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ACT3127 Advanced Financial Accounting II. FRS 2: Share-based payment. Contents. Scope Recognition Measurement Grant date Step by step approach to measuring ESOS Intrinsic value method Disclosure. Scope. Pays for goods and services by giving: Entity’s own shares / other equity
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ACT3127 Advanced Financial Accounting II FRS 2: Share-based payment
Contents • Scope • Recognition • Measurement • Grant date • Step by step approach to measuring ESOS • Intrinsic value method • Disclosure
Scope Pays for goods and services by giving: • Entity’s own shares / other equity • Cash (amount based on price of shares / other equity) • Either cash or equity, choice by entity or the other party
Recognition The debit entry is charged to profit or loss, unless the goods/services qualify for recognition as assets while credit entry is charged to equity for ESOS (2.7 – 8) Dr Asset / Employee expense Cr Shares Capital Cr Share Premium
Measurement ESOS is measured at grant date by reference to the fair value of equity instruments granted (2.10 – 12 & 24)
Grant date Grant date is the date when both entity and employee agree to the ESOS and have a shared understanding of the terms and conditions of that arrangement (Appendix A & AG 1 – 4)
Measuring ESOS ESOS is recognised and measured using the modified grant date approach (2.19 – 21, 23 & AG9) FV of the individual share option (A) X Number of share option expected to vest (B) = Total amount to be recognised for services received (C)
Step-by-step approach • Estimate the fair value of the option share (A) • Identify vesting period (if not immediate) • Estimate the number of share option expected to vest at the end of vesting period (B) • Spreading the total value over the vesting period (C), if applicable. Otherwise immediately.
Intrinsic value method Intrinsic value method approach is applied when the fair value of options granted under ESOS cannot be reliably measured (2.24 – 25) Intrinsic = exercise price vs. fair value = RM15 vs. RM20
Disclosure • Nature and extent of ESOS • How fair value determined • Effect of the ESOS transactions on the entity’s profit & loss for the period and on its financial position