This document discusses share-based payment transactions where an entity receives goods or services from a supplier in exchange for equity instruments or payment amounts based on the entity's share price. It describes three types of share-based payment transactions: 1. Equity-settled, where goods or services are received in exchange for equity instruments. 2. Cash-settled, where goods or services are acquired and a liability is incurred based on the entity's share price. 3. Cash or equity, where the entity or supplier can choose cash or equity settlement. The document provides guidance on recognizing, measuring, and accounting for share-based payment transactions, including examples illustrating the accounting entries for equity-settled and cash

1. 1BKAF 3063 A132

2. INTRODUCTION
Share-based payment transaction
 A transaction in which the entity
a) receives goods or services as consideration for
equity instrument of the entity (including employee
stock option), or
b) acquires goods or services by incurring liabilities to
the supplier of those goods or services for amount
that are based on the price of the entity’s shares.
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3. TYPES OF SHARE-BASED
PAYMENT
1. Equity-settled Share-based Payment
2. Cash-settled Share-based Payment
3. Cash or Equity Share-based
Payment
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4. TYPES OF SHARE-BASED
PAYMENT…
(a) Equity-settled share-based payment transactions
- the entity receives goods or services as consideration for
equity instruments of the entity
(b) Cash-settled share-based payment transactions
- the entity acquires goods or services by incurring
liabilities to the supplier of those goods or services for
amounts that are based on the price of the entity’s
shares or other equity instruments of the entity
(c)Cash or Equity share-based payment transactions
- Transactions in which the entity receives goods or
services and the terms of the arrangement provide either
the entity or the supplier of those goods or services with
a choice of whether the entity settles the transaction
in cash or by issuing equity instruments.
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5. RECOGNITION
 An entity shall recognize the goods or
services received in a share-based
payment transaction when it obtains the
goods or as the services are received.
 The entity shall recognize a corresponding
(Para 7)
 increase in equity if the goods or services
were received in an equity-settled share-
based payment transaction or
 A liability if the goods or services were
acquired in a cash-settled share-based
payment transaction
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6. EQUITY-SETTLED SHARE-BASED
PAYMENT TRANSACTIONS
 MFRS 2 requires an entity to
(a) Measure the goods or services received and the
corresponding increase in equity (para 10):
 based on the fair value of the goods and
services received.
 if the fair value cannot be measured reliably,
refer to the fair value of the equity instrument
granted.
(b) For the case such as option granted to employees
as their employment remuneration, an entity should
measure the services received and the corresponding
increase in equity by referring to the fair value of the
equity instrument on granting date.
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7. ILLUSTRATION 1
Example 1:
On 6 June 2013, X Bhd acquires a piece of land,
which has been valued by professional valuer at
RM50 million, by issuing 10 million of its ordinary
shares (par value of RM1.00).
In this case, MFRS 2 requires X Bhd to measure
the transaction based on the fair value of land.
Solution:
Dr Land RM 50 million
Cr Share Capital RM10 million
Cr Share Premium RM 40 million
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8. ILLUSTRATION 2
 On 1 October 2001, XYZ Bhd (with 31 Dec accounting year-
ends) approves a plan that grants the company’s top five
executives options to purchases 200,000 shares each (a
total 1,000,000) of the company’s ordinary shares (par value
RM1.00) at RM5.00 per share.
 The options are granted on 1 January 2002, and will vest (to
become an entitlement) on 1 January 2005 if the executives
remain in the employment of the company until then.
 The options are exercisable from 1 January 2005 to 31
December 2008.
 Assume that the fair value of each option on 1 January 2002
is RM1.50. Further, XYZ Bhd expects all the five executives
to remain in the employment of the company until 1 January
2005.
 Thus, the total fair value of employee stock option is
expected to be RM1,500,000.
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9. ILLUSTRATION 2
(Continue)
To record the stock option:
 Paragraph 15: for the case of option granted in respect of the
specified period of services to be completed, for example 3
years, the entity should account for increase in equity over the 3
year vesting-period.
1 Oct 2001 (No entry)
31 Dec 2002
Dr Staff costs 500,000
Cr Capital reserve (RM1,500,000/3) 500,000
31 Dec 2003
Dr Staff costs 500,000
Cr Capital reserve (RM1,500,000/3) 500,000
31 Dec 2004
Dr Staff costs 500,000
Cr Capital reserve (RM1,500,000/3) 500,000
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10. ILLUSTRATION 2
(Continue)
If on the grant date, the company expected two of
the executives to leave the company before 1
January 2005.
Therefore only 3 executives to be ultimately
granted the employee stock option.

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The fair valueof the employee stock option
=RM1.50x600,000
=RM900,000
The staff costs (for each 3 years)
=RM 900,000 / 3
=RM300,000 (instead of RM500,000)

11. ILLUSTRATION 2
(Continue)
If on 10 January 2005, all the stock
options are exercised:
Dr Cash (RM5 x 1,000,000) 5,000,000
Dr Capital reserve 1,500,000
Cr Share capital (RM1 x 1,000,000) 1,000,000
Cr Share premium 5,500,000
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12. Paragraph 19 - vesting
condition
 Measurement of equity instrument
should be adjusted by including or be
based only on the number of equity
instruments that eventually vest
 if the equity instrument granted do not vest
because of failure to satisfy a vesting
condition (e.g. employee failed to complete
the specified service period)
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13. ILLUSTRATION 3
Refer to the case in the Illustration 2
On the grant date, XYZ Bhd expects all the five
executives to remain in the employment of the
company until 1 Jan 2005. However, in early 2004,
one of the five executives unexpectedly left the
company and his 200,000 share options are
forfeited.
However, since RM1,000,000 of the cost has been
charged to years 2002 and 2003, only RM200,000
(instead of RM500,000 as in Illustration 2) will be
charged to 2004 income statement.
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Total fair value cost of the employee stock option
= RM1.50 x 800,000
= RM 1,200,000 ( instead of RM1,500,000)

14. ILLUSTRATION 3 (Continue)
1 October 2001
No entry
31 December 2002
Dr Staff cost (RM1,500,000/3) RM 500,000
Cr Capital reserve RM 500,000
31 December 2003
Dr Staff cost (RM1,500,000/3) RM 500,000
Cr Capital reserve RM 500,000
31 December 2004
Dr Staff cost (RM1,200k–RM1,000k) RM 200,000
Cr Capital reserve RM 200,000
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15. ILLUSTRATION 3
(Continue)
If on 10 January 2005, all the 800,000 stock options are exercised:
Dr Cash (RM5 x 800,000) RM 4,000,000
Dr Capital reserve (RM1.50 x 800,000) RM 1,200,000
Cr Share capital RM 800,000
Cr Share premium RM 4,400,000
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16. Fair Value of Equity Instrument
Cannot be Estimated Reliably:
 The entity should measure the services
received and the corresponding
increase in equity based on the intrinsic
value of the equity instrument granted.
(Para 24)
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Intrinsic Value = Market Price of the Entity’s Share – Option’s Exercise Price

17. ILLUSTRATION 4:
On 9 Jan 2006, PQR Bhd. announced a scheme which
granted its 10 top executives a share option to
purchase total of 50,000 units of company’s ordinary
shares (5,000 units each) at RM1.50.
As the company is a new start-up company, the market
value of the option was not available.
However, based on the net tangible asset, the fair
value of the company’s ordinary shares was RM2.30
each.
The par value of shares was RM1.00 each.
The option will be vest for the next 2 years (beginning
1/1/2008 until 31/12/2009) should they remain in the
employment.
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18. ILLUSTRATION 4
(Continue)
Journal entries:
31 Dec. 2006 & 2007
Dr Remuneration Expenses (RM0.80 x 50k)/2 RM20,000
Cr Capital Reserve RM20,000
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Intrinsic value of the option = RM2.30-RM1.50
= RM0.80

19. ILLUSTRATION 4 (Continue)
Assume that the fair value of the company shares on 31 Dec 2008
would be RM2.60 each and options were exercised by 9 executives on
31 Dec 2008.
31 Dec 2008
Dr Remuneration Expenses (RM2.60- RM2.30) x 50k RM15,000
Cr Capital Reserve RM15,000
Dr Cash (RM1.50x45,000) RM67,500
Dr Capital Reserve (RM20k +RM20k+ RM15k) x 9/10 RM49,500
C r Ordinary Shares RM 45,000
Cr Share Premium RM 72,000
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20. ILLUSTRATION 4 (Continue)
If 5,000 options were exercised on 30 June
2009 (assuming no changes in fair value of
shares) :
30 June 2009
Dr Cash (RM1.50 x 5,000) RM 7,500
Dr Capital Reserve (RM55000- RM49500) RM 5,500
Cr Ordinary Shares RM 5,000
Cr Share Premium RM 8,000
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21. CASH-SETTLED SHARE-
BASED PAYMENT
TRANSACTIONS
 The settlement for the good or service by
an entity to be made in cash.
 The amount of settlement is calculated
based on entity’s equity instrument.
 Example:
 When entity grants share appreciation rights to
their employee
 Entitled to cash over the increase in the entity’s
equity instrument at a certain period of time.
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22. CASH-SETTLED SHARE-
BASED PAYMENT
TRANSACTIONS
 Entity shall measure goods or services
acquired and liability incurred at the fair
value of the liability
 When the liability is settled,
 The entity shall re-measure the fair value of
the liability at each reporting date of
settlement
 Any changes in fair value shall recognized in
profit or loss for the period.
(Para 30)
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23. ILLUSTRATION 5
 On 1 January 2007, ABC Bhd. grants 8,000 share appreciation
rights to each of its top 5 executives. With the condition that
they remain employed in the next 2 years, it is estimated that
100% of them will stay until 31 December 2008. The market
value of the company’s share and the fair value of share
appreciation rights are presented as follows :
 On 31 Dec.2009, 100% of the rights exercised
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DATE MARKET VALUE OF
COMPANY’S SHARE PER
UNIT
FAIR VALUE OF COMPANY’S
SHARE APPRECIATION
RIGHTS PER UNIT
1 Jan. 2007 RM 3.00 RM 0.40
31 Dec.2007 RM 3.20 RM 0.50
31 Dec.2008 RM 3.50 RM 0.70
31 Dec.2009 RM 4.00 RM 0.80

24. SOLUTION
31 Dec.2007 RM RM
Dr Staff Remuneration expenses 10,000
Cr Liability ( RM0.50x8,000x5 )/2 10,000
31 Dec. 2008
Dr Staff Remuneration expenses 18,000
Cr Liability 18,000
( RM0.70x8,000x5 ) – 10,000
31 Dec.2009
Dr Liability 28,000
Staff Remuneration expenses 12,000
Cr Cash ( RM4.00- 3.00 ) x 40,000 40,000
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25. Cash or Equity share-based payment
(para 34)
 Shared-Based Payment Transaction with Cash
Alternative
 The terms of the arrangement provide either the
entity or the counterparty with the choice of whether
the entity:
(i) settles the transaction in cash or other assets
(ii) by issuing equity instruments
 The entity shall account that transaction
(i) as a cash-settled share-based payment
transaction if the entity has incurred a liability to settle
in cash.
(ii) as an equity-settled share-based payment
transaction if, and to the extent that, no such
liability has been incurred
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26. Arrangement Provides the
Counterparty With A Choice of
Settlement
 An entity has granted the counterparty
the right to choose whether a share-
based payment transaction is settled in
cash or by issuing equity instruments.
 In this case, the entity has granted a
compound financial instrument, which
includes
 A debt component
 An equity component
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27. Arrangement Provides the
Counterparty With A Choice of
Settlement… cont
 For transactions with parties other than
employees, the entity should:
 a) measure the fair value of the goods or
services acquired
 b) measure the fair value of the debt
component
 The fair value of the equity component is
the difference between a) and b).
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28. Arrangement Provides the
Counterparty With A Choice of
Settlement… cont
• At the date of settlement,
 If the conterparty demand settlement in
equity instruments, the entity should transfer
the liability to equity, as the consideration for
the equity instruments issued (para 39)
 If the conterparty demand settlement in
cash, the entity should treat that payment
as full settlement of the liability. Any equity
component previously recognised shall
remain within equity. (para 40)
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29. Arrangement Provide The Entity With
A Choice of Settlement
 Should determine whether it has a present
obligation to settle in cash and account for the
share-based payment transaction accordingly.
 The entity has a present obligation to settle in
cash if
 Choice of settlement in equity instruments has no
commercial substances
 Has a past practice or stated policy of settling in
cash
 Generally settles in cash whenever the counterparty
asks for cash settlement.
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30. Arrangement Provide The Entity With
A Choice of Settlement… cont
 If the entity has a present obligation to
settle in cash, it shall account for the
transaction in accordance with the
requirements applying to cash-settled
share-based payment transaction. [Para 30-
33(para 42)]
 If the entity has no such obligation exists, it
shall account for the transaction in
accordance with the requirements applying
to equity-settled share-based payment
transactions. [Para 10-29(para 43)]
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31. Disclosures
 Paragraph 44: enables users of the financial
statements to understand the nature and extent of
share-based payment arrangements that existed
during the period.
 Paragraph 45 should disclose:
 Description of each type of share-based payment
arrangement that existed at any time during the period
 The number and weighted average exercise prices of
shares options
 The weighted average share price at the date of exercise
for share options exercised during the period
 The range of exercise prices and weighted average
remaining contractual life.
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32. Continue..
 Paragraph 46: understand how the fair value of the
goods or services received or the fair value of the
equity instruments granted.
 Paragraph 47: measured indirectly the fair value of
goods or services received as consideration for the
equity instruments of the entity.
 Paragraph 48: measured directly the fair value of
goods or services received.
 Paragraph 49: explain why the presumption need to be
rebutted.
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33. Continue…
 Paragraph 50: disclose information
about the effect of share-based payment
transactions on the entity’s profit or loss
and on its financial position.
 Paragraph 51: stated the minimum
disclosure
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34. Continue…
Para 51 - To give effect to the principle in paragraph 50, the
entity shall disclose at least the following:
(a) 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 for as
equity-settled share-based payment transactions;
(b) 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).
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