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FRS 2 Share-based payment

FRS 2 Share-based payment. Agenda Introduction Overview Overview for FRS2 - Recognition ESSBP -G&S ESSBP-Services provided by Employees ESSBP-Determining the FV of the EI CSSBP CHIOCE OF EQUITY-SETTLED or CASH SETTLED (SBP with cash alternative). Introduction.

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FRS 2 Share-based payment

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  1. FRS 2 Share-based payment Agenda • Introduction • Overview • Overview for FRS2 • - Recognition • ESSBP -G&S • ESSBP-Services provided by Employees • ESSBP-Determining the FV of the EI • CSSBP • CHIOCE OF EQUITY-SETTLED or CASH SETTLED (SBP with cash alternative)

  2. Introduction • SBP - payments for goods and services are paid either issuing shares or the amounts of cash paid is based on the entity’s share price • The standards views shares and share options given as COST which should be correctly charged as expense, otherwise the company income will be inflated

  3. 1.Overview • Goods acquired in SBP transactions includes inventories, PPE and etc. • Goods are recorded at their FV • Whereas services includes services provided by parties outside the entity and employee • Example : share ownership schemes where employees receive an entity’s share in exchange for services such as ESOS • Cost of services are recorded at the FV of the equity issued at GRANT Date and spread over the vesting period

  4. 1.Overview • 3 important dates involved:- • GRANT DATE - when the scheme is established (approval date) • VESTING DATE - when the employee has fulfilled the terms stipulated • EXERCISE DATE (applies to option)- When the holders of the options acquire the shares

  5. 2. Overview for FRS2 • Covers more than ESOS • Covers the issuance of shares or rights to shares in return for goods and services (“G&S”) • There are 3 types of SBP:- • EQUITY-SETTLED SBP (“ESSBP”)- An entity issued its own EI • CASH SETTLED SBP (“CSSBP) - Cash payment is calculated by reference to the share price • CHIOCE OF EQUITY-SETTLED or CASH SETTLED (SBP with cash alternative) - Choose either one

  6. 2.1 Recognition • G&S received in a SBP transactions are recognised when they are RECEIVED (para 7) • ESSBP - increase in equity (Dr PPE Cr SC Cr SP) or • CSSBP - increase in liability (Dr E Cr ?) • If the G&S received do not qualify as assets, they should be recognised as expense (para 8) • Example : Dr RE Cr SC Cr SP

  7. 3. ESSBP -G&S • G& S received (other than provided by employees) and the corresponding increase in equity are measured at FV of the G&S received (para 10) • If the FV of the G&S cannot be measured reliably, reference to the FV of the equity (para 10) [Dr PPE (in the range of 10m to 50m) Cr SC Cr SP]

  8. 3. ESSBP-Services provided by Employees • Share and share option (ESOS) are often granted to employees as part of their remuneration package • The entity is to measure the FV of employee service at the FV of the equity instrument (“EI”) at GRANT DATE (“GD”) • If the EI vest immediately, then the expense and equity are recognised immediately on the GD

  9. 3. ESSBP-Services provided by Employees • Vesting conditions - conditions that must be met before an employee becomes entitled to share / options. • The entity is to estimate the most likely outcome of the performance condition • Refer example 1A & 1B • If the performance condition is a market condition (such as exercise price which will not affect the no of option), no revision is to be made • Otherwise, revision is to be made in subsequent periods • Refer example 2 & 3

  10. 3. ESSBP-Determining the FV of the EI • FV can be determined using various valuation model like Black-Scholes model, Monte Carlo model and etc • If FV CANNOT be determined (para 24), • (a) measure the EI granted at their intrinsic value (“IV”). • IV = FV of shares - payment to creditor required / exercise price • Change in IV are taken to Income Statement • (b) Recognise the G&S received based on the number of equity instrument that ultimately vest or are ultimately exercised • Refer example 5

  11. 4 CSSBP • Cash payment is calculated by reference to the share price • Example: Share appreciation rights given to employees • Employees will receive cash payments to the increase in share price • The liability is remeasured at FV at the end of each year • Changes in FV are recognised in Income Statement • Refer Example 6, 7 & 8

  12. 5 CHIOCE OF EQUITY-SETTLED or CASH SETTLED (SBP with cash alternative) • Example : employees may have a choice to receive their bonus payments in cash equal to 100 shares at MV or 120 shares • (a) Counterparty chooses the settlement method • An entity has granted CFI • For G&S, Equity component = FV of G&S - FV of debt component • For transactions with employees and purchase of G&S where FV is measured indirectly by reference to the FV of the instruments granted, and normally equity component is NIL (example 9) • If equity component ‡ 0 , debt component = CSSBP, equity component = ESSBP (example 10)

  13. 5 CHIOCE OF EQUITY-SETTLED or CASH SETTLED (SBP with cash alternative) • (b) The Entity Chooses the settlement method • FRS provides that an entity has a present obligation to settle in cash if • -the choices of settlement has no commercial substances • -the entity has a past practice or stated policy of settling in cash • -generally settles in cash (para 41) • Record this transaction as CSSBP (para 42) • Otherwise, record as ESSBP (para 43) • Pls get a copy of annual report for Disclosures

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