ACCT3321 Lecture Notes - Lecture 8: Financial Statement, P21, Financial Instrument

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2 Jul 2018

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CHAPTER 14

Share based payments

Share based payment transaction

- Are: transactions in which the entity:

o(a) receives goods or services from the supplier of those goods or services

(including an employee) in a share0based payment arrangement or

o(b) incurs an obligation to settle the transaction with the supplier in a share-

based payment arrangement when another group entity receives those

goods or services

- are those where the total amount for the goods or services reflects the value of the

entities share price

- the arrangement is an agreement between the parties to the transaction that

entitles the payment to be made either in cash or other assets, or in issues of shares

- some entities may issue shares or share options to pay for the purchase of property

or for professional advice or services

- AASB 2 requires an entity to report the effects of share-based payment transactions

on its financial performance and position, including expenses associated with

transactions in which share options are granted to employees

Cash-settled and equity-settled share-based payment transactions

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- AASB 2 applies to share-based payments in which an entity acquires or receives

goods or services – goods can include inventories, consumables, PPE, intangible

assets… and other non-financial forms of assets

- A transaction with an employee who holds equity instruments of the employing

entity is not within the scope of AASB 2

Recognition

- Para 7 of AASB 2

- An entity shall recognise the goods or services received or acquired in a share-based

payment transaction when it obtains the goods or as the services are received. The

entity shall recognise a corresponding increase in equity if the goods or services

were received in an equity-settled share0based payment transaction, or a liability if

the goods or services were acquired in a cash-settled share-based payment

transaction

- Usually an expense arises from the consumption of goods or services

- When the goods or services received or acquired in a share-based payment

transaction do not qualify for recognised as assets, they shall be recognised as

expenses.

- an increase in equity must be recognised if goods or services are received in an

equity-settled share-based payment transaction

- an increase in a liability must be recognised if the goods or services are acquired in a

cash-settled share-based payment

- when the goods or services received in a share-based payment do not qualify for

recognition as an asset, they must be expensed

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Document Summary

Aasb 2 requires an entity to report the effects of share-based payment transactions on its financial performance and position, including expenses associated with transactions in which share options are granted to employees. Aasb 2 applies to share-based payments in which an entity acquires or receives goods or services goods can include inventories, consumables, ppe, intangible assets and other non-financial forms of assets. A transaction with an employee who holds equity instruments of the employing entity is not within the scope of aasb 2. An entity shall recognise the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity-settled share0based payment transaction, or a liability if the goods or services were acquired in a cash-settled share-based payment transaction. Usually an expense arises from the consumption of goods or services.

Related Questions

(ACCOUNTING INFORMATION SYSTEM)

Business scenario:

The model enterprise in this study is Euphoria Event Management Company (EEMC). As one of the major players in the event management industry, it provides a one-stop wedding service, organizes birthday parties, manages various kinds of celebrations and thus offers catering services based on the requirements of the customers. Due to this, the company handles multiple food inventory sales and purchases transactions and often slipped off the appropriate tracking and consumption of costs. Moreover, since it is classified as SME (small to medium-sized enterprise), it often fails to appreciate the importance of internal control in its daily operations.

The revenue cycle system at EEMC

The steps and procedures implemented within the revenue cycle of the company can generally be explained as follows:

1) Sales executive receives customer order by phone, fax or from a meeting.

2) She forwards the customer order to the kitchen department with details on quantities of food inventory needed and the date of delivery to customer.

3) The kitchen supervisor issues a Sales Order or sometimes a Packing Slip for the food order. Using this document, EEMC delivers the goods to customer.

4) Upon receiving the food, customer stamps and signs the Sales Order/Packing Slip.

5) One month after the delivery date, the accounts clerk at EEMC bills the food with Sales Invoice (stamp-duty receipt with authorized signature). The customer takes the original invoice while the company gets the copy of invoice and stamped receipt generated by the customer.

6) Two month after the delivery date, the accounts clerk makes a courtesy call to customer on the payment due.

7) Customer makes payment either using a cheque/clearing deposit slip or via a bank transfer.

8) As evidence of payment, the accounts clerk requests the original payment document (receipts or cheque stub) from

the customer or just check the transaction from the bank statements.

9) The accounts clerk records the sales transaction and the amount of sales in the general ledger. She also keeps the revenue cycle related documents as proof of the transaction.

The expenditure cycle system at EEMC

The steps and procedures implemented within the revenue cycle of the company can generally be explained as follows:

1) EEMC sets the budget for inventory purchase.

2) The Bill of Materials/Purchase Requisition document is created.

3) The procurement officer invites interested suppliers to quote their inventory price.

4) The procurement officer compares the quotation (price) of inventory among the various suppliers and appoints the

supplier who offers lowest price that commensurate with the desired quality of food. Appointment is usually conveyed by phone or fax.

5) When the food inventory arrives at the warehouse, the accounts clerk checks the quantity and the quality of inventory to confirm the order with the Bill of Materials.

6) Next, the supplierâs invoice (no Packing Slip from supplier, so the inventory is delivered with the invoice) is signed and the copy is taken and kept at the accounts department.

7) Between one to two weeks after the receipt of inventory, the accounts clerk confirms and pays for the purchases via a bank transfer. EEMC keeps the original receipt.

8) The accounts clerk records the purchase transaction and the amounts of obligation paid in the general ledger. She also keeps the expenditure cycle related documents as proof of the transaction.

Instructions:

1. Evaluate and comment on the internal control system related to the revenue cycle and expenditure cycle of the company. For each of the cycle, your answers must relate to the organizational control, documentation control and management practice control.

2. Using your own knowledge and creativity, suggest at least 3 ways to strengthen the documentation process and procedures using only the limited information given above.

3. Provide specific recommendations on how to overcome the discovered potential weaknesses on the organizational structure and authority of the company.

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