in equity if products were bought in the transactions related to share-based
payment settled on equity (W. For that reason, pro forma journal entry to state the transactions
related to equity-settled share-based payment is below-
Date Particulars Dr Cr
29-12-2018 Asset Xxx
30-12-2018 Equity or share-based
payment reserve
xxx
Record transaction related to share-based payment settled with equity
For equity-settled share-based payment transaction, company should evaluate good or service
received, and equivalent enhance in equity, indirect manner, at FV, except that fair value may

Essay 6
not be predictable consistently (Lovell, 2014). The evaluation principles are involved in decision
tree, which is mentioned as below-
Usually, the expenses incurred from use of services or products. For the example, the services
are usually used straight away, in a case in which expenses are identified as counterparty creates
the service. The products can be utilised over a period, in case of inventories, traded at other
time, where case the expenditure is identified when the products are utilised. Though, at times
this is important to recognise the expenditures before service or product are sold because they do
not fulfil the criteria for identification as the asset. Regarding the cash-settled transactions related

Essay 7
to share-based payment, a company shall examine services or products bought and the
accountability raised at FV of the liabilities (Tsuji and Hiraiwa, 2018).
In expectation of the liabilities are settled, a company should re-examine FV of liabilities at end
of every reporting period and on settlement date, with modifications in FV identified in profit or
loss for relevant period. For instance, certain share approval rights vest directly, and personnel
are so not needed to complete the particular time of services to be entitled to cash payment. In
lack of proof to opposing, a company must believe that service given by personal in interchange
for share appreciation right has taken. In this way, the company should identify immediately the
service has taken and the liability to pay. The company should identify service accepted, and the
duty to pay for this service, as workers provide the services (Sugiyama and Islam, 2016).

Essay 8
References
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) Climate change, markets and standards: the case of financial
accounting. Economy and Society, 43(2), pp.260-284.
Loyeung, A., Matolcsy, Z., Weber, J. and Wells, P. (2016) The cost of implementing new
accounting standards: The case of IFRS adoption in Australia. Australian Journal of
Management, 41(4), pp. 611-632.
Qu, X., Percy, M., Stewart, J. and Hu, F. (2018) Executive stock option vesting conditions,
corporate governance and CEO attributes: evidence from Australia. Accounting &
Finance, 58(2), pp. 503-533.
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.
Tsuji, M. and Hiraiwa, M. (2018) An Analysis of the Internal Consistency of the New
Accounting Standard for Virtual Currencies in Generally Accepted Japanese Accounting

Essay 9
Principles: A Virtual Currency User Perspective. International Journal of Systems and Service-
Oriented Engineering (IJSSOE), 8(2), pp. 30-40.
Wall, D. S. (2015) The Internet as a conduit for criminal activity. Cambridge: Cambridge
University Press