Securing Higher Grades Costing Your Pocket? Book Your Assignment at The Lowest Price Now!
loader

Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Add File

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Guaranteed Higher Grade!

Stuck on Your Question?

Get 24x7 live help from our Top Tutors. All subjects covered.

Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

loader
250 words

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Students Who Viewed This Also Studied

9 Pages
HA3011 Advanced Financial Accounting

Task: Question 1    Fabric Ltd acquired a Machine from Box Ltd for the following consideration:Cash $110 000, Land in the books of Fabric Ltd the land is recorded at its cost of $950 00 ...

Course

HA3011

Type

Home Work

Subject

Accounting

University

Holmes Institute

92 Pages
The Modern Intervention of Enterprises

PART A The sustainab ility approach of BHP Billito n is set out in the Policies and is governed by the Standards. These standards create and serve our minimum requirements ...

Course

act301

Subject

Accounting

University

Charles Darwin University

Season

Spring

138 Pages
ACC102 Fundamentals of Accounting

In early July 2019, Masterton Ltd is considering the acquisition of some machinery for $1 100 000 to be used in the manufacture of a new product. The machinery has a useful life of 10 year ...

Course

ACC102

Type

Course Work

Subject

Accounting

University

Elite Education Institute

36 Pages
Gastronomic Delights

1 X QUESTION 1: General Journal entries (19 marks) Hal Oumi isthe sole proprietor of “Gastronomic Delights ”,abusiness providing catering services for weddings, special events, corporate functi ...

Course

ACCT1008

Subject

Accounting

University

University of South Australia

Season

spring

3101AFE Accounting Theory And Practice

Question

Answered

Questions:

Question 1:
How are share-based transactions to be measured?

There is a general requirement for a share-based payment transaction to be measured at fair value; however, whether the transaction is measured at the fair value of the goods or services, or the fair value of the equity instrument depends upon whether the transactions are with employees or with other parties, and whether a fair value can be determined ‘reliably’ for the goods or services, or for the equity instrument. 
AASB 2 divides its specific recognition and measurement requirements into separate sections according to the type of share-based transaction being considered. That is, separate parts of the standard are devoted to: 

Equity-settled share-based payment transactions
Cash-settled share-based payment transactions
Share-based payment transactions with cash alternatives. 
The transaction in question is an equity-settled share-based transaction. In relation to how equity-settled share-based transactions are to be measured, a general rule is provided at paragraph 10, as follows: 

For equity-settled share-based payment transactions, the entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.
 
To apply the requirements of paragraph 10 to transactions with parties other than employees, there shall be a rebuttable presumption that the fair value of the goods or services received can be estimated reliably. That fair value shall be measured at the date the entity obtains the goods or the counterparty renders service. In rare cases, if the entity rebuts this presumption because it cannot estimate reliably the fair value of the goods or services received, the entity shall measure the goods or services received, and the corresponding increase in equity, indirectly, by reference to the fair value of the equityinstruments granted, measured at the date the entity obtains the goods or the counterparty renders service.
 
There is a general assumption that transactions with employees cannot be reliably measured on the basis of the value of the services being provided. Therefore, transactions with employees are typically measured at the fair value of the equity instruments being granted. As paragraph 11 of the standard states: 
 
To apply the requirements of paragraph 10 to transactions with employees and others providing similar services, the entity shall measure the fair value of the services received by reference to the fair value of the equity instruments granted, because typically it is not possible to estimate reliably the fair value of the services received, as explained in paragraph 12. The fair value of those equity instruments shall be measured at grant date.

Question 2: 
Do equity-settled share-based payment transactions or cash-settled share-based payment transactions lead to the recognition of liabilities? If liabilities are recognised, do they need to be restated at each reporting date and, if so, how would the change in liabilities be treated?

A cash-settled share-based payment transaction is defined in AASB 2 as: 
A share-based payment transaction in which the entity acquires goods or services by incurring a liability to transfer cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of the entity’s shares or other equity instruments of the entity. 
 
With regard to the required accounting treatment, paragraph 30 of AASB 2 requires the following: 
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. Until the liability is settled, the entity shall remeasure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognised in profit or loss for the period. 

In contrast with cash-settled share-based transactions, for equity-settled share-based transactions remeasurement of the granted equity instruments does not occur at subsequent reporting dates. That is, with equity-settled share-based transactions any subsequent change in value of the equity instruments is ignored, whereas with cash-settled share-based transactions the related liabilities are adjusted to fair value at the end of each reporting period, with a resultant impact on reported profit or loss. 

Question 3: 
Cottesloe Ltd has granted its managing director 50 000 share options conditional upon him remaining with the company for a further five years. In addition, the share price must increase by 50 per cent before the end of year 5. 
 
How should Cottesloe Ltd account for the above vesting conditions?

Guidance to answer this question is provided at paragraph 15 of AASB 2. It states:
If the equity instruments granted do not vest until the counterparty completes a specified period of service, the entity shall presume that the services to be rendered by the counterparty as consideration for those equity instruments will be received in the future, during the vesting period. The entity shall account for those services as they are rendered by the counterparty during the vesting period, with a corresponding increase in equity. For example:
 
(a) if an employee is granted share options conditional upon completing three years’ service, then the entity shall presume that the services to be rendered by the employee as consideration for the share options will be received in the future, over that three-year vesting period; or 
 
(b) if an employee is granted share options conditional upon the achievement of a performance condition and remaining in the entity’s employ until that performance condition is satisfied, and the length of the vesting period varies depending on when that performance condition is satisfied, the entity shall presume that the services to be rendered by the employee as consideration for the share options will be received in the future, over the expected vesting period. The entity shall estimate the length of the expected vesting period at grant date, based on the most likely outcome of the performance condition. If the performance condition is a market condition, the estimate of the length of the expected vesting period shall be consistent with the assumptions used in estimating the fair value of the options granted, and shall not be subsequently revised. If the performance condition is not a market condition, the entity shall revise its estimate of the length of the vesting period, if necessary, if subsequent information indicates that the length of the vesting period differs from previous estimates. 

Question 4:
Prior to the release of AASB 2, many reporting entities failed to recognise the share options being provided to senior executives. Why? 
One reason why reporting entities failed to recognise the share options being provided to senior executives was that they did not want to recognise any expenses, because somewhat obviously, that would lead to a reduction in reported profits. They often justified the non-recognition of expenses on the basis that the exercise price (or ‘strike price’) of the options was greater than the fair value of the shares at the time the options were issued (the ‘time value’ of the options was ignored). That is, whendetermining the related expense to the organisation from issuing share options, prior to the release of AASB 2, some companies simply looked at the difference between the exercise price and the share price at the time the options were issued. This difference is considered to represent the ‘intrinsic value’ of the option.  If the exercise price was greater than the fair value of the shares, then the options to buy shares were considered to be ‘out of the money’, and no expense was recognised when the options were issued (even though they obviously had value to the managers who were receiving them). They were deemed to have no intrinsic value.

3101AFE Accounting Theory And Practice

Answer in Detail

Solved by qualified expert

Get Access to This Answer

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Hac habitasse platea dictumst vestibulum rhoncus est pellentesque. Amet dictum sit amet justo donec enim diam vulputate ut. Neque convallis a cras semper auctor neque vitae. Elit at imperdiet dui accumsan. Nisl condimentum id venenatis a condimentum vitae sapien pellentesque. Imperdiet massa tincidunt nunc pulvinar sapien et ligula. Malesuada fames ac turpis egestas maecenas pharetra convallis posuere. Et ultrices neque ornare aenean euismod. Suscipit tellus mauris a diam maecenas sed enim. Potenti nullam ac tortor vitae purus faucibus ornare. Morbi tristique senectus et netus et malesuada. Morbi tristique senectus et netus et malesuada. Tellus pellentesque eu tincidunt tortor aliquam. Sit amet purus gravida quis blandit. Nec feugiat in fermentum posuere urna. Vel orci porta non pulvinar neque laoreet suspendisse interdum. Ultricies tristique nulla aliquet enim tortor at auctor urna. Orci sagittis eu volutpat odio facilisis mauris sit amet.

Tellus molestie nunc non blandit massa enim nec dui. Tellus molestie nunc non blandit massa enim nec dui. Ac tortor vitae purus faucibus ornare suspendisse sed nisi. Pharetra et ultrices neque ornare aenean euismod. Pretium viverra suspendisse potenti nullam ac tortor vitae. Morbi quis commodo odio aenean sed. At consectetur lorem donec massa sapien faucibus et. Nisi quis eleifend quam adipiscing vitae proin sagittis nisl rhoncus. Duis at tellus at urna condimentum mattis pellentesque. Vivamus at augue eget arcu dictum varius duis at. Justo donec enim diam vulputate ut. Blandit libero volutpat sed cras ornare arcu. Ac felis donec et odio pellentesque diam volutpat commodo. Convallis a cras semper auctor neque. Tempus iaculis urna id volutpat lacus. Tortor consequat id porta nibh.

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Hac habitasse platea dictumst vestibulum rhoncus est pellentesque. Amet dictum sit amet justo donec enim diam vulputate ut. Neque convallis a cras semper auctor neque vitae. Elit at imperdiet dui accumsan. Nisl condimentum id venenatis a condimentum vitae sapien pellentesque. Imperdiet massa tincidunt nunc pulvinar sapien et ligula. Malesuada fames ac turpis egestas maecenas pharetra convallis posuere. Et ultrices neque ornare aenean euismod. Suscipit tellus mauris a diam maecenas sed enim. Potenti nullam ac tortor vitae purus faucibus ornare. Morbi tristique senectus et netus et malesuada. Morbi tristique senectus et netus et malesuada. Tellus pellentesque eu tincidunt tortor aliquam. Sit amet purus gravida quis blandit. Nec feugiat in fermentum posuere urna. Vel orci porta non pulvinar neque laoreet suspendisse interdum. Ultricies tristique nulla aliquet enim tortor at auctor urna. Orci sagittis eu volutpat odio facilisis mauris sit amet.

Tellus molestie nunc non blandit massa enim nec dui. Tellus molestie nunc non blandit massa enim nec dui. Ac tortor vitae purus faucibus ornare suspendisse sed nisi. Pharetra et ultrices neque ornare aenean euismod. Pretium viverra suspendisse potenti nullam ac tortor vitae. Morbi quis commodo odio aenean sed. At consectetur lorem donec massa sapien faucibus et. Nisi quis eleifend quam adipiscing vitae proin sagittis nisl rhoncus. Duis at tellus at urna condimentum mattis pellentesque. Vivamus at augue eget arcu dictum varius duis at. Justo donec enim diam vulputate ut. Blandit libero volutpat sed cras ornare arcu. Ac felis donec et odio pellentesque diam volutpat commodo. Convallis a cras semper auctor neque. Tempus iaculis urna id volutpat lacus. Tortor consequat id porta nibh.

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Hac habitasse platea dictumst vestibulum rhoncus est pellentesque. Amet dictum sit amet justo donec enim diam vulputate ut. Neque convallis a cras semper auctor neque vitae. Elit at imperdiet dui accumsan. Nisl condimentum id venenatis a condimentum vitae sapien pellentesque. Imperdiet massa tincidunt nunc pulvinar sapien et ligula. Malesuada fames ac turpis egestas maecenas pharetra convallis posuere. Et ultrices neque ornare aenean euismod. Suscipit tellus mauris a diam maecenas sed enim. Potenti nullam ac tortor vitae purus faucibus ornare. Morbi tristique senectus et netus et malesuada. Morbi tristique senectus et netus et malesuada. Tellus pellentesque eu tincidunt tortor aliquam. Sit amet purus gravida quis blandit. Nec feugiat in fermentum posuere urna. Vel orci porta non pulvinar neque laoreet suspendisse interdum. Ultricies tristique nulla aliquet enim tortor at auctor urna. Orci sagittis eu volutpat odio facilisis mauris sit amet.

Tellus molestie nunc non blandit massa enim nec dui. Tellus molestie nunc non blandit massa enim nec dui. Ac tortor vitae purus faucibus ornare suspendisse sed nisi. Pharetra et ultrices neque ornare aenean euismod. Pretium viverra suspendisse potenti nullam ac tortor vitae. Morbi quis commodo odio aenean sed. At consectetur lorem donec massa sapien faucibus et. Nisi quis eleifend quam adipiscing vitae proin sagittis nisl rhoncus. Duis at tellus at urna condimentum mattis pellentesque. Vivamus at augue eget arcu dictum varius duis at. Justo donec enim diam vulputate ut. Blandit libero volutpat sed cras ornare arcu. Ac felis donec et odio pellentesque diam volutpat commodo. Convallis a cras semper auctor neque. Tempus iaculis urna id volutpat lacus. Tortor consequat id porta nibh.

38 More Pages to Come in This Document. Get access to the complete answer.

More 3101AFE 3101AFE Accounting Theory And Practice: Questions & Answers

Q
icon

We aren't endorsed by this University

HA3011 Advanced Financial Accounting

Task: Question 1    Fabric Ltd acquired a Machine from Box Ltd for the following consideration:Cash $110 000, Land in the books of Fabric Ltd the land is recorded at its cost of $950 000. It has a fair value of $1000 000. Fabric Ltd also agreed to assume the liability of Box Ltd bank ...

View Answer
Q
icon

We aren't endorsed by this University

The Modern Intervention of Enterprises

PART A The sustainab ility approach of BHP Billito n is set out in the Policies and is governed by the Standards. These standards create and serve our minimum requirements for the developme nt and imple me ntatio n of manageme nt processes for our members and ...

View Answer
Q
icon

We aren't endorsed by this University

ACC102 Fundamentals of Accounting

In early July 2019, Masterton Ltd is considering the acquisition of some machinery for $1 100 000 to be used in the manufacture of a new product. The machinery has a useful life of 10 years, during which management plans to produce 500 000 units of the new product. The residual valu ...

View Answer
Q
icon

We aren't endorsed by this University

Gastronomic Delights

1 X QUESTION 1: General Journal entries (19 marks) Hal Oumi isthe sole proprietor of “Gastronomic Delights ”,abusiness providing catering services for weddings, special events, corporate functions and private dinners. Below isalist of transactions that took place during the month of August 2 ...

View Answer

Content Removal Request

If you are the original writer of this content and no longer wish to have your work published on Myassignmenthelp.io then please raise the content removal request.

Choose Our Best Expert to Help You

icon

5% Cashback

On APP - grab it while it lasts!

Download app now (or) Scan the QR code

*Offer eligible for first 3 orders ordered through app!

screener
ribbon
callback request mobile
Have any Query?
close
Subtraction Payment required!

Only one step away from your solution of order no.