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MOD 5 PART 3 (5)

BSA Co. issued 5,000 shares at P8 each, recorded as cash, ordinary shares, and share premium. The company later bought back 1,000 shares at P12 each and retired them, adjusting ordinary shares, share premium, and retained earnings accordingly. The document also explains share-based payments under IFRS 2, detailing types, measurement, and accounting treatment for equity and cash settled transactions.

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12 views

MOD 5 PART 3 (5)

BSA Co. issued 5,000 shares at P8 each, recorded as cash, ordinary shares, and share premium. The company later bought back 1,000 shares at P12 each and retired them, adjusting ordinary shares, share premium, and retained earnings accordingly. The document also explains share-based payments under IFRS 2, detailing types, measurement, and accounting treatment for equity and cash settled transactions.

Uploaded by

amae22560
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ILLUSTRATION

FOR OUR EXAMPLE

BSA Co. issued 5,000 shares of its P5 par value ordinary shares at P8 per share. Later the company bought
back 1,000 shares at P12 per share and immediately retired them.

Required: Prepare journal entries for issuance, buy back, and retirement using cost method:
1) When shares are issued
Cash (5,000 x P8) P40,000
Ordinary shares (5,000 x P5) P25,000
Share premium-ordinary 15,000
2) When 1,000 shares are bought back
Treasury share 12,000
Cash 12,000
3) When 1,000 shares are retired
Ordinary Shares (1000 x P5) 5,000
Share premium-ordinary (1000 (P8-5=P3)) 3,000
Retained Earnings (P12,000-5,000-3,000) 4,000
Treasury Share 12,000
SHARE-BASED PAYMENT
WHAT IS A SHARE-BASED PAYMENT (SBP)?

➢ It is a transaction in which the entity receives goods or services either as consideration for its
equity instruments** or by incurring liabilities for amounts based on the price of the entity’s shares
or equity.
➢ As per IFRS 2 , share based payment requires an entity to recognize share-based payment
transactions such as granted shares, share option or share appreciation rights in its FS including
transactions of employees and other parties to be settled in.
➢ IFRS2 does not apply to share based payment transactions other than for the acquisition of goods
and services.

**EQUITY INSTRUMENTS –legally applicable evidence of ownership right in a firm, like share
certificate
SHARE-BASED CONTINUED...
As per International Financial Reporting Standards (IFRS) 2 , share-based payments can be
classified into:
1. Equity settled – applies when an entity receives goods or services as consideration for its
own equity instruments . It would normally be expensed and would be based on the FMV at
the grant date.
➢ IFRS 2 permits the use of Intrinsic value** in rare cases , that is, one which can only be used where
the fair value cannot be reliably measured.
2. Cash settled share-based payment transactions occur where goods and services are paid for
at amounts that are based on the price of the company’s equity instruments.
3. Equity settled with cash alternative – entity or the supplier of goods and services has the
choice as to whether the transaction is settled in CASH or EQUITY instruments.

**INTRINSIC VALUE-fair value of the shares less exercise price.


RELATED TERMS
▪ FAIR VALUE- the amount for which an asset can be exchanged , liability settled, or an equity instrument granted
could be exchanged between knowledgeable willing parties at an arm’s length transaction.
▪ ORGANIZATION EXPENSE – an expense account used for services in connection with incorporation.
▪ SHARE/ STOCK OPTION-a right to buy a particular amount of ordinary shares at a fixed price at a future date
over a certain period of time.
▪ EXERCISE PRICE-price which an underlying asset can be purchased or sold when trading a call or put option.
▪ CALL PRICE-price at which the issuer of a share can redeem a callable preferred share or a bond. Known also
as redemption price.
▪ GRANT DATE- the date at which the entity and another party (including employees) agree to a share-based
payment arrangement.
▪ VESTING CONDITIONS- means condition or restriction that determine whether the entity receives the
services that entitle the counterparty to receive cash or equity instruments of the entity under a share-based
payment arrangement.
▪ VESTING PERIOD – the period which all the specified vesting conditions of a share-based arrangement are to
be satisfied.
▪ VEST-means become an entitlement. The vesting date is when the cash and equity instruments granted vest.

▪ EX. On June 1, 2018, BSA Co. granted 50 share options to each of its four (4) directors on the condition that nobody
will leave the company until June, 2023.
MEASUREMENT
IFRS 2, Share-based payment, equity settled transaction provides the following:
A. SHARE-BASED PAYMENT TO NON-EMPLOYEES
➢ Measured at the FMV of consideration received or FMV of equity instruments issued , whichever can
be more reliably determined.
➢ The measurement date is the date the entity obtains the goods or the service provider renders
services. Or the grant date fair value.
➢ With performance conditions, measurement is based at the lowest aggregate fair value.
B. SHARE-BASED PAYMENT TO EMPLOYEES (including share options)
▪ A way of paying employees, executives and directors of a company with shares of ownership in the
business
▪ RATIONALE: to motivate employees beyond their regular cash based compensation (Salaries and
bonus) and to align their interests with those of the company
▪ The measurement is based on the FV of the equity instruments granted .
▪ Shares issued to employees are usually subject to a vesting period before they can be sold.
ACCOUNTING FOR SHARE - BASED PAYMENT
When an entity receives services from employees under this arrangement, ASSET/ EXPENSE shall be
recognized as DEBIT- Asset account or Employee Benefit Expense account** (which affect Profit in
Loss) and CREDIT entry depends on the classification of share-based payment.
➢ IF EQUITY SETTLED share-based payment , then the CREDIT entry would be the equity
instrument (Share Options Outstanding account)
➢ IF CASH SETTLED share-based payment, the entity should recognize the corresponding increase in
liability account.

**Organization Expense can be used instead if shares issued are for services rendered in connection with
incorporation.

NOTE: When a grant is conditional (vesting conditions) like 5 years, the total expense ( we use Employee
Benefit Expense) should be measured using the grant date FV of the share based payment and this Expense
account would be recognized over the 5 year vesting period we give here.

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