CHAPTER 23 PFRS 2- SHARE BASED PAYMENTS

OBJECTIVE AND SCOPE

Objective- specify the financial reporting by an entity when it undertakes a share-based payment
transaction.

Scope- applied to all share-based payment transactions, whether or not the entity can identify
specifically some or al of the goods or services received including:

a. Equity-settled share-based payment transactions;

b. Cash-settled share-based payment transactions; and
c. Transactions in which the entity or the supplier of those goods or services with a choice of
whether the entity settles the transaction in cash (or other assets) or by issuing equity
instruments

In the absence of specifically identifiable goods or services, other circumstances may indicate that goods
or services have been (or will be) received in which case this IFRS applies.

RECOGNITION

 Entity shall recognize the goods or services received or acquired in a share-based payment
transaction when it obtains the goods or as the services are received.

EQUITY-SETTLED SHARE-BASED PAYMENTS

 The entity shall measure the goods or services received, and the corresponding increase in
equity, directly, at fair value.
 If fair value cannot measure reliably, it shall be measured indirectly, by reference to the fair
value of the equity instruments granted (measured at grant date).
 Vest- a counterpart’s right to receive cash, other assets, or equity instruments of the entity vest
upon the satisfaction of specified vesting condition.
 Vesting condition- A condition that must be satisfied for the counterparty to become entitled to
receive cash, other assets or equity instruments of the entity, under a share-based payment
arrangement.
 Vesting period- The period during which all the specified vesting conditions of a share-based
payment arrangement are to be satisfied.
 An entity must know whether the equity instrument granted vest immediately or not. If it vests
immediately, on grant date the equity shall recognize the services received in full, with a
corresponding increase in equity. Otherwise the entity shall account for those services as they
rendered by the counterparty during the vesting period, with a corresponding increase in equity.
 After the vesting date, the entity will have to recognize the goods and services received and a
corresponding increase in equity.
 Modifications to vesting conditions is only considered if it is beneficial to the employees.
CASH-SETTLED SHARE-BASED PAYMENT

 For cash-settled share-based payment transactions, the entity shall measure the goods or
services acquired and the liability incurred at the fair value of the liability subject to certain
conditions
 Vesting conditions, other than market conditions shall not be taken into account when
estimating the fair value of the cash-settled share-based payment at the measurement date.
 Market conditions, such as target share price upon which vesting is conditioned, as well as non-
vesting conditions, shall be taken into account when estimating the fair value of the cash-settled
share-based payment granted.
 The treatment for a share-based payment transaction with cash alternatives is that the entity
shall account for that transaction, or the components of that transaction, as a cash-settled
share-based payment transaction if, and to the extent that, the entity has incurred a liability to
settle in cash or other assets, or as an equity-settled share-based payment transaction if, and to
the extent that, no such liability has been incurred.

DISCLOSURES

The minimum disclosure includes:

a. The nature and extent of share-based payment arrangements that existed during the period;
b. Information that enables users of the financial statement to understand how the fair value of
the goods or services received, or the fair value of the equity instruments granted, during the
period was determined.
c. Information that enables users of the financial statement to understand the effect of share-
based payment transactions on the entity’s profit or loss for the period and on its financial
position.
CHAPTER 24 PAS 33- EARNINGS PER SHARE

OBJECTIVE AND SCOPE

Objective- To prescribe principles for the determination and presentation of earnings per share, so as to
improve performance comparisons between different entities in the same reporting period and
between different reporting periods for the same entity.

PAS 33 shall apply to:

a. The separate individual financial statements of an entity; and

b. The consolidated financial statements of a group with a parent.

Examples of potential ordinary shares;

a. Financial liabilities or equity instruments, including preference shares, that are convertible into
ordinary shares;
b. Options and warrants; and
c. Shares that would be issued upon the satisfaction of conditions resulting from contractual
arrangements, such as the purchase of a business or other assets.

CONCEPT, RULES AND EXAMPLES

 Basic earnings per share formula

Profit or loss attributable to ordinary equity holders of the parent entity
Weighted average number of the ordinary shares outstanding

Examples on shares that are usually included in the weighted average number of shares from the date
consideration is receivable

a. Ordinary shares issued in exchange for cash is included when cash is available;
b. Ordinary shares issued on the voluntary reinvestment of dividends on ordinary or preference
shares are included when dividends are reinvested;
c. Ordinary shares issued as a result of the conversion of a debt instrument to ordinary shares are
included from the date that interest ceases to ceases to accrue;
d. Ordinary shares issued in place of interest or principal on other financial instruments are
included from the date that interest ceases to accrue;
e. Ordinary shares issued in exchange for the settlement of a liability of the entity are included
from the settlement date;
f. Ordinary shares issued as consideration for the acquisition of an asset other than cash are
included as of the date on which the acquisition is recognize; and
g. Ordinary shares issued for the rendering of services to the entity are included as the services are
rendered.
 The weighted average number of ordinary shares outstanding during the period and for all
periods presented shall be adjusted for event, other than the conversion of potential ordinary
 shares, that have changed the number of ordinary shares outstanding without a corresponding
change in resources

DETERMINING DILUTION EFFECTS

 An antidilution is an increase in earnings per share or a reduction in loss per share resulting from
the assumption that convertible instruments are converted, that options or warrants are
exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.
 A dilution is a reduction in earnings per share or an increase in loss per share resulting from the
assumption that convertible instruments are converted, that options or warrants are exercised,
or that ordinary shares are issued upon the satisfaction of specified conditions.
 Potential ordinary shares shall be treated as dilutive when their conversion to ordinary shares
would decrease earnings per share or increase loss per share from continuing operations.
 Potential ordinary shares ae antidilutive when their conversion to ordinary shares would
increase earnings per share or decrease loss per share from continuing operations.
 In determining whether potential ordinary shares are dilutive or antidilutive, each issue or series
of potential ordinary shares is considered separately rather than in aggregate.

OPTIONS AND WARRANTS

 Options and warrants are included in the computation of diluted earnings per share only when
they are dilutive.
 A treasury share method is used to deal with the hypothetical proceeds from the presumed
option and warrant exercises.

CONVERTIBLE INSTRUMENTS

 For convertible instruments such as convertible bond payable, the bond payable is assumed to
be converted to ordinary shares. The net income is adjusted by adding back the interest expense
on the payable net of tax. The ordinary shares outstanding is increased by the number of
ordinary shares that would have been issued upon conversion.
 For convertible preference shares, the preference shares are assumed to be converted into
ordinary shares. The net income is not reduced by the amount of preference dividend and the
number of ordinary shares outstanding is increased by the number of ordinary shares that
would have been issued upon conversion.

WRITTEN PUT OPTIONS

 Contracts that require the entity to repurchase its own shares, such as written put options and
forward purchase contracts, are reflected in the calculation of diluted earnings per share if the
effect is diluted.

CONTRACTS SETTLED IN SHARES OR CASH

  When an entity has issued a contract that may be settled in ordinary shares or cash at the
entity’s option, the entity shall presume that the contract will be settled in ordinary shares.

CONTINGENT ISSUANCES OF ORDINARY SHARES

 Contingently issuable ordinary shares are treated as outstanding and included in the calculation
of diluted earnings per share if the conditions are satisfied.

PRESENTATION AND DISCLOSURES

MINIMUM REQUIRED DISCLOSURES

(a) The amounts used as the numerators in calculating basic and diluted earnings per share;
(b) The weighted average number of ordinary shares used as the denominator in calculating basic
and diluted earnings per share;
(c) Instruments that could potentially diluted basic earnings per share in the future; and
(d) A description of ordinary share transactions or potentially ordinary share transactions.
CHAPTER 25- PAS 19 EMPLOYEE BENEFITS

OBJECTIVE AND SCOPE

 To prescribe accounting and disclosure for employee benefits

 Applicable to both defined contribution and defined benefit pension plan but not to share-based
payments (PFRS 2) and accounting and reporting by retirement and benefit plan (IAS 26).

Types of Employee Benefits

a. Short-term employee benefits

b. Other long-term employee benefits
c. Termination benefits

SHORT-TERM EMPLOYEE BENEFITS

 Recognize when an employee has rendered service to an entity during an accounting period.

Two methods or recognizing and measuring all short-term employee benefits:

a. As a liability
b. As an expense

Recognizing short-term paid absences:

a. In the case of accumulating paid absences, when the employee render service that increases
their entitlement to future paid advances.
b. In the case of non-accumulating paid absences, when the absences occur.

Recognizing profit-haring and bonus plans:

a. The entity has a legal or constructive obligation to make such payments as a result of past
events; and
b. A reliable statement of the obligation can be made.

POST-EMPLOYMENT BENEFITS

Classification of post-employment benefits:

a. Defined contribution plan

b. Defined benefit plans
 An entity shall recognize a defined contribution plan when an employee had rendered service to
the entity during the period.
 Defined benefit plan is complex because actuarial assumptions are required to measure the
obligation and the expense and there is a possibility of actuarial gains and losses.

Steps in accounting for defined benefit plan:

 First: Determining the deficit or surplus

Second: Determining the amount of the net defined benefit liability (asset) as the amount of the
deficit or surplus determined in the first step, adjusted for any effect of limiting a net defined benefit
asset to the asset ceiling.

Third: Determining amounts to be recognized in profit or loss.

Fourth: Determining the remeasurements of the net defined benefit liability (asset), to be
recognized on other comprehensive income.

 Projected Unit Credit Method- an actual variation method which an entity shall use in order
to determine the present value of its defined benefit obligations and the related current
costs and, where applicable past service cost.

Actuarial Assumptions

a. Demographic assumptions
b. Financial assumptions
 The fair value of any plan asset is always deducted from the present value of the defined
benefit obligation in determining the deficit or surplus.

Components of defined benefit cost:

a. Service cost in profit or loss;

b. Net interest on the net defined benefit liability (asset); and
c. Remeasurements of the net defined benefit liability (asset) I other comprehensive income.

Determining Service Cost:

Current Service Cost- use actuarial assumptions determined at the start of the annual reporting period.

Past Service Cost- the change in the present value of the defined benefit obligation resulting from a plan
amendment or curtailment.

OTHER LONG-TERM EMPLOYEE BENEFITS

a. Long-term paid absences such as long service or sabbatical leave;

b. Jubilee or other long-service benefits;
c. Long-term disability benefits;
d. Profit-sharing and bonuses; and
e. Deferred remuneration.

TERMINATION BENEFITS

Causes of termination benefits:

 a. An entity’s decision to terminate an employee’s employment before the normal retirement
date; or
b. An employee’s decision to accept an offer of benefits in exchange for the termination of
employment.

Recognition of termination benefits:

a. When the entity can no longer withdraw the offer of those benefits; and
b. When the entity recognizes costs for a restructuring that is within the scope of PAS 37 and
involves the payment of termination benefits.
CHAPTER 26- PFRS 16 LEASES

OBJECTIVE, SCOPE AND BASIC CONCEPTS

 Sets out the principles for the recognition measurement, presentation and disclosure of
leases.
 Applies to all leases, including leases of right-of-use assets in a sublease, except for lease to
explore or use minerals, lease for biological assets, service concession arrangements,
licenses of intellectual property granted by the lessor, and rights held by a lessee under
licensing agreements within the scope of intangible assets.

Identification of Lease:

 A contract is, or contains, a lease if the contract conveys the right to control the use of an
identified asset for period of time in exchange for consideration.

Determination of Lease Term:

a. Period covered by an option to extend the lease if the lessee is reasonably certain to exercise
that option; and
b. Periods covered by an option to terminate the lease is reasonably certain not to exercise that
option.

LESSE ACCOUNTING

Recognition of a Lease:

 PFRS 16 provides that at the commencement date, a lessee shall recognize a right-of-use asset
and a lease liability.

Initial Measurement:

Right-of-use asset- Cost

Lease Liability- present value of the lease payments that are not yet paid at that date.

Subsequent Measurement:

Right-of-use asset- cost model

Lease Liability:

a. Increasing the carrying amount to reflect interest on the lease liability;

b. Reducing the carrying amount to reflect the lease payments made; and
c. Remeasuring the carrying amount to reflect any reassessment or lease modifications, or to
reflect revised in-substance fixed lease payments.
Presentation of Lease in the Financial Statements:

a. Right-of-use assets separately from other assets.

b. Lease liabilities separate from other liabilities.

Minimum Requirements of Disclosure for Lessee Accounting:

a. A lessee shall disclose information abut its leases for which it is a lessee in a single note or
separate section its financial statements.
b. A lessee shall disclose the following amounts for the reporting period;
i. Depreciation charge for right-of-use assets by class of underlying asset;
ii. Interest expense on lease liabilities;
iii. Expense relating to short-term leases;
iv. Expense relating to leases of low-value assets;
v. Expense relating to variable lease payments not included in the measurement of lease
liabilities;
vi. Income from subleasing right-of-use assets;
vii. Total cash outflow for leases;
viii. Additions to right-of-use assets;
ix. Gains or losses arising form sale and leaseback transactions; and
x. Carrying amount of right-of-use assets at the end of the reporting period by class of
underlying asset.
c. A lessee shall disclose additional qualitative and quantitative information about its leasing
activities necessary to meet the disclosure.

LESSOR A CCOUNTING

Two types of leases under lessor accounting:

 Operating lease- does not transfer substantially all the risk and rewards incidental to ownership
of underlying asset.
 Finance lease- transfers substantially all the risk and rewards incidental to ownership of
underlying asset.

Recognition of Finance Lease:

 The lessor shall recognize the finance lease at commencement date as a receivable.
 Net investment in the lease- the gross investment in the lease discounted at the interest rate
implicit in the lease.
 The lessor shall use the interest rate implicit in the lease to measure the new investment in the
lease.
 Interest rate implicit in the lease is the rate of interest that cause the present value of
a. The lease payments; and
 b. The unguaranteed residual value to equal the sum of the fair value of the underlying asset
and any initial direct costs of the lessor.
 Fixed Payments- payments made by a lessee to a lessor for the right to use an underlying asset
during the lease term, excluding variable lease payments.
 Variable Lease Payments- portion of payments made by a lessee to a lessor for a right to use an
underlying asset during the lease term that varies because of changes in facts or circumstances
occurring after the commencement date, other than the passage of time.
 Residual Value Guarantee- a guarantee made to a lessor by a party unrelated to the lessor that
the value (or part of the value) of an underlying asset at the end of the lease will be at least a
specified amount.

Subsequent Measurement for Finance Lease:

A lessor shall recognize finance income over the lease term, based on a pattern reflecting a constant
periodic rate of return on the lessor’s net investment in the lease.

Gross investment in the lease- the sum of the lease payments receivable by a lessor under a finance
lease and any unguaranteed residual value accruing to the lessor.

Unearned finance income- the difference between the gross investment in the lease and the net
investment in the lease.

Operating Lease

 A lessor shall recognize lease payments from operating leases as income on either a straight-line
basis or another systematic basis.
 A lessor shall add initial direct costs incurred in obtaining an operating lease to the carrying
amount of the underlying asset and recognize those costs as an expense over the lease term on
the same basis as the lease income.

Minimum Disclosure for Finance Lease and Operating Lease:

a. For Finance Lease

i. selling profit or loss;
ii. finance income on the net investment in the lease; and
iii. income relating to variable to lease payments not included in the measurement of the net
investment in the lease.
b. For operating leases, lease income, separately disclosing income relating to variable lease
payments that do not depend on an index or a rate.

SALES AND LEASEBACK TRANSACTION

 It is when an entity (the seller-lessee) transfers an asset to another entity (the buyer-lessor) and
leases that asset back from the buyer-lessor.