6.3 ACIS211_Week_6_Lecture_3_Share_based_payments

6.3 ACIS211_Week_6_Lecture_3_Share_based_payments -...

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ACIS211 Week 6 Lecture 3 Accounting for Share-Based Payments
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14-2 Objectives Be familiar with NZ IFRS 2 Account for equity-settled share-based payment transactions and cash-settled share-based payment transactions Differentiate between market and other vesting conditions and describe how to account for them Account for modifications to the terms and conditions on which equity instruments were originally granted Account for share-based payment transactions with cash alternatives Explain economic implications of adopting NZ IFRS 2 NZ IFRS 2 ‘Share-based Payment’ disclosure requirements
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14-3 Introduction Prior to 2005, no specific standard addressed share-based payment transactions NZ IFRS 2, released in January 2005, deals with the recognition and measurements of share-based payment transactions In particular those related to granting of share options to employees Under NZ IFRS 2, general requirement that an asset or expense be related to all share-based payment transactions
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14-4 Background to Release of NZ IFRS 2 Much debate on how to measure equity- based transactions Particularly in relation to share options to employees as part of salary packages Options encourage executives to stay with the organisation ‘Golden handcuffs’ Options issued with a ‘strike price’ Usually higher than current share price Hoped that the value of the shares will increase throughout the vesting period
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14-5 Background to Release of NZ IFRS 2 To determine expense to the organisation of the options: Difference between the exercise price and the share price at time options were issued Difference represents the ‘intrinsic value’ If intrinsic value was negative, options were ‘out of the money’ and no expense was recognised If intrinsic value was positive, the options were ‘in the money’ and was recognised as an expense by some companies Sophisticated models to determine cost of options (such as Black-Scholes-Merton option pricing model)
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14-6 Background to Release of NZ IFRS 2 Release of NZ IFRS 2 has narrowed discretion of reporting entities in accounting for share- based payments NZ IFRS 2 requires that the fair value of the options be determined this value is deemed to be the cost of the options fair value of options is recognised as an expense to the entity
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14-7 Overview of NZ IFRS 2 Objective of NZ IFRS 2 represents a significant departure from previous accounting practice
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6.3 ACIS211_Week_6_Lecture_3_Share_based_payments -...

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