BC61 To recognise equity‑settled share‑based payment transactions, it is necessary to decide how the transactions should be measured. The Board began by considering how to measure share‑based payment transactions in principle. Later, it considered practical issues arising from the application of its preferred measurement approach. In terms of accounting principles, there are two basic questions:

(a) which measurement basis should be applied?

(b) when should that measurement basis be applied?

BC62 To answer these questions, the Board considered the accounting principles applying to equity transactions. The Framework states:

Equity is the residual interest in the assets of the enterprise after deducting all of its liabilities … The amount at which equity is shown in the balance sheet is dependent upon the measurement of assets and liabilities. Normally, the aggregate amount of equity only by coincidence corresponds with the aggregate market value of the shares of the enterprise … (paragraphs 49 and 67)

BC63 The accounting equation that corresponds to this definition of equity is:

assets minus liabilities equals equity