Advanced Accounting Principles: Share-Based Payments

The assignment explores the disclosure requirements under AASB 2 for companies dealing with share-based payments. The document emphasizes the need for proper reporting practices by examining theoretical frameworks and real-world examples such as Telstra's financial disclosures in 2016. It covers how entities should measure the value of goods or services received through equity-settled transactions, referencing both granted equity instrument fair values and indirect measurement methods. Key points include compliance with Australian accounting standards and understanding the impact on balance sheets and income statements. The references provide further insights into interpretations and applications in the context of International Financial Reporting Standards.

Running head: ADVACNE ACCOUNTING PRINCIPLES
Advance Accounting Principles
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1ADVACNE ACCOUNTING PRINCIPLES
Table of Contents
Answer to requirement A:...............................................................................................................2
Answer to Requirement B:..............................................................................................................4
References list:.................................................................................................................................6

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Answer to requirement A:
Memorandum
To: Alpha Ltd
From: ________
Date: _________
Subject: Disclosure Requirements of Share Based Payments
The AASB 2 Share based payment is to stipulate the financial reporting organization at
the time of undertaking share based transactions. Specifically, for Alpha they would be required
to reflect in their statement of profit and loss and fiscal situation the special impacts of the share
based transactions along with the expenditure that is related with the business transactions in
which share options is provided to the personnel (Chaudhry et al. 2015). Alpha would be
required to comply with the key reporting requirements of the AASB 2 share based payments.
For Alpha the transactions should be relating to the equity based share based payments.
Additionally, when the fair worth of the products and service is known, Alpha would be required
to increase the equity up to the corresponding amount. When the fair value of the products and
service could be not being measured the value of the products and service should be measured in
respect of the fair worth of the equity instrument that is provided.
Additionally, for Alpha, the worth of products and service that is acquired must be
measured based in the fair worth of the liability that is incurred and measured again for each of
the accounting period till it is settled. Alpha should recognize the products and service that is

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received or acquired under the share based payments at the time when the company obtains the
product or service that is received (McClellan 2015). Alpha would be requiring to identify the
corresponding rise in the equity given the products and services is received in the entity settled in
respect of the share based payments transactions or the liability given the products and service is
acquired in the share based payments that are settled in terms of cash.
An important assertion in respect of the disclosure requirements states that when the
products and service is acknowledged or obtained in the share based payments transactions
would not meet the requirements as assets and the same should be identified as expense (Tran
and Zhu 2017). To implement the AASB 2 requirements dealings with the workers and others
that are offering identical service Alpha shall be required to assess the fair worth of the service
that is received in respect of the fair worth of the instrument of equity settled.
For transactions that are cash settled share based payments Alpha shall be required to
ascertain the products and service that is assimilated and the liability occurred in respect of the
fair worth of the liability. Unless the liability is settled, Alpha at the end of every reporting
period shall be required to re-measure the fair worth of the liability (Firth and Gounopoulos
2017). Additionally, on the date of settlement any form of changes in the fair value should be
identified in the statement of profit and loss for that period. For instance, Alpha would be able to
grant the rights of share application to the employees as the portion of the remuneration package
where the employees will be under entitlement of the future cash payments depending upon the
rise in the Alpha share price from the specified level up to the specified time period.
From: _______________

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Answer to Requirement B:
A reporting entity is required to calculate the value of share based payments that are
accrued over the time of restricted period and performance period and at the time of grants in
accordance with the principle of the accounting standard of Australia. Share based payment as
per International financial reporting standard requires an entity to make recognition of
transactions relating to share based payment in their financial statement. Such transactions
involve share options, grant shares and share appreciation rights. For cash settled and equity
settled share based payment transactions, there is some involvement of particular requirement.
The terms of arrangement relating to share based payment transactions in accordance with
standard provides entity with a choice of settling payments by issuing equity instruments or by
settling in terms of cash (Jin et al. 2015). However, if the former option does not have any
commercial substances, then reporting entity is obliged to make share based payments in terms
of cash.
From the analysis of annual report of Telstra limited for financial year 2016, it can be
seen that shared based payment that are equity settled are based on accounting value and actual
payment that is received by senior executives is not reflected in the report. Fair value concerning
service conditions and non-market performance conditions (FCF ROI) and RTSR (Relative total
shareholder return) reflects the valuation approach using an option-pricing model as required by
AASB 2 share based payment (Qu et al. 2016). It is required by standard that accounting
expense relating to share based payment need to be reversed if the non market performance
conditions and service conditions are not met. The market value of Telstra shares forms the basis
of computation of restricted shares.

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The total share based payment made by Telstra group for year 2016 is recorded at $ 35
million and for 2016; total payment is recorded at $ 40 million. Total amount of equity settled
share based payment made to executive of Telstra is recorded at $ 19433157 (telstra.com.au
2018). Balance of share capital is increased by net services that are received under share-based
payment. Benefits and payments attributable from share-based payment are required to be
disclosed for the period that person is Key management personnel as per Australian accounting
standard and corporation act.
Arrangement of share-based payment is also done in the form of long-term incentives and
short-term incentives. Actual STI payment is provided to 25% of executives by way of restricted
shares and arrangement of LTI share based payment is done in the form of employee share plan
restricted shares, executive LTI rights performance shares and group executive Telstra
wholesale-restricted shares. An entity is required to measure the value of goods and services
received for share based payment transactions that are equity settled. If the fair value of goods
and services cannot be estimated reliably by entity, then the measurement of value and indirect
measurement of corresponding increase in entity should be done by making reference to granted
equity instrument fair value. Employees should be granted payment of equity instruments and
share options as a part of their remuneration package (Loyeung et al.2016).

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References list:
Chaudhry, A., Coetsee, D., Bakker, E., Varughese, S., McIlwaine, S., Fuller, C., Rands, E., de
Vos, N., Longmore, S. and Balasubramanian, T.V., 2015. Share‐Based Payment. 2015
Interpretation and Application of International Financial Reporting Standards, pp.397-434.
Firth, M. and Gounopoulos, D., 2017. IFRS adoption and management earnings forecasts of
Australian IPOs.
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.
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.
McClellan, M., 2015. Accountable care organizations and evidence-based payment
reform. Jama, 313(21), pp.2128-2130.
Qu, X., Percy, M., Stewart, J. and Hu, F., 2016. Executive stock option vesting conditions,
corporate governance and CEO attributes: evidence from Australia. Accounting & Finance.
Telstra.com.au. (2018). [online] Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/FY16-Annual-Report.pdf
[Accessed 12 Jan. 2018].
Tran, A. and Zhu, Y.H., 2017. The impact of adopting IFRS on corporate ETR and book-tax
income gap. In Australian Tax Forum (Vol. 32, No. 4, p. 757). Tax Institute.

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