Share-Based Payment Accounting
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Questions and Answers

What is a share-based payment?

A share-based payment occurs when an entity buys goods or services from other parties and settles the amounts payable by issuing its shares or share options, or incurs liabilities for cash payments based on its share price.

How is an expense recognized when a company pays for goods or services in cash?

An expense is recognized in profit or loss.

What happens if a company 'pays' for goods or services in share options?

No expense would be recognized.

Why is it considered inconsistent not to recognize a share-based payment transaction in the financial statements?

<p>Because the employees have provided a valuable service to the entity in exchange for the shares or share options.</p> Signup and view all the answers

What is the purpose of IFRS 2 Share-based Payment?

<p>To require recognition of all share-based payment transactions in the financial statements when the transaction takes place.</p> Signup and view all the answers

What are the two types of share-based payments mentioned in the text?

<p>Equity-settled share-based payments and Cash-settled share-based payments.</p> Signup and view all the answers

What is a share option according to the text?

<p>A share option allows the holder to buy a share in the future for a fixed price (the ‘exercise price’).</p> Signup and view all the answers

How does a company acquire goods or services in equity-settled share-based payments?

<p>By exchanging equity instruments of the entity (e.g. shares or share options).</p> Signup and view all the answers

What is the outcome of a cash-settled share-based payment transaction?

<p>The entity acquires goods or services in exchange for amounts of cash measured by reference to the entity’s share price.</p> Signup and view all the answers

Why did IFRS 2 Share-based Payment need to be issued?

<p>To address the accounting anomaly of not recognizing share-based payment transactions.</p> Signup and view all the answers

What type of share-based payment transaction occurs when an entity acquires goods or services in exchange for amounts of cash measured by reference to the entity's share price?

<p>Cash-settled share-based payments</p> Signup and view all the answers

Why is it considered inconsistent not to recognize a share-based payment transaction in the financial statements?

<p>The employees have provided a valuable service to the entity, in exchange for the shares or share options, which should be recognized as a transaction in the financial statements.</p> Signup and view all the answers

What specific accounting standard was issued to address the anomaly of not recognizing share-based payment transactions?

<p>IFRS 2 Share-based Payment</p> Signup and view all the answers

In equity-settled share-based payments, what does the entity acquire goods or services in exchange for?

<p>Equity instruments of the entity (e.g. shares or share options)</p> Signup and view all the answers

What is the purpose of issuing share options in a share-based payment transaction?

<p>To allow the holder to buy a share in the future for a fixed price (the 'exercise price').</p> Signup and view all the answers

Why do cash-settled share-based payments not result in an expense being recognized in profit or loss?

<p>Because there is no cash outflow involved in such transactions.</p> Signup and view all the answers

When does IFRS 2 require share-based payment transactions to be recognized in the financial statements?

<p>When the transaction takes place.</p> Signup and view all the answers

What key service do employees provide in a share-based payment transaction?

<p>Valuable service to the entity, in exchange for the shares or share options.</p> Signup and view all the answers

Why is it important to recognize share-based payment transactions in the financial statements?

<p>To maintain consistency and transparency in financial reporting.</p> Signup and view all the answers

How does an entity settle the amounts payable in an equity-settled share-based payment?

<p>By issuing its shares or share options.</p> Signup and view all the answers

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