It is stated under AASB 2 ‘Share based payment’ that companies must value and record as an expense
any options granted to employees in exchange for their services. Previously Australian companies
recorded share-based payments in the notes to the financial statements, arguing that share-based
payments did not cost the company anything.
a) Explain the reasoning that led to the development of AASB 2 ‘Share based payment’.
b) Discuss briefly the possible economic implications of AASB 2.
Sampras Ltd issued $20 million of convertible notes on 1 July 2020. The notes have a life of 6 years
and a face value of $20 each. Annual interest of 5% is payable at the end of each year. The notes
were issued at their face value and each note can be converted into one ordinary share in Sampras
Ltd at any time over their lives. Organisations with a similar risk profile to Sampras Ltd have issued
debt with similar terms but without the option to convert at the rate of 7% per annum.