Beacon Lighting Group's Performance Rights Essay

Part A – 275 WORDS = 3 MARKS = CUT down DONE

a )

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Beacon Lighting Group ( BLG ) , implements merely a short-run strategy detailing public presentation right without any program about a long-run strategy. One cardinal characteristic defines the figure of Performance Rights issued is based on fiscal public presentation measured by net income before revenue enhancement and portion monetary values. Another cardinal characteristic describes how the Performance Rights issued will enthrone into 3 parts: one tierce has vested into shared, one tierce will enthrone on 25 August 2015 and one tierce will enthrone on August 2016.

B )

The intent is to aline the involvement of cardinal executives with those of shareholders’ involvements. Performance rights is dependent on net income before revenue enhancement. Basically cardinal executives becomes shareholers aswell, hence alliance of involvement in the short and long tally ( same involvement for higher monetary value per portion and dividends ) as Baecon implements disposal limitation on performace rights.

Another cardinal characteristic of publishing public presentation rights vested into 3 different periods ensures a lucifer of involvements for both parties during this clip. However, since there is non yet a long-run inducement strategy, cardinal executives may concentrate and boom more on short-run public presentations instead other chances that benefit long-run involvements. This may consequence stockholders, whose involvements lie in deriving higher dividends, that can merely get a important addition in the long-run.

Overall, cardinal characteristics demonstrate additions in monetary value per portion due to incentive for larger figure of public presentation rights and is maintained/increased as cardinal executives themselves potentially become stockholders. Similarly, another involvement is dividends, which will hold small consequence on the short and long tally. Hence, depending on disposal limitations, the short-run incentive strategy may merely be effectual in the short-run period, and less effectual in the long tally.

Part B – 550 WORDS = 6 MARKS

Discuss and organize your ain position as to what extent the Beacon Lighting public presentation rights satisfies the:

a ) definition of a liability under the Framework ; –

Although non lawfully enforceable, BLGs public presentation rights arise from a desire to keep good concern dealingss to aline involvements of executives to stockholders. Additionally, there is no irrevokable nature of the understanding, nevertheless as stated in the prospectus ‘unless otherwise determined by the board, no sum is collectible upon the grant or exercising of public presentation right’ , foregrounding the likely nature of exerting the rights if employees are still employed at the clip, as demonstrated in 2014. Arisen from past events through pass oning the strategy through a media release, BLGs public presentation rights is a transition of duty to equity in the signifier of portions. Thus, public presentation rights is a liability in 2014 under the model.

B ) definition and acknowledgment standards of a proviso under AASB 137: and

AASB 137 paragraph 10 defines the proviso is a liability of unsure timing or sum. For the definition portion, the public presentation right has been classified to liability. In the prospectus ( Beacon Lighting 2015 ) , the issue of public presentation rights is based on the net income before revenue enhancement which is unsure. Therefore, the public presentation right satisfide the definition of proviso.

AASB 137 paragraph 14 recognises a proviso when: The entity has a present duty ( legal or constructive ) as a consequence of a past event and it is likely that an escape of resources incarnating economic benefit will be required to settle the duty. Besides, a dependable estimation can be made of the sum of the duty

As to acknowledgment, the usual instance is the grant of public presentation is capable to a legal contract ( Pura Vida Energy Nl 2011 ) , and the old distribution of public presentation rights can be treated as a constructive duty as it creates valid outlook in other parties that the company will dispatch the duty. Then, the probablity of the company to execrise public presentation right is more likely than non, and the 2014 fiscal statement ( Becon Lighting Group 2014 ) has proved it. However, merely the 2014 public presentation right sum is able to gauge faithfully as all the cardinal informations were present. For the staying old ages, the lack of cardinal informations will do it difficult to judge the important returns of portions ( Hendricks and Singhal 2005 ) , proposing to do the dependable appraisal is non possible. The decision is the 2014 public presentation right is able to recognized as proviso under the AASB 137 while the remaing portion in 2015 and 2016 may merely handle as contingent liabilties.

degree Celsius ) whether any payment recognised in Beacon Lighting’s fiscal statements in relation to the public presentation rights for period ended 31 December 2014 could be considered an disbursal under the Framework.

Expenses are defined as an escape of economic benefit as per paragraph 60 Framework. In the fiscal statement ended 31 December 2014, 75927 portions were issued and vested to employees. This payment could be considered as a share-based payment dealing harmonizing to paragraph 2 in AASB 2 Share-based Payment. The journal entry to enter this dealing could be as follow:

Dr Wages and Employee Benefits Expense82

Cr Share Issue under Performance Rights Plan82

There was no consideration provided by employees for the portions they acquired. Thus, the portion enthroning meets the definition of escape of economic benefits.

Part C: 375 WORDS = 4 MARKS at the minute 399 words.

Fiscal statement preparers of BLG experiences trouble in showing true and just information as a effect of weighing accounting standard proficient demands over their ethical outlooks. When using AASB to concern patterns, BLG preparers are responsible for the professional opinions on the intervention of minutess in order to give the most true and just information for determination devising. In the instance refering BLG and public presentation rights, this opinion comes into drama made between recognizing future payments as either a contingent liability or a proviso where preparers of Beacon Lighting has the ultimatum on whether to write off liabilities or by apportioning it as contingent liability ( non in fiscal statments ) to set a higher net income degree for the period.

Ideally, BLG preparers should take the most appropriate method to show ‘true and fair’ information, although the definition is non purely defined in accounting, the application of chief qualitative features and of appropriate accounting criterions usually consequences in fiscal statements that convey rightness and objectiveness. The deficiency of unwraping non-recognition of public presentation rights as a proviso in the notes to the statement of fiscal place concerns the qualitative features, relevancy and dependability particularly it is more likely for public presentation rights to be exercised in twelvemonth stoping 2015. As BLG preparers fail to show the relevant prognostic nature of public presentation rights to the fiscal statements in any signifier, it underestimates the possible payment in the signifier of portions in the nearby hereafter, therefore undependable.

Principles of codification of moralss which are relevant in the instance of BLG public presentation rights comprises unity and objectiveness. Preparers understanding likely outstanding portion collectible to executives breach of the rule of unity as it is conceaeled from the statements. Additionally, recognizing public presentation rights as contigent liabilities may be potentially in order to smooth income tendencies, transgressing one of the codifications, objectiveness.

In decision, to a less extent can this imbalance between moralss and proficient accounting criterions be put onto objectiveness, but instead to inherent troubles in placing the minutess to be measured or in inventing and using measuring and presentation techniques that can convey messages that correspond with those minutess and events. In the instance of BLG, preparers may be unsure and face trouble in placing public presentation rights more so than for ain concern public presentation. Therefore, most fiscal information is capable to some hazard of being less than a faithful representation of that which it purports to portray.

Appendix

Mention

Accounting Standards Australia 2009,AASB 2 Share-based Payment, Australian Accounting Standards Board, Victoria.

Accounting Standards Australia 2009,Model for the Preparation and Presentation of Financial Statements, Australian Accounting Standards Board, Victoria.

Accounting Standards Australia 2014,AASB 137 Provisions, Contingent Liabilities and Contingent Assetss, Australian Accounting Standards Board, Victoria.

Beacon Lighting Group 2014A,Beacon Lighting Limited Prospectus, Oakleigh.

Beacon Lighting Group 2014B,Performance Rights, media release, release 25 August, viewed 29 March 2015, & A ; lt ; hypertext transfer protocol: //news.iguana2.com/beacon/ASX/BLX/410527 & A ; gt ;

Beacon Lighting Group 2014C,Interim fiscal study, Oakleigh.

Beacon Lighting Group 2014D,BLX-Annual-Report,Oakleigh.

Hendricks, K. B. and Singhal, V. R. 2005, ‘An empirical analysis of the consequence of supply concatenation breaks on long-term stock monetary value public presentation and equity hazard of the firm’ ,Production and Operation Management,vol. 14, no. 1, pp. 35-52.

IFAC2006, ‘Code of moralss for professional accountants’ , Sections 110-120, Victoria.

Part A

a ) Two characteristics of Performance Rights Scheme

Beacon Lighting Group ( BLG ) , implements merely a short-run strategy detailing public presentation right without any program about a long-run strategy. One cardinal characteristic defines the figure of Performance Rights issued is based on fiscal public presentation measured by net income before revenue enhancement and portion monetary values. Another cardinal characteristic describes how the Performance Rights issued will enthrone into 3 parts: one tierce has vested into shared, one tierce will enthrone on 25 August 2015 and one tierce will enthrone on August 2016.

B )Effectiveness of the Scheme

The intent is to aline the involvement of cardinal executives with those of shareholders’ involvements. Performance rights is dependent on net income before revenue enhancement. Basically cardinal executives becomes stockholders as good, hence alliance of involvement in the short and long tally ( same involvement for higher monetary value per portion and dividends ) as Beacon implements disposal limitation on public presentation rights.

Another cardinal characteristic of publishing public presentation rights vested into 3 different periods ensures a lucifer of involvements for both parties during this clip. However, since there is non yet a long-run inducement strategy, cardinal executives may concentrate and boom more on short-run public presentations instead other chances that benefit long-run involvements. This may consequence stockholders, whose involvements lie in deriving higher dividends, which can merely be achieved a important addition in the long-run.

Overall, cardinal characteristics demonstrate additions in monetary value per portion due to incentive for larger figure of public presentation rights and is maintained/increased as cardinal executives themselves potentially become stockholders. Similarly, another involvement is dividends, which will hold small consequence on the short and long tally. Hence, depending on disposal limitations, the short-run incentive strategy may merely be effectual in the short-run period, and less effectual in the long tally.

Part B

a ) Definition of a liability under the Model

Although non lawfully enforceable, BLGs public presentation rights arise from a desire to keep good concern dealingss to aline involvements of executives to stockholders. Additionally, there is no irrevokable nature of the understanding, nevertheless as stated in the prospectus ‘unless otherwise determined by the board, no sum is collectible upon the grant or exercising of public presentation right’ , foregrounding the likely nature of exerting the rights if employees are still employed at the clip, as demonstrated in 2014. Arisen from past events through pass oning the strategy through a media release, BLGs public presentation rights is a transition of duty to equity in the signifier of portions ( Beacon Light Group 2014B ) . Therefore, public presentation rights is a liability in 2014 under the Framework.

B ) Definition and acknowledgment standards of a proviso under AASB 137

AASB 137 paragraph 10 defines the proviso is a liability of unsure timing or sum. The public presentation rights have been classified to liability. Harmonizing to the prospectus ( Beacon Lighting Group 2014A ) , the figure of public presentation rights to be issued is capable to the fiscal public presentation which indicates it is unsure. The public presentation right satisfied the definition of proviso with unsure sum.

AASB 137 paragraph 14 recognises a proviso when: The entity has a present duty ( legal or constructive ) as a consequence of a past event and it is likely that an escape of resources incarnating economic benefit will be required to settle the duty. Besides, a dependable estimation of such economic benefits can be made.

First, the old distribution of public presentation rights can be treated as a constructive duty as it creates valid outlook in other parties that the company will settle the duty. ( Beacon Lighting Group 2014B ) Then, the chance of the company to exert public presentation right is more likely than non, since it could reasonable deduce the company will make the targe through its old fiscal studies ( Beacon Lighting Group 2014D ) . However, merely the 2014 public presentation right sum is able to gauge faithfully as all the cardinal informations were present. For the staying old ages, the lack of cardinal informations will do it difficult to judge the important returns of portions ( Hendricks and Singhal 2005 ) , proposing to do the dependable appraisal is non possible. The decision is the 2014 public presentation right is able to be recognised as proviso under the AASB 137 while the staying portion in 2015 and 2016 may merely handle as contingent liabilities.

degree Celsius ) Expense in relation to the payment of portions under Framework

Expenses are defined as an escape of economic benefit as per paragraph 60 Framework. In the fiscal statement ended 31 December 2014, 75,927 portions were issued and vested to employees. This payment could be considered as a share-based payment dealing harmonizing to paragraph 2 in AASB 2 Share-based Payment. The journal entry to enter this dealing could be as follow:

Dr Wages and Employee Benefits Expense 82

Cr Share Issue under Performance Rights Plan 82

There was no consideration provided by employees for the portions they acquired. Thus, the portion enthroning meets the definition of escape of economic benefits ( Beacon Lighting Group 2014A ) .

Part C Evaluation on the statement

Fiscal statement preparers of BLG experiences trouble in showing true and just information as a effect of weighing accounting standard proficient demands over their ethical outlooks. When using AASB to concern patterns, BLG preparers are responsible for the professional opinions on the intervention of minutess in order to give a true and just information for determination devising. In the instance refering BLG and public presentation rights, this opinion comes into drama made between recognizing future payments as either a contingent liability or a proviso where preparers of BLG has the ultimatum on whether to describe the future payments as a liability or a contingent liability ( non in fiscal statements ) .

Ideally, BLG preparers should take the most appropriate method to show ‘true and fair’ information, although the definition is non purely defined in accounting, harmonizing to the model the application of chief qualitative features and of appropriate accounting criterions usually consequences in fiscal statements that convey rightness and objectiveness. The deficiency of unwraping non-recognition of public presentation rights as a proviso in the notes to the statement of fiscal place concerns the qualitative features, relevancy and dependability particularly it is more likely for public presentation rights to be exercised in twelvemonth stoping 2015. As BLG preparers fail to show the relevant prognostic nature of public presentation rights to the fiscal statements in any signifier, it underestimates the possible payment in the signifier of portions in the nearby hereafter, therefore undependable.

Principles of codification of moralss which are relevant in the instance of BLG public presentation rights comprises unity and objectiveness. Preparers’ understating of outstanding portion collectible to executives may transgress the rule of unity as it is concealed from the statements.

In decision, to an extent can this imbalance between moralss and proficient accounting criterions be put onto subjectiveness, but instead more to inherent troubles in placing the minutess to be accounted or in using measuring and presentation techniques that can convey messages that correspond with those minutess and events. In the instance of BLG, preparers may be unsure and face trouble in placing public presentation rights more so than for ain concern public presentation. Therefore, most fiscal information is capable to a certain grade of hazard of being less than a faithful representation of that which it claims to portray.

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