MFRS 2 SHARE BASED PAYMENTS - ALL COMBINED - Part 1 - 4

MFRS 2
Share-based Payments _P1
FAR 570
DR NIK ZAM NIK WAN
1
Topic Outcome:
• Explain the different types of share based payments.
• Discuss the requirements of MFRS 2 in respect of the
recognition criteria for the different types of share based
payments.
• Account for:
– Equity-settledTransactions
– Cash-settled transactions
– Choice of equity-settled and cash-settled
• Account for share-based payments to third parties.
• Account for share-based payments to employees.
• Explain the disclosure requirements of each type of share
based payments under MFRS 2.
2
What is Share-based Payments
Share-based payment simply means that payment for
goods and services are made by either issuing equity
instruments of the entity (or that of members in a group),
OR making cash payment based on the price of entity
share.
Why?
• To retain staff and encourage employee to be committed
to higher performance
• To encourage the directors and staff to pay more
attention to increasing shareholder value
3
The standard distinguishes share-based payments made to:
• Third parties for goods and services; and
• Employees
There are specific dates or time periods that are relevant for
recognition and measurement of share-based payments for
services. They are:
• Grant date,
• Vesting period and
• Exercise date (for options).
4
Grant Date Vesting Period
Vesting period is the period during
Grant date is the date when
which the specified vesting
the entity and counterparty
conditions are satisfied. It can be
agree to the share-based
a specific time such as when the
payment and the entity
employee has fulfilled the terms
confers on the counterparty
stipulated, such as period of
the right to the equity
service or performance level.
instruments of the entity, cash
or other asset provided the
Vesting Conditions
vesting conditions are met.
Vesting conditions are the
Under MFRS 2, “vest” means conditions that the counterparty
„to become an entitlement‟ has to fulfill in order to receive the
share-based payment. These
include completing a specified
period of service or achieved a
specified performance level.
5
3 Types
The standard recognizes three types of share-based
payment transactions. They are:
Equity-settled
An entity issues its own equity instruments, or
those of another member of the same group, as
consideration for goods and services received.
Eg. ESOS (Employees Share Option Scheme)
Cash-settled Choice of equity-settled or cash-
An entity or another member of the settled
same group pays cash calculated The supplier of goods and services
by reference to the price of equity or the entity receiving those goods
instrument as consideration for or services may choose whether
goods and services received. the entity settles in cash or by
Eg. Share appreciation rights issuing equity instruments
6
MFRS 2
Share-based Payments_Part 2
FAR 570
DR NIK ZAM NIK WAN
7
TYPES OF SHARE-BASED PAYMENT
The standard recognises three types of share-based payment
transactions. They are:
Equity-settled share-based payments

An entity issues its own equity instruments, or those of another
member of the same group as consideration for goods and services
received,
Cash-settled share-based Choice of equity-settled or cash-

payments settled
The entity acquires goods or services The supplier of goods and services
by incurring a liability to transfer cash
or the entity receiving those goods
or other assets to the supplier of those
goods or services for amounts that are
or services may choose whether
based on the price (value) of the the entity settles in cash or by
entity‟s shares or other EI of the entity issuing equity instruments
8
9
10
1. EQUITY-SETTLED SHARE-BASED PAYMENTS
The accounting treatment for goods and services received from non-employees
and employees is different.
A.Services Provided by Non-Employees (supplier/vendor)
When share-based payments are made for goods and

services from third parties, they are recognised at
Fair value is the amount for which an asset could be

exchanged, a liability settled, or an equity instrument
granted could be exchanged, between knowledgeable,
willing parties in an arm’s length transaction.
The fair value for goods and services from third parties
could be easily ascertainable .
11
1. EQUITY-SETTLED SHARE-BASED PAYMENTS
Measurement date (FV):
The date the entity obtains the goods or the

counterparty renders the services.
In situations where the fair value of the goods or
services cannot be determined reliably, the goods
or services and the increase in the equity are
measured at the fair value of the equity
instruments granted.
12
13
Example 1:Militon Berhad
(Equity-settled Non-employees FV of asset)
Assume that Militon Berhad bought a piece of heavy machinery that had a fair
value of RM1.8 million from Klaus Heavy Machineries Sdn Bhd (KHMSB).
On 15 January 2019, Militon Berhad negotiated with KHMSB on the specification of
the heavy machineries.
Both parties signed a memorandum of understanding on 1 February 2019. On 15
March 2019, both Militon Berhad and KHMSB agreed to a share based payment of
250,000 shares for the settlement of the heavy machinery. The fair value of Militon
Berhad’s shares on that date was RM5.00.
The heavy machinery was shipped to Militon Berhad on 1 May 2019 and received
on 15 June 2019 with Militon Berhad’s share value being RM7.50 and RM8.00 each
respectively. Payment was settled on 15 August 2019. Militon Berhad’s accounting
year ended 30 June each year.
Required:
Prepare the journal entries to record the purchase and payment of the machinery.
14
 Share-based payment
 Equity-settled share based payment?
 Cash-settled share based payment?
 Choice of ES or CS ?
 Equity-settled share based payment
 3rd party transaction

 Employees?
 Non-employees? Supplier or Vendor?
 Non-employees: Supplier
 Fair Value of Goods and Services

 Available?
 Not Available?
 Available 15
250,000 shares as payment of the heavy machinery
 Fair Value of Goods and Services is available

= RM1,800,000
DATE Activities/Particulars
2017 Jan 15 Negotiate with supplier the specification of machinery
Feb 1 Sign MoU
Mar 15 Agreed on share-based payment
May 1 Machinery was shipped
June 15 Militon received the machinery
Aug 15 Payment
16
Example 1:Militon Berhad_Solution
DATE PARTICULARS RM RM
2019
June 15 Dt PPE: Heavy Machinery 1,800,000
Cr Share Based Payment Reserve 1,800,000
Aug 15 Dt Share Based Payment Reserve 1,800,000
Cr Share Capital 1,800,000
Since FV of Asset
Recorded at the
is available, so
date the entity
recorded at FV of
obtained the asset
asset (1st option)
17
(Equity-settled Non-employees FV of asset)
Assume that Militon Berhad bought a piece of heavy machinery from Klaus Heavy
Machineries Sdn Bhd (KHMSB).
On 15 January 2019, Militon Berhad negotiated with KHMSB on the specification of
the heavy machineries.
Both parties signed a memorandum of understanding on 1 February 2019. On 15
March 2019, both Militon Berhad and KHMSB agreed to a share based payment of
250,000 shares for the settlement of the heavy machinery. The fair value of Militon
Berhad’s shares on that date was RM5.00.
The heavy machinery was shipped to Militon Berhad on 1 May 2019 and received
on 15 June 2019 with Militon Berhad’s share value being RM7.50 and RM8.00 each
respectively. Payment was settled on 15 August 2019. Militon Berhad’s accounting
year ended 30 June each year.
Required:
Prepare the journal entries to record the purchase of the machinery.
18
 Share-based payment
 Equity-settled share based payment?
 Cash-settled share based payment?
 Choice of ES or CS ?
 3rd party transaction

 Employees?
 Non-employees? Supplier or Vendor?
 Non-employees: Supplier
 Fair Value of Goods and Services

 Available?
 Not Available?
Not Available 19
2019
June 15 Dt PPE: Heavy Machinery 2,000,000
Cr Share Based Payment Reserve 2,000,000
(250,000 x RM8.00)
Aug 15 Dt Share Based Payment Reserve 2,000,000
Cr Share Capital 2,000,000
Since the FV of asset is

Share Price is based of NOT available, then asset
the date ASSET is is valued at the FV OF
OBTAINED EQUITY granted
20
2. CASH-SETTLED SHARE-BASED PAYMENTS
 The entity shall measure the goods and services received and
the liability incurred at the FAIR VALUE OF THE LIABILITY.
 Until the liability is settled, the entity shall remeasure the
FAIR VALUE at the end of each reporting period and at the
date of settlement
 Any Changes in FAIR VALUE recognised in profit or loss for
the period
 Example:
 Share appreciation right given to employees, the employees will
received cash payments equal to the increase in the share price of
specified number of equity shares.
21
(Cash-settled Non-employees  OR FV of asset)
Assume that Militon Berhad bought a piece of heavy machinery from Klaus Heavy
Machineries Sdn Bhd (KHMSB).
On 15 March 2019, both Militon Berhad and KHMSB agreed to a share based
payment of 250,000 shares for the settlement of the heavy machinery. The fair
value of Militon Berhad’s shares on that date was RM5.00.
Militon Berhad received the machinery on 15 June 2019 where Militon Berhad’s
share value being RM7.50.
Militon Berhad accounting year ended 30 June each year. The share price of
Militon Berhad as at 30 June 2019 is RM8.00 each. Payment was settled on 15
August 2019 and its share price on the date of payment is RM8.20 each
Required:
Prepare the journal entries to record the above transactions.
22
2019 June 15 Dt PPE: Heavy Machinery 1,875,000
Cr Liability: Account Payable 1,875,000
(250,000 shares x RM7.50)
Note: Recognised the asset at the Fair Value of Liability on the date of recognition
Year end recording:

i. Remeasure the Fair Value of the liability at year end June 30
 RM8.00 share price x 250,000 shares = RM2,000,000 new value (c/d) - SFP
 RM1,875,000  RM2,000,000 = RM125,000 increase - SOPL
2019 June 30 Dt Finance Expenses : SOPL 125,000

Cr Liability: Account Payable 125,000
23
Payment: August 15:
i. Remeasure the Fair Value of the liability prior to payment made
 RM8.20 share price x 250,000 shares = RM2,050,000 new fair value
 RM2,000,000  RM2,050,000 = RM50,000 increase - SOPL
2019 Aug 15 Dt Finance Expenses : SOPL 50,000

Cr Liability: Account Payable 50,000
ii. Payment made according to the fair value of liability  RM2,050,000
2019 Aug 15 Cr Liability: Account Payable 2,050,000

Cr Bank 2,050,000
24
MFRS 2
FAR 570
DR NIK ZAM NIK WAN
25
Topic Outcome:
• Explain the different types of share based payments.
• Discuss the requirements of MFRS 2 in respect of the
recognition criteria for the different types of share based
payments.
• Account for:
– Equity-settledTransactions
– Cash-settled transactions
– Choice of equity-settled and cash-settled
• Account for share-based payments to third parties.
• Account for share-based payments to employees.
• Explain the disclosure requirements of each type of share
based payments under MFRS 2.
26
What is Share-based Payments
Share-based payment simply means that payment for
goods and services are made by either issuing equity
instruments of the entity (or that of members in a group),
OR making cash payment based on the price of entity
share.
Why?
• To retain staff and encourage employee to be committed
to higher performance
• To encourage the directors and staff to pay more
attention to increasing shareholder value
27
The standard distinguishes share-based payments made to:
• Third parties for goods and services; and
• Employees
There are specific dates or time periods that are relevant for
recognition and measurement of share-based payments for
services. They are:
• Grant date,
• Vesting period and
• Exercise date (for options).
28
Grant Date Vesting Period
Vesting period is the period during
Grant date is the date when
which the specified vesting
the entity and counterparty
conditions are satisfied. It can be
agree to the share-based
a specific time such as when the
payment and the entity
employee has fulfilled the terms
confers on the counterparty
stipulated, such as period of
the right to the equity
service or performance level.
instruments of the entity, cash
or other asset provided the
Vesting Conditions
vesting conditions are met.
Vesting conditions are the
Under MFRS 2, “vest” means conditions that the counterparty
„to become an entitlement‟ has to fulfill in order to receive the
share-based payment. These
include completing a specified
period of service or achieved a
specified performance level.
29
3 Types
Equity-settled
30
Transaction with
Employees
Grant date
FV of Equity Instrument Granted (EIG) on grant date
FV of EIG cannot be estimated reliably
Vesting condition (Performance/market condition)
Vesting period & Vesting date
Recognition & Measurement
Equity-settled Cash-settled
Recognition: Recognition:
If the equity instrument vest On date goods received or services
immediately, then the expense and rendered.
equity are recognised immediately on
grant date. Measurement:
If there is service vesting condition, the FV of Liability. The liability is re-measured
expenses and equity are recognised at the end of each reporting date and at
when the service is provided the settlement date. The change in FV are
recognized in the SOPL
Measurement:
The fair value of goods or services
received in exchange for a share-based
payment is measured directly at the fair
value of the equity instruments
granted on the grant date unless the
fair value cannot be estimated reliably. 32
Vesting Conditions
• The treatment of vesting conditions varies depending on
whether or not any of the conditions relates to the market price
of the entity‟s equity instrument. If the performance condition is
a market condition, no revision is made to the estimates
during the vesting period or amount vested as it will be included
in determining the fair value of the option at grant date.
• Market conditions means that the exercise price, vesting or

exercisability of the equity instrument depends on the market
price of the entity‟s equity instrument.
33
Vesting
condition
Service Performance
condition condition
Example: to
Non-market Market
serve three years
condition condition
with the entity
Example: to
Example: to
achieve 20% rise
achieve 10% rise in
in the entity‟s share
turnover
price
Do not affect estimate of the FV of equity Affects estimate of the FV of equity

34
instrument granted instrument granted
1. Equity-settled Share-based Payment
: Services Provided by Employees
• Example 1 – no consideration
• Example 2 – service vesting condition
• Example 3 – service vesting condition + estimate that the
employees would leave before the vesting date
Shares offered X (# of employees – estimated employee

would leave the company) X Fair Value X apportion yrs =
Equity
MFRS2 PG 33
35
Example 1 – no consideration
As at 31.12.2018, an entity grants 100 shares to 50
employees. The employees are entitled to the shares
immediately with no consideration to be paid. However, the
shares will only be issued on 1.2.2019. On the grant date the
market value of the shares is RM4.
Required:
Show the journal entries for 31.12.2018 and 1.2.2019
36
Solution Example 1
Workings: Expense Equity
RM RM
31.12.2018
100 shares x 50 employees x RM4 20,000 20,000
Journal entry:
Dt Cr
RM (mill) RM (mill)
31.12.2018
Dt Employees benefit expenses 20,000
Cr Share-Based Payment Reserve (Equity) 20,000
1.2.2019
SBPR (Equity) 20,000
Share capital 20,000
37
Example 2 – service vesting condition
As at 31/12/2018, an entity grants 100 shares to 50 employees.
The 50 employees are required to be under the employment of
the entity for two years from the grant date (vesting date
31/12/2020). The shares will be issued to the employees on
1/1/2021. It is highly probable that all the 50 employees will
remain with the entity until the vesting date. On the grant date
the market value of the shares is RM4. Year-end is 31/12.
Required:
i. Calculate the amount recognised as expense for year ended 31/12/2019
and 2020
ii. Calculate the amount disclosed as equity in SFP as at 3112/2019 and
2020
iii. Show journal entries for the year ended 31/12/2019, 2020, and 1/1/2021
38
Solution Example 2
i. Grant Date  31/12/2018
ii. Vesting Condition  Service condition = employed for 2 years
iii. Vesting Period  2 years
Year Workings: Expenses Equity
Ended (RM) (RM)
31/12/2019 100 shares x 50 employees x RM4 x 1/2 10,000 10,000
[1] 100 shares is the offer by the company to their employees
[2] # employees  Actual employee – estimated employee would leave the company
End of year 1, 31/12/2019, it is stated that 50 employees will remained
[3] RM4 the fair value of the equity instruments granted on the grant date unless the fair
value cannot be estimated reliably
[4] 1/2 apportion years = Year 1 of 2 years vesting period
[5] Expenses RM10,000  yearly expenses
[6] Equity RM10,000  accumulated equity
Journal Entries:
31/12/2019 Dt Employees Benefit Expenses RM10,000
Cr Share-based payment reserves RM10,000

39
Solution Example 2
Ended (RM) (RM)
31/12/2020 [100 shares x 50 employees x RM4 x 2/2] - 10,000 20,000
RM10,000
[1] 100 shares is the offer by the company to their employees
[2] # employees  Actual employee – estimated employee would leave the company
End of year 2, 31/12/20, it is stated that 50 employees will remained . For FINAL YEAR
consider the ACTUAL NUMBER OF EMPLOYEES ACTUALLY REMAINED
[3] RM4 the fair value of the equity instruments granted on the grant date unless the fair
value cannot be estimated reliably
[4] 2/2 apportion years = Year 2 of 2 years vesting period
[5] Expenses RM10,000  since its yearly expenses, the portion for Yr 2 is 1/2. That is reason
we need to minus RM10,000 in order to find yearly expenses
[6]Equity RM20K  accumulated equity, since it is accumulated then Yr1 RM10K+Yr2 RM10K
Or =[100 shares x 50 employees x RM4 x 2/2]
Journal Entries:
31/12/2020 Dt Employees Benefit Expenses RM10,000
Cr Share-based payment reserves RM10,000
1/1/2021 Dt Share-based payment reserves RM20,000 40
Cr Share Capital RM20,000
Example 3-Service vesting condition + estimate that
the employees would leave before the vesting date
As at 31/12/08, an entity grants 100 shares to 50 employees.

The 50 employees are required to be under the employment of
the entity for three years from the grant date (vesting date
31/12/11). The shares will be issued to the employees on
1/1/2012. The entity estimates that 10% of the employees will
leave before the vesting date. On the grant date the market
value of the shares is RM4. Year-end is 31/12.
• Required: show journal entries for the year ended 31/12/09,

2010, 2011 and 1/1/2012
41
Solution Example 3
i. Grant Date  31/12/08
ii. Vesting Condition  Service condition = employed for 3 years
Workings Expenses Equity

(RM) (RM)
31/12/09 100 shares x (50 employees x 90%) x 6,000 6,000
RM4 x 1/3
RM4 x 2/3 - RM6,000

RM4 x 3/3 - RM12,000
42
Solution Example 3
Journal entries: Dr Cr
RM RM
31/12/x9
Cr SBPR (Equity) 6,000
31/12/10
31/12/11
1/1/12
Dt SBPR (Equity) 18,000
Cr Share capital 18,000
43
TUTORIAL
• Question 1 _Militon Bhd
• Question 2_Myton Electrical Bhd
44
Vesting Conditions
• Example 4 – vesting condition is non market

condition
• Example 5 – vesting condition is market
condition
45
Example 4 – vesting condition is non market condition
• In January 2011, an entity grants the 50 employees in the sales
department an option to buy 100 shares each. The fair value of the option
is RM4. If sales for the year increase by 15%, the option granted will
increase by 10% and if the sales increase by 25%, the option granted will
increase by 15%. The vesting period is three years and the entity
estimates that 10% of the employees will leave before the end of vesting
period.
• In the year 2011, the sales for the year are10% higher than the previous
year‟s sales and three employees leave the sales department
• In year 2012, the entity estimates that sales will increase by 20% and only
45 employees will remain in the sales department at the end of the
vesting period.
• Sales for the year 2013 are 26% higher than 2012 sales and another
three employees leave the department.
Required:
Determine the employee benefit expense and share-based payment reserve
46
for the year 2011, 2012, and 2013.
Solution Example 4
i. Grant Date  Jan 2011
ii. Vesting Condition Performance condition = non-market condition

(RM) (RM)
31/12/11 100 shares x 50 employees x 90% x RM4 x 1/3 6,000 6,000
31/12/12 (100 shares x 110%) x 45 employees x RM4 x 2/3 7,200 13,200

- RM6,000
31/12/13 (100 shares x 115%) x 44 employees x RM4 x 3/3 7,040 20,240
- RM13,200
47
Calculation of employees: Example 4
Offered to 50 employees
Year 2011 = 50 – (10% x 50 ) = 50 – 5 = 45 employees (estimate)
Year 2012 = 50 – (10% x 50) = 50 – 5 = 45 employees (estimate)
Year 2013(Final Year) ACTUAL EMPLOYEES REMAIN
50 – [ 3 employees left in 2011] – [ another 3 employees left in 2013]
ACTUAL = 44 employees actually remain until end of 2013
Example 5 – vesting condition is market condition
As at year-end 31 December 2008, an entity grants 100 shares
to its 50 employees on condition that they stay with the entity for
three years from the grant date. The options can only be
exercised if the share price has increased to RM15 per share by
the end of the third period. The fair value of the option is
determined as RM6 after taking into consideration the potential
increase of the share price to RM15. It is highly probable that all
the employees will remain with the entity until the vesting date.
Required:
Determine the employee benefit expense and share-based
payment reserve for the years 2009, 2010, 2011
49
Solution Example 5
Year Expenses Equity
(RM) (RM)
31/12/09 100 shares x 50 employees x 10,000 10,000
RM6 x 1/3
RM6 x 2/3 - RM10,000
RM6 x 3/3 - RM20,000
50
Post-vesting Period
After vesting date, the entity is not to make any
adjustments to the goods or services received or
corresponding increase in equity. Even if the options are
not exercised, no adjustments are made to total equity.
Entity can transfer the SBPR to another component of
equity such as retained profit.
Example 6
51
Example 6
An entity has an employee share option scheme with vesting
period of two years. The estimated employee benefit expense
arising from the share option are RM100 and RM120 for each of
the two years. No employees exercise their rights after the
vesting period up to the expiry date for exercising the option.
Required:
Provide the accounting treatments and the journal entries to
record the above share option scheme:
• During the two-year vesting period
• After vesting period
52
Solution Example 6
During the two-year vesting period
1st year
Dr Expenses RM100
Cr Share option reserve RM100
2nd year
Dr Expenses RM120
Cr Share option reserve RM120
53
Solution Example 6
After vesting period
Since all the share options have lapsed, the entity
cannot reverse the charges it expensed off in the
previous two years. However, it can reverse the
share option reserve of RM220 to another
component of equity such as retained earnings, as
follows:
Dr Share option reserve RM220

Cr Retained earnings RM220
54
Determining the Fair Value
of the Equity Instruments
Fair value can be determined
• Based on market price in an active market if available
• For many shares and most share options there may not
be an active market, and in which case management
should use valuation techniques.
• MFRS 2 does not indicate the pricing models to use but
rather specifies that all option pricing models should take
into account, as a minimum, the following factors:
 exercise price of the option
 life of the option
 current price of the underlying shares
 expected volatility of the share price
 dividends expected on the shares; and
 risk-free interest rate for the life of the option
55
Fair value cannot be determined
In the absence of a reliable measure of fair value, the entity
should:
– Measure the fair value of the equity instruments granted
at their intrinsic value. Intrinsic value is the difference
between the fair value of the shares and what the
counterparty (the supplier of goods and services) is
required to pay. The entity measure the equity
instrument initially at the intrinsic value issues when the
goods are received or services rendered. At the end of
each reporting date the intrinsic value is recomputed till
settlement date.
– Changes in intrinsic value are taken to the income
statement.
– Intrinsic value = Share price – Exercise price
56
Example 8
Example 7
As at year-end 31 December 2008, BBA Bhd grants 100
shares to 50 employees. The employees are required to be
under the employment of the entity for three years from the
grant date. The shares will be issued to them on 1 January
2012. BBA Bhd estimates that 10% of the employees will
leave before the vesting date but is unable to estimate the
fair value of the options on the grant date. The exercise
price is RM10 and the average share price for the year
2008 is also RM10.
Six employees leave the company in year 2011
57
Example 7
BBA Bhd financial year end on 31 December each year and the
share price at the end of 2009 to 2011 are as follows:
Year Share price

2009 RM12
2010 RM15
2011 RM15
Required:
Determine the employee benefit expense and share-based
payment reserve for the year 2009, 2010, and 2011
58
Solution Example 7
Year Expenses Equity
(RM) (RM)
90% x (RM12-RM10) x 1/3
90% x (RM15-RM10) x 2/3
- RM3,000
(RM15-RM10) x 3/3
- RM15,000
59
MFRS 2
FAR 570
DR NIK ZAM NIK WAN
60
Cash-Settled Share-based Payment
• For cash-settled share based payments, the goods or

services acquired and the liability incurred is measured at
the fair value of the liability.
• Only cash-settled awards are subsequently re-measured.
• Until the liability is settled the entity shall remeasured
the FV of Liability at each reporting date and settlement
date
61
Cash-Settled Transactions (pg 9 MFRS 2)
Cash settled transactions requires recognition of liabilities:
– The goods and services and liability are measured at the
fair value of the liability.
– The liability is remeasured at the fair value at the end of
each year.
– Changes in fair value are recognised in the income
statement.
An example of cash-settled share-based transaction is share

appreciation rights given to employees. In this case, the
employees will receive cash payments equal to the increase in the
share price of a specified number of the equity shares.
Example 11 62
Example 11
On 1 January 2004, BX Bhd granted a compensation scheme of
share appreciation rights (SARS) to its executive directors.
Terms of the scheme:
Grant date 1 January 2004

Equity instruments 100 million of BX Bhd‟s shares
Right of directors Right to receive cash based on the
appreciation of the company‟s share
price from the grant date up to the
settlement date
Vesting condition Under company‟s employment as
executive directors
Vesting period Three years from the grant date
Date vested Midnight 31 December 2006
Settlement date 1 April 2007 63
Example 11
Assume the FV of the scheme‟s shares are as follows:
Date Per share
01/01/2004 RM0
31/12/2004 RM2
31/12/2005 RM5
31/12/2006 RM7
01/04/2007 RM8
The company has recognized the liability for the SARs as at

31/12/2004 based upon MFRS2 Shares-based payment. The
amount of the liability was not revised as at 31/12/2005.
Required:
Assuming the year-end is 31/12, show the effect of the change
in the FV of the scheme‟s shares for each of the year-end and
as at settlement date 1/4/2007. 64
Solution Example 11
Date Workings SOPLOCI SOFP
Change in Acc Payable
FV FV
RM (million) RM (million)
01/01/2004 0
31/12/2004 (100 million shares x RM2) x 1/3 67 67
- RM67
- RM333
01/04/2007 100 million shares x RM8 - 100 800
RM700
65
Solution Example 11
Date Dr (RM) Cr (RM)
31/12/04 Recognition
Change in FV to SOPL 67
Liability - Account Payable 67
31/12/05 Change in FV to SOPL 266
31/12/06 Change in FV to SOPL 367
Liability- Account Payable 367
01/04/07 Settlement Date
Change in FV to SOPL 100
Cash/Bank 800
66
3 Types
Equity-settled
67
ES with CS alternative
Conterparty has the
Wich party has Entity has the option
option
the option?
Compound
 Existence of instrument (CI)
Entity obligation to
Counterparty settled in cash  Split the
Cash-settled instrument into
equity & liability for
 No obligation presentation
Equity-settled purposes
 Measurement of CI
• Transaction with
3rd party
• Transaction with
employees
The Entity Chooses the Settlement Method
Where the entity chooses the mode of settlement, it

should determine if it has a present obligation to settle in
cash; and account for the transaction accordingly.
Instances when the entity in substance has an obligation
to settle in cash are:
• The choice of settlement in equity instrument has no
commercial substance (e.g. Entity is prohibited from
issuing equity); or
• The entity has a past practice or stated policy to
settle in cash; or
• Generally settles in cash when the counterparty
requests for cash settlement.
69
The Entity Chooses the Settlement Method
• When the entity has a present obligation to settle in cash, the

transaction is accounted for as a cash-settled transactions.
• Where the entity has no obligation to settle in cash, it may

settle in equity. Then it will account for the transaction as an
equity-settled payment.
70
The counterparty has the choice on
the settlement
MFRS 2 requires the determination of the liability
element and the equity element.
Choice with counter-party
• Entity has granted compound financial instrument
– The liability component is the counterparty‟s right
to demand payment in cash
– The equity component is the counterparty‟s right
to demand settlement in equity instruments
The liability and equity components must be

reported separately
72
The counterparty has the choice on
the settlement
Choice with counter-party = non - employee
Equity component = Fair value of goods – Fair value of liability

and services component
received
Choice with counter-party = employee

Equity component = Fair value of - Fair value of
equity alternative, cash settled alternative
based on fair value
of instruments granted
73
Example 12
On 30 June 2007, BBA Bhd purchased a building for RM5

million. The seller has agreed to accept payment for the
building either in cash or in shares. The seller can choose
either to receive 1.5 million shares of BBA Bhd to be issued
in six months‟ time or to receive cash payment in three
months‟ time equivalent to the market value of 1.3 million
shares. It is estimated that the share price will be RM3.60 in
the three months‟ time and RM4 in six months‟ time. The
price of BBA Bhd‟s shares on 30 June 2007 was RM3.
Required:
Determine the value of the equity component.
74
Solution Example 12
Equity component = Fair value of goods – Fair value of liability

and services component
received
Equity component = RM5 million – (RM3 x 1.3 million shares)

= RM1.1 million
75
Solution Example 12
Date Calculation Building/ Equity Liability
Expenses
RM RM RM
30/6/07 Liability component: 3.9 mill 3.9 mill
(RM3 x 1.3 mill)
Equity Components 1.1 mill 1.1 mill
30/9/07 Liability component:
(RM3.6 x 1.3 mill) – RM3.9 mill 0.78 mill 0.78 mill
• Initial recognition – 30/6/07

Dr Building RM5million
Cr AP (liability) RM3.9 million
Cr SBPR (Equity) RM1.1 million
76
Solution Example 12
• On settlement date – 30/9/07 If seller choose the
cash alternative:
Dr Liability RM3.9 mill
Dr Change in f/v to SOPL RM0.78 mill
Cr Cash RM4.68 mill
(1.3m x RM3.6)
Dr SBP Reserve RM1.1mill

Cr Retained earnings RM1.1 mill
77
Solution Example 12
• On settlement date – 31/12/07 If seller choose the
equity alternative:
Dr Liability RM3.9 mill
Dr SBP Reserve RM1.1 mill
Cr OSC RM5 mill
78
Disclosure
• An entity shall disclose information that enables
users of the financial statements to understand the
nature and extent of share-based payment
arrangements that existed during the period
(MFRS2, Para 44).
– a description of each type of share-based payment
arrangement that existed at any time during the period,
including the general terms and conditions of each
arrangement, such as vesting requirements, the maximum
term of options granted, and the method of settlement (eg
whether in cash or equity).
79
Disclosure
• An entity shall disclose information that enables users of the
financial statements to understand how the fair value of the
goods or services received, or the fair value of the equity
instruments granted, during the period was determined
(MFRS2, Para 46).
80
Disclosure
• An entity shall disclose information that enables users of the
financial statements to understand the effect of share-based
payment transactions on the entity‟s profit or loss for the
period and on its financial position (MFRS2, Para 50).
– The total expense recognised for the period arising from
share-based payment transactions in which the goods or
services received did not qualify for recognition as assets
and hence were recognised immediately as an expense,
including separate disclosure of that portion of the total
expense that arises from transactions accounted
81
Disclosure
for as equity-settled share-based payment transactions;
– for liabilities arising from share-based payment
transactions:
(i) the total carrying amount at the end of the period; and
(ii) the total intrinsic value at the end of the period of
liabilities for which the counterparty‟s right to cash or other
assets had vested by the end of the period (eg vested
share appreciation rights).
82

MFRS 2 SHARE BASED PAYMENTS - ALL COMBINED - Part 1 - 4

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MFRS 2 SHARE BASED PAYMENTS - ALL COMBINED - Part 1 - 4

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MFRS 2

Share-based Payments _P1

DR NIK ZAM NIK WAN

DR NIK ZAM NIK WAN

Equity-settled share-based payments

Cash-settled share-based Choice of equity-settled or cash-

A.Services Provided by Non-Employees (supplier/vendor)

When share-based payments are made for goods and

Fair value is the amount for which an asset could be

Measurement date (FV):

The date the entity obtains the goods or the

 3rd party transaction

 Fair Value of Goods and Services

 Fair Value of Goods and Services is available

 3rd party transaction

 Fair Value of Goods and Services

Since the FV of asset is

Year end recording:

2019 June 30 Dt Finance Expenses : SOPL 125,000

2019 Aug 15 Dt Finance Expenses : SOPL 50,000

ii. Payment made according to the fair value of liability  RM2,050,000

2019 Aug 15 Cr Liability: Account Payable 2,050,000

DR NIK ZAM NIK WAN

• Market conditions means that the exercise price, vesting or

Do not affect estimate of the FV of equity Affects estimate of the FV of equity

Shares offered X (# of employees – estimated employee

Cr Share-based payment reserves RM10,000

As at 31/12/08, an entity grants 100 shares to 50 employees.

• Required: show journal entries for the year ended 31/12/09,

Workings Expenses Equity

31/12/11 100 shares x (50 employees x 90%) x 6,000 18,000

• Example 4 – vesting condition is non market

Year Workings: Expenses Equity

31/12/12 (100 shares x 110%) x 45 employees x RM4 x 2/3 7,200 13,200

Dr Share option reserve RM220

Six employees leave the company in year 2011

Year Share price

DR NIK ZAM NIK WAN

• For cash-settled share based payments, the goods or

An example of cash-settled share-based transaction is share

Grant date 1 January 2004

The company has recognized the liability for the SARs as at

Where the entity chooses the mode of settlement, it

• When the entity has a present obligation to settle in cash, the

• Where the entity has no obligation to settle in cash, it may

The liability and equity components must be

Equity component = Fair value of goods – Fair value of liability

Choice with counter-party = employee

On 30 June 2007, BBA Bhd purchased a building for RM5

Equity component = Fair value of goods – Fair value of liability

Equity component = RM5 million – (RM3 x 1.3 million shares)

• Initial recognition – 30/6/07

Dr SBP Reserve RM1.1mill

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