Week3. CHAPTER 34 - SHARE-BASED PAYMENTS PART 1

(Intermediate Accounting 2)
LECTURE AID
2018
ZEUS VERNON B. MILLAN

SHARE-BASED
PAYMENTS
Overview on the topic:
Chapter Title Sub-topics___
34 Sh.-based payments - Part 1 Equity-settled share
based payment
transactions
35 Sh.-based payments - Part 2 Cash-settled share

based payment
transactions
INTERMEDIATE ACCTG 2 (by:

MILLAN)
Chapter 34 Share-based Payments (Part
1)
Related standard: PFRS 2 Share-based Payments
Learning Competencies
• Define a share-based payment transaction.

• State the accounting methods applicable to share-
based payment transactions with (a) non-
employees and (b) employees.
• Account for share-based compensation plans.

MILLAN)
Scope of PFRS 2
1. Equity-settled share-based payment transaction – is a
transaction whereby an entity acquires goods or services and instead of
paying in cash the entity issues its own shares of stocks or share
options; or
2. Cash-settled share-based payment transaction – is a transaction

whereby an entity acquires goods or services and incurs an obligation
to pay cash at an amount that is based on the fair value of equity
instruments; or
3. Choice between equity-settled and cash-settled

MILLAN)
• Equity instrument is a contract that evidences a
residual interest in the assets of an entity after
deducting all of its liabilities.

MILLAN)
Core principle
• An entity shall recognize in profit or loss and financial

position the effects of share-based payment transactions,
including expenses associated with transactions in which
share options are granted to employees.

MILLAN)
Recognition
• Goods and services received in share-based payment transactions
are recognized when the goods are received or as the services are
received. Goods or services received that do not qualify as assets
are recognized as expenses.
• The entity shall recognize:

a.A corresponding increase in equity if the goods or services were
received in an equity-settled share-based payment transaction, or
b.A liability if the goods or services were acquired in a cash-settled
share-based payment transaction.

MILLAN)
Equity-settled share-based payment transactions

MILLAN)
• Equity instrument granted is the right (conditional or unconditional) to an
equity instrument of the entity conferred by the entity on another party under a
share-based payment arrangement.
• Measurement date is the date at which the fair value of the equity
instruments granted is measured for the purposes of PFRS 2.
a. For transactions with non-employees, the measurement date is the date
when the entity receives the good or service.
b. For transactions with employees and others providing similar
services, the measurement date is grant date.
• Grant date is the date at which the entity and the counterparty agree to a
share-based payment arrangement, being when the entity and the counterparty
have a shared understanding of the terms
INTERMEDIATE and2 (by:
ACCTG conditions of the arrangement.
MILLAN)
• Intrinsic value is the difference between the fair value of the
shares to which the counterparty has the conditional or
unconditional right to subscribe or the right to receive and the
subscription price (if any) that the counterparty is required to
pay for those shares.

MILLAN)
Share-based compensation plans
• Share-based compensation plan is an arrangement whereby an

employee is given compensation in return for services rendered
in the form of the entity’s equity instruments or cash based on
the fair value of the entity’s equity instruments or a choice of
settlement between equity instrument and cash. Examples:
a. Employee share options (equity-settled)
b. Employee share appreciation rights (cash settled)
c. Compensation plans with a choice of settlement between (1)
and (2) above

MILLAN)
Employee share option plans – equity settled
• Share option is a contract that gives the holder the right,

but not the obligation, to subscribe to the entity’s shares
at a fixed or determinable price for a specified period of
time. Some share options given to employees may not
require any subscription price, meaning shares will be
issued to the employees in consideration merely for
services rendered.

MILLAN)
Measurement of compensation
• Since employee share option plan is a transaction with an

employee, the following order of priority shall be used to
measure the services received (salaries expense):
1. Fair value of equity instruments granted at grant date
2. Intrinsic value

MILLAN)
Recognition of equity-settled share-based compensation plans
1. If the share options granted vest immediately, salaries expense

shall be recognized in full with a corresponding increase in equity
at grant date.
2. If the share options granted do not vest until the employee

completes a specified period of service, the entity shall recognize
the related compensation expense as the services are rendered by
the employee over the vesting period.
In the absence of evidence to the contrary, it shall be presumed that

the share options vest immediately.
MILLAN)
APPLICATION OF CONCEPTS

PROBLEM 2: FOR CLASSROOM DISCUSSION
INTERMEDIATE ACCTG 2 (by: MILLAN)

OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

END

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(Intermediate Accounting 2)

ZEUS VERNON B. MILLAN

35 Sh.-based payments - Part 2 Cash-settled share

INTERMEDIATE ACCTG 2 (by:

• Define a share-based payment transaction.

INTERMEDIATE ACCTG 2 (by:

2. Cash-settled share-based payment transaction – is a transaction

3. Choice between equity-settled and cash-settled

INTERMEDIATE ACCTG 2 (by:

• An entity shall recognize in profit or loss and financial

INTERMEDIATE ACCTG 2 (by:

• The entity shall recognize:

INTERMEDIATE ACCTG 2 (by:

INTERMEDIATE ACCTG 2 (by:

INTERMEDIATE ACCTG 2 (by:

• Share-based compensation plan is an arrangement whereby an

INTERMEDIATE ACCTG 2 (by:

• Share option is a contract that gives the holder the right,

INTERMEDIATE ACCTG 2 (by:

• Since employee share option plan is a transaction with an

INTERMEDIATE ACCTG 2 (by:

1. If the share options granted vest immediately, salaries expense

2. If the share options granted do not vest until the employee

In the absence of evidence to the contrary, it shall be presumed that

PROBLEM 2: FOR CLASSROOM DISCUSSION

INTERMEDIATE ACCTG 2 (by: MILLAN)

INTERMEDIATE ACCTG 2 (by: MILLAN)

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