Deck 17: Accounting for Share-Based Payments

Question 1

AASB 2 requires that goods and services received in an equity-settled share-based transaction be measured in reference to fair value of equity instruments granted.

Answer 1

True

Question 2

AASB 2 requires the remeasurement of cash-settled transactions at fair value at reporting date.

Answer 2

True

Question 3

In a cash-settled share-based payment transaction,the entity shall remeasure the fair value of the liability at each reporting date and at the date of settlement,with any changes in fair value recognised in profit or loss for the period.

Answer 3

True

Question 4

If share appreciation rights vest immediately,the entity shall presume that the services rendered by the employees in exchange for the share appreciation rights have been received.

Question 5

AASB 2 requires the remeasurement of equity-settled transactions at fair value at reporting date.

Question 6

Equity instruments granted to employees of the acquiree,in their capacity as employees in a business combination,is within the scope of AASB 2.

Question 7

When a good or service is acquired in a share-based payment transaction and it does qualify as an asset,the transaction must be expensed.

Question 8

In share-based payment transactions with cash alternatives,the entity shall measure the equity component of the compound financial instrument as the difference between the fair value of the goods or services received and the fair value of the debt component,measured at vesting date.

Question 9

If an entity alters the conditions of the options after issue,AASB 2 requires the effects of such modifications to be recognised.

Question 10

If the fair value of the equity instruments granted in a share-based payment transaction cannot be estimated,the entity shall measure the fair value of the goods received.

Question 11

If a grant of equity instruments is conditional upon satisfying specified vesting conditions,the vesting conditions shall be taken into account in estimating the fair value of the instruments at measurement date.

Question 12

AASB 2 requires some share-based payments to be recognised in an entity's financial statements.

Question 13

AASB 2 requires all share-based payment transactions to be measured at grant date.

Question 14

AASB 2 also applies to transactions where an entity issues equity instruments to purchase the net assets of another entity in a business combination.

Question 15

AASB 2 requires all share-based payment transactions to be expensed on grant date and the credit is equity.

Question 16

A share-based payment is a transaction that entitles another party to receive a cash payment with the amount paid dependent on the price of the entity's shares or other equity instruments.

Question 17

Issue of shares in exchange for shares of another entity in a purchase transaction of the net assets of an entity in a business combination is within the scope of AASB 2 Share-based Payment.

Question 18

AASB 2 requires all equity-settled share-based payment transactions be measured at fair value of goods and services received.

Question 19

Where equity instruments are issued with a vesting period,the transactions must be recognised over the vesting period.

Question 20

AASB 2 does not require expensing of cash-settled share-based payment transactions until settlement date.

Question 21

Blackburn Ltd grants 50 share options to each of its 150 employees on 1 July 2009.Each grant is conditional upon the employee working for the company for 3 years following the grant date.On grant date,the fair value of each option is estimated to be $12. Estimated value of the option for the year ending 2010,2011 and 2012 is $10,$13,$14 respectively.
Information on employee departures at the end of each year follows:
$$\begin{array} { | l | l | l | } \hline \text { Year ending 30 June } & \text { Actual departures } & \begin{array} { l } \text { Revised estimate of departures } \\\text { before option vests }\end{array} \\\hline 2010 & 7 & 22 \% \\\hline 2011 & 6 & 18 \% \\\hline 2012 & 4 & \text { NA } \\\hline\end{array}$$
What would be the appropriate journal entry to account for the share-based payment transaction for the year ending 30 June 2011?

A)
$$\begin{array} { | l | l | r | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 25800 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 25800 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | r | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 26200 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 26200 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 29900 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 29900 \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 33800 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 33800 \\\hline\end{array}$$

Question 22

On 1 July 2012,Manchester Ltd granted 50 000 share options to its Chief Executive Officer with an exercise price of $40 per share,conditional upon the entity achieving the following non-market vesting conditions:
$$\begin{array} { | l | l | } \hline \text { Year ending 30 June } & { \text { Condition } } \\\hline 2013 & \text { lf earnings have increased by } > 12 \% \\\hline 2014 & \begin{array} { l } \text { If earnings have increased by } > 10 \% \text { averaged across } \\\text { the 2 year period }\end{array} \\\hline 2015 & \begin{array} { l } \text { If earnings have increased by at least } 8 \% \text { averaged } \\\text { across the 3 year period }\end{array} \\\hline\end{array}$$
Earnings information available follows:

In accordance with AASB 2,when will this share option vest?

A) 1 July 2012
B) 30 June 2013
C) 30 June 2014
D) 30 June 2015

Question 23

Which of the following items are not considered share-based payment transactions within the scope of AASB 2?

A) options issued to employees in exchange for services rendered
B) shares issued to employees for services rendered
C) shares issued to consultants for services rendered
D) bonus shares issued to employees as a shareholder of the entity

Question 24

In a share-based payment transaction like an option,which of the following accounting treatments is incorrect?

A) An entity shall recognise the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received.
B) The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction.
C) The entity shall recognise a corresponding increase in liability if the goods or services were acquired in a cash-settled share-based payment transaction.
D) Goods or services received or acquired in a share-based payment transaction shall be recognised as expenses.

Question 25

Which of the following share-based payment transactions are considered equity-settled transactions within the scope of AASB 2?

A) Company A grants 5000 options each to its directors in return for services to be received over two years.
B) Company B purchases machinery in exchange for shares.
C) Company C incurs a liability based on the price of the entity's share options to pay for the services of its sales executives.
D) Company A grants 5000 options each to its directors in return for services to be received over two years; Company B purchases machinery in exchange for shares.

Question 26

Which of the following items are considered share-based payment transactions within the scope of AASB 2?

A) share dividends to employees who are shareholders of the entity
B) goods acquired from a supplier on credit to be settled in cash
C) services provided by an employee to be settled in equity instruments
D) purchase of non-current assets on credit to be settled in cash

Question 27

Blackburn Ltd grants 50 share options to each of its 150 employees on 1 July 2009.Each grant is conditional upon the employee working for the company for 3 years following the grant date.On grant date,the fair value of each option is estimated to be $12. Estimated value of the option for the year ending 2010,2011 and 2012 is $10,$13,$14 respectively.
Information on employee departures at the end of each year follows:
$$\begin{array} { | l | l | l | } \hline \text { Year ending 30 June } & \text { Actual departures } & \begin{array} { l } \text { Revised estimate of departures } \\\text { before option vests }\end{array} \\\hline 2010 & 7 & 22 \% \\\hline 2011 & 6 & 18 \% \\\hline 2012 & 4 & \text { NA } \\\hline\end{array}$$
In accordance with AASB 2,how much remuneration expense related to the share option issue should Blackburn Ltd recognise for the year ended 30 June 2010,30 June 2011 and 30 June 2012 respectively?

A) $19 500; $33 800; $39 800
B) $23 400; $25 800; $30 600
C) $23 400; $29 900; $39 800
D) $23 833; $35 534; $33 733

Question 28

AASB 2 has reduced the discretion that reporting entities have when accounting for options and other share-based payments.

Question 29

Which of the following share-based payment transactions are considered cash-settled transactions within the scope of AASB 2?

A) Company A grants 5000 options each to its directors in return for services to be received over two years.
B) Company B purchases machinery in exchange for shares.
C) Company C incurs a liability based on the price of the entity's share options to pay for the services of its sales executives.
D) Company A grants 5000 options each to its directors in return for services to be received over two years; Company B purchases machinery in exchange for shares.

Question 30

Blackburn Ltd grants 50 share options to each of its 150 employees on 1 July 2009.Each grant is conditional upon the employee working for the company for 3 years following the grant date.On grant date,the fair value of each option is estimated to be $12. Estimated value of the option for the year ending 2010,2011 and 2012 is $10,$13,$14 respectively.
Information on employee departures at the end of each year follows:
$$\begin{array} { | l | l | l | } \hline \text { Year ending 30 June } & \text { Actual departures } & \begin{array} { l } \text { Revised estimate of departures } \\\text { before option vests }\end{array} \\\hline 2010 & 7 & 22 \% \\\hline 2011 & 6 & 18 \% \\\hline 2012 & 4 & \text { NA } \\\hline\end{array}$$
What would be the appropriate journal entry to account for the share-based payment transaction for the year ending 30 June 2012?

A)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 25000 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 25000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 30600 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 30600 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 33733 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 33733 \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 39800 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 39800 \\\hline\end{array}$$

Question 31

Blackburn Ltd grants 50 share options to each of its 150 employees on 1 July 2009.Each grant is conditional upon the employee working for the company for 3 years following the grant date.On grant date,the fair value of each option is estimated to be $12. Estimated value of the option for the year ending 2010,2011 and 2012 is $10,$13,$14 respectively.
Information on employee departures at the end of each year follows:
$$\begin{array} { | l | l | l | } \hline \text { Year ending 30 June } & \text { Actual departures } & \begin{array} { l } \text { Revised estimate of departures } \\\text { before option vests }\end{array} \\\hline 2010 & 7 & 22 \% \\\hline 2011 & 6 & 18 \% \\\hline 2012 & 4 & \text { NA } \\\hline\end{array}$$
What would be the appropriate journal entry to account for the share-based payment transaction for the year ending 30 June 2010?

A)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 19500 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 19500 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 23400 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 23400 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 23833 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 23833 \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 28600 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 28600 \\\hline\end{array}$$

Question 32

Which of the following statements is incorrect of cash-settled share-based payment transactions?

A) The entity acquires goods and services by incurring a liability to transfer cash or other assets that are based on the price or value of the entity's shares or other equity instruments of the entity.
B) Share appreciation rights (SARs) is one example of a cash-settled share-based payment transaction.
C) Cash-settled share-based payment transactions are required to be re-measured at fair value at each reporting date until settlement date.
D) The equity shall be measured, initially and at each reporting date until settled, at the fair value of the share appreciation rights, by applying an option pricing model, taking into account the terms and conditions on which the share appreciation rights were granted, and the extent to which the employees have rendered service to date.

Question 33

To assist users of financial statements an entity must provide the effect of expenses arising from share-based transactions on the entity's profit or loss for the period.

Question 34

AASB 2 requires all share-based payment transactions to be recognised at:

A) grant date.
B) balance date.
C) exercise date.
D) settlement date.

Question 35

Which of the following items are considered cash-settled share-based payment transactions within the scope of AASB 2?

A) An entity grants 200 share options to all employees.
B) An entity grants 200 share options to all employees but requires employees to work at least 3 years.
C) An entity acquires a piece of equipment from another entity in exchange for shares of the entity.
D) An entity issues share appreciation rights to its employees.

Question 36

Market prices for share options granted to employees are typically not available because:

A) Options granted to employees are subject to terms and conditions that do not apply to traded options.
B) It is difficult to obtain the fair value of these options using option pricing models.
C) Employee options have long lives and are usually exercised early.
D) Options granted to employees are subject to terms and conditions that do not apply to traded options and it is difficult to obtain the fair value of these options using option pricing models

Question 37

Which of the following statements is incorrect of equity-settled share-based payment transactions?

A) These are transactions in which the entity receives goods and services as consideration for shares or share options issued by the entity.
B) There is a presumption that the fair value of the transactions with other parties (other than employees) can be measured reliably.
C) The fair value of equity-settled instruments is required to be re-estimated at balance date.
D) The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction.

Question 38

On 1 July 2012 Lancaster Ltd grants 100 share options to each of its 50 employees conditional upon the employee working for the entity for the next 3 years.The entity estimates the fair value of each share option at $13.Based on probability estimates,25 employees are expected to leave the entity before the options vest.In accordance with AASB 2,how much remuneration expense related to the share option issue should Lancaster Ltd recognise for the year ended 30 June 2013?

A) zero
B) $10 833
C) $32 500
D) $65 000

Question 39

In a share-based payment transaction like an option,vesting date is:

A) grant date.
B) expiry date of option.
C) date when all vesting conditions are satisfied.
D) balance date.

Question 40

On 1 July 2012 Lancashire Ltd grants 100 share options to each of its 50 employees conditional upon the employee working for the entity for the next 3 years.On the same date,the entity estimates the fair value of each share option at $15.Based on probability estimates,15 employees are expected to leave the entity in one year and another 5 employees in two years.Actual resignation for the year ending 2013 was 12 employees and the fair value of the option is $12 on 30 June 2014. In accordance with AASB 2,what is the cumulative remuneration expense (related to the share option issue)as at 30 June 2011?

A) $24 000
B) $26 400
C) $33 000
D) $45 000

Question 41

Wigan Ltd grants 100 options to each of its 80 employees on 1 July 2009.The fair value of each option at grant date is $20.The vesting conditions allow shares to vest if the following performance targets are achieved:
$$\begin{array} { | l | l | } \hline \text { Year ending } 30 \text { June } &{ \text { Condition } } \\\hline 2010 & \text { If earnings have increased by } > 18 \% \\\hline 2011 & \begin{array} { l } \text { If earnings have increased by } > 13 \% \text { averaged across } \\\text { the 2 year period }\end{array} \\\hline 2012 & \begin{array} { l } \text { If earnings have increased by at least } 10 \% \text { averaged } \\\text { across the 3 year period }\end{array} \\\hline\end{array}$$
The following information is available:

What action must Wigan Ltd take that is in compliance with AASB 2,if the option does not vest on 30 June 2012?

A) No action is necessary.
B) It must modify the terms and conditions of the option to allow the employees to benefit from the share-based payment transaction in future.
C) The equity account arising from the share-based payment transaction shall be reversed and credited to revenue.
D) The equity account arising from the share-based payment transaction shall be reversed and credited to liability.

Question 42

Southport Ltd grants 100 share appreciation rights (SARs)to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for the next 3 years.All SARs held by employees will vest at the end of 3 years.The intrinsic value (equals cash actually paid out)and estimates of the fair value of the SARs at the end of each year are as follows:
$$\begin{array} { | l | l | l | } \hline \text { Year ending } & \text { Fair value } & \text { Intrinsic value } \\\hline 30 \text { June } 2010 & \$ 7.20 & \\\hline 30 \text { June } 2011 & \$ 7.75 & \\\hline 30 \text { June } 2012 & \$ 9.10 & \$ 7.50 \\\hline 30 \text { June } 2013 & \$ 10.70 & \$ 10.00 \\\hline 30 \text { June } 2014 & & \$ 12.50 \\\hline\end{array}$$
Summary of actual and estimated employee departures and number of options exercised follow:
$$\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Year ending } \\30 \text { June }\end{array} & \text { Actual departures } & \begin{array} { l } \text { Revised estimates of departures } \\\text { before the option vests }\end{array} & \begin{array} { l } \text { Number of employees that exercised } \\\text { the option }\end{array} \\\hline 2010 & 3 & \text { Further } 6 & \\\hline 2011 & 4 & \text { Further } 3 & \\\hline 2012 & 2 & \text { NA } & 15 \\\hline 2013 & - & - & 14 \\\hline 2014 & - & - & 12 \\\hline\end{array}$$
What is/are the journal entry/ies to recognise salary expense for Southport Ltd related to the share appreciation rights issued 1 July 2009 for the year ended 30 June 2012?

A)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 16643 & \\\hline \mathrm { Cr } & \text { Accrued salaries expense } & & 16643 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 37310 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 37310 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 2993 & \\\hline \mathrm { Cr } & \text { Accrued salaries expense } & & 2993 \\\hline & & & \\\hline \mathrm { Dr } & \text { Employee benefits expense } & 11250 & \\\hline \mathrm { Cr } & \text { Cash } & & 11250 \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 2993 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & &2993 \\\hline & & & \\\hline \mathrm { Dr } & \text { Employee benefits expense } & 11250 & \\\hline \mathrm { Cr } & \text { Accrued salaries expense } & & 11250 \\\hline\end{array}$$

Question 43

On 1 July 2009,Windermere Ltd grants 200 share options to each of its 100 employees.The share option is conditional upon the employee working for the entity when the share option vests and the entity achieving the following non-market vesting conditions:
$$\begin{array} { | l | l | } \hline \text { Year ending } 30 \text { June } & { \text { Condition } } \\\hline 2010 & \text { If earnings have increased by } > 18 \% \\\hline 2011 & \begin{array} { l } \text { If earnings have increased by } > 13 \% \text { averaged across } \\\text { the 2 year period }\end{array} \\\hline 2012 & \begin{array} { l } \text { If earnings have increased by at least } 10 \% \text { averaged } \\\text { across the 3 year period }\end{array} \\\hline\end{array}$$
If the employee resigns before the share option vests,the share option is forfeited.

On 30 June 2010,based on probability estimates how many employees are expected to be employed by Windermere Ltd when the share option vests?

A) 75
B) 78
C) 85
D) 88

Question 44

Liverpool Ltd grants 100 options to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for the next 3 years.The fair value of each option at grant date is $15.Liverpool Ltd estimates that 15% of its employees will leave during the vesting period.The following table summarises the actual employee departures and revised estimates of employee departures across the vesting period.
$$\begin{array} { | l | l | l | } \hline \text { Year ending } 30 \text { June } & \text { Actual departures } & \begin{array} { l } \text { Revised estimate of departures } \\\text { before the option vests }\end{array} \\\hline 2010 & 4 & \text { Further } 7 \\\hline 2011 & 4 & \text { Further } 4 \\\hline 2012 & 3 & \text { NA } \\\hline\end{array}$$
By the end of year 2011 the company's share price had fallen and it decides to re-price the options.At this time the fair value of the original options is estimated to be $5 and the fair value of the re-priced options is estimated to be $8.
What is the employee benefits expense of Liverpool Ltd related to this share option for the year ended 30 June 2010?

A) $19 500
B) $25 000
C) $58 500
D) $75 000

Question 45

Southport Ltd grants 100 share appreciation rights (SARs)to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for the next 3 years.All SARs held by employees will vest at the end of 3 years.The intrinsic value (equals cash actually paid out)and estimates of the fair value of the SARs at the end of each year are as follows:
$$\begin{array} { | l | l | l | } \hline \text { Year ending } & \text { Fair value } & \text { Intrinsic value } \\\hline 30 \text { June } 2010 & \$ 7.20 & \\\hline 30 \text { June } 2011 & \$ 7.75 & \\\hline 30 \text { June } 2012 & \$ 9.10 & \$ 7.50 \\\hline 30 \text { June } 2013 & \$ 10.70 & \$ 10.00 \\\hline 30 \text { June } 2014 & & \$ 12.50 \\\hline\end{array}$$
Summary of actual and estimated employee departures and number of options exercised follow:
$$\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Year ending } \\30 \text { June }\end{array} & \text { Actual departures } & \begin{array} { l } \text { Revised estimates of departures } \\\text { before the option vests }\end{array} & \begin{array} { l } \text { Number of employees that exercised } \\\text { the option }\end{array} \\\hline 2010 & 3 & \text { Further } 6 & \\\hline 2011 & 4 & \text { Further } 3 & \\\hline 2012 & 2 & \text { NA } & 15 \\\hline 2013 & - & - & 14 \\\hline 2014 & - & - & 12 \\\hline\end{array}$$
What is the journal entry to recognise salary expense for Southport Ltd related to the share appreciation rights issued 1 July 2009 for the year ended 30 June 2011?

A)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 10827 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 10827 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 10827 & \\\hline \mathrm { Cr } & \text { Accrued salaries expense } & & 10827 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 12377 & \\\hline \mathrm { Cr } & \text { Accrued salaries expense } & & 12377 \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 12377 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 12377 \\\hline\end{array}$$

Question 46

On 1 July 2012 Chester Ltd granted an executive director a choice between receiving a cash payment equivalent to 5000 shares or receiving 6000 shares.The grant is conditional upon the director being under the employ of the entity for 3 years.What is the accounting treatment for this share-based payment arrangement that is consistent with AASB 2?

A) similar treatment with cash-settled transactions
B) similar treatment with equity-settled transactions
C) similar to a compound financial instrument
D) recognise salaries benefit expense at vesting date

Question 47

On 1 July 2012 York Ltd (a start-up biotech company)grants its senior manager a choice of receiving cash equivalent of 100 000 shares or 120000 shares.The grant is conditional upon the senior manager working for the entity for 3 years but if the share alternative is chosen,the grant vests after two years.At grant date the entity's share price is $12.50.The entity does not expect to pay dividends in the next 3 years.After taking into account the effects of post-vesting transfer restrictions,the entity estimates the grant-date fair value of the share alternative to be $12. What is the fair value of the equity component of the compound instrument?

A) $10 000
B) $20 000
C) $190 000
D) $300 000

Question 48

On 1 July 2009,Windermere Ltd grants 200 share options to each of its 100 employees.The share option is conditional upon the employee working for the entity when the share option vests and the entity achieving the following non-market vesting conditions:
$$\begin{array} { | l | l | } \hline \text { Year ending } 30 \text { June } & { \text { Condition } } \\\hline 2010 & \text { If earnings have increased by } > 18 \% \\\hline 2011 & \begin{array} { l } \text { If earnings have increased by } > 13 \% \text { averaged across } \\\text { the 2 year period }\end{array} \\\hline 2012 & \begin{array} { l } \text { If earnings have increased by at least } 10 \% \text { averaged } \\\text { across the 3 year period }\end{array} \\\hline\end{array}$$
If the employee resigns before the share option vests,the share option is forfeited.

On 30 June 2011,based on probability estimates how many employees are expected to be employed by Windermere Ltd when the share option vests?

A) 72
B) 75
C) 78
D) 82

Question 49

Wigan Ltd grants 100 options to each of its 80 employees on 1 July 2009.The fair value of each option at grant date is $20.The vesting conditions allow shares to vest if the following performance targets are achieved:
$$\begin{array} { | l | l | } \hline \text { Year ending } 30 \text { June } & { \text { Condition } } \\\hline 2010 & \text { If earnings have increased by } > 18 \% \\\hline 2011 & \begin{array} { l } \text { If earnings have increased by } > 13 \% \text { averaged across } \\\text { the 2 year period }\end{array} \\\hline 2012 & \begin{array} { l } \text { If earnings have increased by at least } 10 \% \text { averaged } \\\text { across the 3 year period }\end{array} \\\hline\end{array}$$
The following information is available:

In accordance with AASB 2,how much employee benefits expense related to the share option issue should Wigan Ltd recognise for the year ended 30 June 2012?

A) $36 667
B) $44 667
C) $46 667
D) $48 000

Question 50

Wigan Ltd grants 100 options to each of its 80 employees on 1 July 2009.The fair value of each option at grant date is $20.The vesting conditions allow shares to vest if the following performance targets are achieved:
$$\begin{array} { | l | l | } \hline \text { Year ending } 30 \text { June } & { \text { Condition } } \\\hline 2010 & \text { If earnings have increased by } > 18 \% \\\hline 2011 & \begin{array} { l } \text { If earnings have increased by } > 13 \% \text { averaged across } \\\text { the 2 year period }\end{array} \\\hline 2012 & \begin{array} { l } \text { If earnings have increased by at least } 10 \% \text { averaged } \\\text { across the 3 year period }\end{array} \\\hline\end{array}$$
The following information is available:

In accordance with AASB 2,how much employee benefits expense related to the share option issue should Wigan Ltd recognise for the year ended 30 June 2011?

A) $22 000
B) $23 333
C) $76 000
D) $97 333

Question 51

Which of the following is an acceptable measure of fair value of the equity instruments granted?

A) cost of the equity instrument at initial recognition
B) valuation technique used to estimate what the price of the equity instruments would have been on the measurement date in an arm's length transaction between knowledgeable, willing parties.
C) fair value of a similar equity instrument
D) net realisable value of the equity instrument

Question 52

North Terraces Ltd issued share options to its executives two years ago.The options did not vest and have now expired.The cumulative salary benefits expense related to this option issue before its expiry amounts to $150 000.What is the appropriate course of action to take for North Terraces Ltd that is in accordance with AASB 2?

A) Reverse the expense previously recognised in equity.
B) Reclassify equity to accrued salaries expense.
C) Leave this in equity for transfer to retained earnings.
D) Recognise a gain of $150 000.

Question 53

If the arrangement in a share-based transaction provides either the entity or the counter party with the choice of cash settlement or issuance of the equity instruments,what is the accounting treatment required in AASB 2?

A) similar treatment with cash-settled transactions if the entity has incurred a liability to settle in cash or other assets
B) similar treatment with equity-settled transactions if the entity has not incurred a liability
C) Where the other party has the right to choose the settlement basis then it should be accounted for simular to a compound financial instrument.
D) All of the given answers are correct.

Question 54

Southport Ltd grants 100 share appreciation rights (SARs)to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for the next 3 years.All SARs held by employees will vest at the end of 3 years.The intrinsic value (equals cash actually paid out)and estimates of the fair value of the SARs at the end of each year are as follows:
$$\begin{array} { | l | l | l | } \hline \text { Year ending } & \text { Fair value } & \text { Intrinsic value } \\\hline 30 \text { June } 2010 & \$ 7.20 & \\\hline 30 \text { June } 2011 & \$ 7.75 & \\\hline 30 \text { June } 2012 & \$ 9.10 & \$ 7.50 \\\hline 30 \text { June } 2013 & \$ 10.70 & \$ 10.00 \\\hline 30 \text { June } 2014 & & \$ 12.50 \\\hline\end{array}$$
Summary of actual and estimated employee departures and number of options exercised follow:
$$\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Year ending } \\30 \text { June }\end{array} & \text { Actual departures } & \begin{array} { l } \text { Revised estimates of departures } \\\text { before the option vests }\end{array} & \text { Number of employees that exercised } \\\hline 2010 & 3 & \text { Further } 6 & \\\hline 2011 & 4 & \text { Further } 3 & \\\hline 2012 & 2 & \text { NA } & 15 \\\hline 2013 & - & - & 14 \\\hline 2014 & - & - & 12 \\\hline\end{array}$$
What is the journal entry to recognise salary expense for Southport Ltd related to the share appreciation rights issued 1 July 2009 for the year ended 30 June 2014?

A)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 15000 & \\\hline \mathrm { Cr } & \text { Cash } & & 15000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 15000 & \\\hline \mathrm { Cr } & \text { Accrued salaries expense } & & 15000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Accrued salaries expense } & 12840 & \\\hline \mathrm { Dr } & \text { Salaries expense } & 2160 & \\\hline \mathrm { Cr } & \text { Cash } & & 15000 \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 12840 & \\\hline \mathrm { Dr } & \text { Accrued salaries expense } & 2160 & \\\hline \mathrm { Cr } & \text { Cash } & & 15000 \\\hline\end{array}$$

Question 55

Southport Ltd grants 100 share appreciation rights (SARs)to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for the next 3 years.All SARs held by employees will vest at the end of 3 years.The intrinsic value (equals cash actually paid out)and estimates of the fair value of the SARs at the end of each year are as follows:
$$\begin{array} { | l | l | l | } \hline \text { Year ending } & \text { Fair value } & \text { Intrinsic value } \\\hline 30 \text { June } 2010 & \$ 7.20 & \\\hline 30 \text { June } 2011 & \$ 7.75 & \\\hline 30 \text { June } 2012 & \$ 9.10 & \$ 7.50 \\\hline 30 \text { June } 2013 & \$ 10.70 & \$ 10.00 \\\hline 30 \text { June } 2014 & & \$ 12.50 \\\hline\end{array}$$
Summary of actual and estimated employee departures and number of options exercised follow:
$$\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Year ending } \\30 \text { June }\end{array} & \text { Actual departures } & \begin{array} { l } \text { Revised estimates of departures } \\\text { before the option vests }\end{array} & \begin{array} { l } \text { Number of employees that exercised } \\\text { the option }\end{array} \\\hline 2010 & 3 & \text { Further } 6 & \\\hline 2011 & 4 & \text { Further } 3 & \\\hline 2012 & 2 & \text { NA } & 15 \\\hline 2013 & - & - & 14 \\\hline 2014 & - & - & 12 \\\hline\end{array}$$
What is/are the journal entry/ies to recognise salary expense for Southport Ltd related to the share appreciation rights issued 1 July 2009 for the year ended 30 June 2013?

A)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 10820 & \\\hline \mathrm { Cr } & \text { Accrued salaries expense } & & 10820 \\\hline & & & \\\hline \mathrm { Dr } & \text { Employee benefits expense } & 14000 & \\\hline \mathrm { Cr } & \text { Cash } & & 14000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 12436 & \\\hline \mathrm { Cr } & \text { Share capital (equity) } & & 12436 \\\hline & & & \\\hline \mathrm { Dr } & \text { Employee benefits expense } & 14000 & \\\hline \mathrm { Cr } & \text { Cash } & & 14000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 3180 & \\\hline \mathrm { Dr } & \text { Accrued salaries expense } & 10820 & \\\hline \mathrm { Cr } & \text { Cash } & & 14000 \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | l | l | } \hline \mathrm { Dr } & \text { Employee benefits expense } & 14820 & \\\hline \mathrm { Cr } & \text { Accrued salaries expense } & & 10820 \\\hline \mathrm { Cr } & \text { Cash } & & 14000 \\\hline\end{array}$$

Question 56

Southport Ltd grants 100 share appreciation rights (SARs)to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for the next 3 years.All SARs held by employees will vest at the end of 3 years.The intrinsic value (equals cash actually paid out)and estimates of the fair value of the SARs at the end of each year are as follows:
$$\begin{array} { | l | l | l | } \hline \text { Year ending } & \text { Fair value } & \text { Intrinsic value } \\\hline 30 \text { June } 2010 & \$ 7.20 & \\\hline 30 \text { June } 2011 & \$ 7.75 & \\\hline 30 \text { June } 2012 & \$ 9.10 & \$ 7.50 \\\hline 30 \text { June } 2013 & \$ 10.70 & \$ 10.00 \\\hline 30 \text { June } 2014 & & \$ 12.50 \\\hline\end{array}$$
Summary of actual and estimated employee departures and number of options exercised follow:
$$\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Year ending } \\30 \text { June }\end{array} & \text { Actual departures } & \begin{array} { l } \text { Revised estimates of departures } \\\text { before the option vests }\end{array} & \begin{array} { l } \text { Number of employees that exercised } \\\text { the option }\end{array} \\\hline 2010 & 3 & \text { Further } 6 & \\\hline 2011 & 4 & \text { Further } 3 & \\\hline 2012 & 2 & \text { NA } & 15 \\\hline 2013 & - & - & 14 \\\hline 2014 & - & - & 12 \\\hline\end{array}$$
In accordance with AASB 2,how much employee benefits expense related to the share option issue should Southport Ltd recognise for the year ended 30 June 2010?

A) $9840
B) $12 000
C) $29 520
D) $36 000

Question 57

Liverpool Ltd grants 100 options to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for the next 3 years.The fair value of each option at grant date is $15.Liverpool Ltd estimates that 15% of its employees will leave during the vesting period.The following table summarises the actual employee departures and revised estimates of employee departures across the vesting period.
$$\begin{array} { | l | l | l | } \hline \text { Year ending } 30 \text { June } & \text { Actual departures } & \begin{array} { l } \text { Revised estimate of departures } \\\text { before the option vests }\end{array} \\\hline 2010 & 4 & \text { Further } 7 \\\hline 2011 & 4 & \text { Further } 4 \\\hline 2012 & 3 & \text { NA } \\\hline\end{array}$$
By the end of year 2011 the company's share price had fallen and it decides to re-price the options.At this time the fair value of the original options is estimated to be $5 and the fair value of the re-priced options is estimated to be $8.
What is the employee benefits expense of Liverpool Ltd related to this share option for the year ended 30 June 2011?

A) $19 500
B) $24 200
C) $43 700
D) $57 000

Question 58

Liverpool limited grants 100 options to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for the next 3 years.The fair value of each option at grant date is $15.Liverpool Ltd estimates that 15% of its employees will leave during the vesting period.The following table summarises the actual employee departures and revised estimates of employee departures across the vesting period.
$$\begin{array} { | l | l | l | } \hline \text { Year ending } 30 \text { June } & \text { Actual departures } & \begin{array} { l } \text { Revised estimate of departures } \\\text { before the option vests }\end{array} \\\hline 2010 & 4 & \text { Further } 7 \\\hline 2011 & 4 & \text { Further } 4 \\\hline 2012 & 3 & \text { NA } \\\hline\end{array}$$
By the end of year 2011 the company's share price had fallen and it decides to re-price the options.At this time the fair value of the original options is estimated to be $5 and the fair value of the re-priced options is estimated to be $8.
What is the employee benefits expense of Liverpool Ltd related to this share option for the year ended 30 June 2012?

A) $19 500
B) $22 750
C) $26 500
D) $70 200

Question 59

Wigan Ltd grants 100 options to each of its 80 employees on 1 July 2009.The fair value of each option at grant date is $20.The vesting conditions allow shares to vest if the following performance targets are achieved:
$$\begin{array} { | l | l | } \hline \text { Year ending } 30 \text { June } & { \text { Condition } } \\\hline 2010 & \text { If earnings have increased by } > 18 \% \\\hline 2011 & \begin{array} { l } \text { If earnings have increased by } > 13 \% \text { averaged across } \\\text { the 2 year period }\end{array} \\\hline 2012 & \begin{array} { l } \text { If earnings have increased by at least } 10 \% \text { averaged } \\\text { across the 3 year period }\end{array} \\\hline\end{array}$$
The following information is available:

In accordance with AASB 2,how much employee benefits expense related to the share option issue should Wigan Ltd recognise for the year ended 30 June 2010?

A) $48 000
B) $49 333
C) $72 000
D) $74 000

Question 60

On 1 July 2009,Windermere Ltd grants 200 share options to each of its 100 employees.The share option is conditional upon the employee working for the entity when the share option vests and the entity achieving the following non-market vesting conditions:
$$\begin{array} { | l | l | } \hline \text { Year ending } 30 \text { June } & { \text { Condition } } \\\hline 2010 & \text { If earnings have increased by } > 18 \% \\\hline 2011 & \begin{array} { l } \text { If earnings have increased by } > 13 \% \text { averaged across } \\\text { the 2 year period }\end{array} \\\hline 2012 & \begin{array} { l } \text { If earnings have increased by at least } 10 \% \text { averaged } \\\text { across the 3 year period }\end{array} \\\hline\end{array}$$
If the employee resigns before the share option vests,the share option is forfeited.

On 30 June 2012,based on probability estimates how many employees are expected to be employed by Windermere Ltd when the share vests?

A) 78
B) 82
C) 88
D) 90

Question 61

Winton Ltd grants 100 options to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for 3 years.The fair value of each option at grant date is $15. The following information is available:
$$\begin{array} { | l | l | l | } \hline \text { Year ending 30 June } & \begin{array} { l } \text { Estimate of departures before the } \\\text { option vests }\end{array} & \begin{array} { l } \text { Fair value of option at end of } \\\text { period }\end{array} \\\hline 2010 & 10 & \$ 14 \\\hline 2011 & 12 & \$ 18 \\\hline 2012 & 14 \text { (actual) } & \$ 20 \\\hline\end{array}$$
What is the employee benefits expense of Winton Ltd related to this share option for the year ended 30 June 2010,2011 and 2012 respectively?

A) $18 667; 26 933; 26 400
B) $20 000; 20 000; 20 000
C) $20 000, $18 000; $16,000
D) $26 667; $24 000; $21 333

Question 62

Discuss the accounting treatment required in AASB 2 with respect to share-based payment transactions with cash alternatives.

Question 63

Are there parties that would benefit from the accounting requirements of AASB 2?
Discuss.

Question 64

Penneshaw Ltd grants 100 options to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for 3 years.The fair value of each option at grant date is $15. The following information is available:
$$\begin{array} { | l | l | l | } \hline \text { Year ending 30 June } & \begin{array} { l } \text { Estimate of departures before the } \\\text { option vests }\end{array} & \begin{array} { l } \text { Fair value of option at end of } \\\text { period }\end{array} \\\hline 2010 & 10 & \$ 14 \\\hline 2011 & 12 & \$ 18 \\\hline 2012 & 14 \text { (actual) } & \$ 20 \\\hline\end{array}$$
What is the employee benefits expense of Penneshaw Ltd related to this share option for the year ended 30 June 2012?

A) $16 000
B) $20 000
C) $21 333
D) $26 400

Question 65

Briefly describe the keys points of AASB 2.

Question 66

AASB 2 requires entities to disclose information relating to:

A) measurement details of options.
B) details of share-based payment arrangements that were modified during the period.
C) measurement details of other equity instruments (excluding options).
D) all of the given answers.

Question 67

Mission Beach Ltd grants 100 options to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for 3 years.The fair value of each option at grant date is $15. The following information is available:
$$\begin{array} { | l | l | l | } \hline \text { Year ending 30 June } & \begin{array} { l } \text { Estimate of departures before the } \\\text { option vests }\end{array} & \begin{array} { l } \text { Fair value of option at end of } \\\text { period }\end{array} \\\hline 2010 & 10 & \$ 14 \\\hline 2011 & 12 & \$ 18 \\\hline 2012 & 14 \text { (actual) } & \$ 20 \\\hline\end{array}$$
What is the employee benefits expense of Mission Beach Ltd related to this share option for the year ended 30 June 2011?

A) $18 000
B) $20 000
C) $24 000
D) $26 933

Question 68

Discuss the hierarchy to follow in determining which fair values to use in a share-based payment transaction that is consistent with AASB 2.

Question 69

Explain why senior managers or executives have share options as part of their remuneration.

Question 70

Which of the following is not a main heading for AASB 2 disclosures?

A) the nature and extent of share-based payment arrangements
B) how the fair value of goods or services received or equity instruments granted were determined
C) fair value of a similar equity instrument
D) effect from shared-based transactions on the profit or loss for the period

Question 71

Discuss the three main headings required to be disclosed by AASB 2 with respect to share-based payments.

Question 72

When options are issued,the amount that must be paid to acquire the shares is referred to as:

A) the current share price.
B) the strike price.
C) the fair value of the share price.
D) net realisable value of the share price.

Question 73

Why are equity instruments in a share-based payment transactions modified?
What is the accounting treatment for such modifications that is consistent with AASB 2?

Question 74

Longreach Ltd grants 100 options to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for 3 years.The fair value of each option at grant date is $15. The following information is available:
$$\begin{array} { | l | l | l | } \hline \text { Year ending 30 June } & \begin{array} { l } \text { Estimate of departures before the } \\\text { option vests }\end{array} & \begin{array} { l } \text { Fair value of option at end of } \\\text { period }\end{array} \\\hline 2010 & 10 & \$ 14 \\\hline 2011 & 12 & \$ 18 \\\hline 2012 & 14 \text { (actual) } & \$ 20 \\\hline\end{array}$$
What is the employee benefits expense of Longreach Ltd related to this share option for the year ended 30 June 2010?

A) $18 667
B) $20 000
C) $26 667
D) $56 000

Question 75

Discuss why equity-settled share-based payments may also be issued with market conditions.

Question 76

Discuss the recognition principles required in AASB 2 when an entity issues a share-based transaction instrument that has vesting conditions?
According to AASB 2,if something vests it has become an unconditional entitlement.Specifically,AASB defines to 'vest' as:
To become an entitlement.Under a share-based payment arrangement,a counterparty's right to receive cash,other assets,or equity instruments of the entity vests when the counterparty's entitlement is no longer conditional on the satisfaction of any vesting conditions.
The 'counterparty',as referred to in this definition,is the party providing the goods or services to the reporting entity.
Vesting conditions are:
the conditions that determine whether the entity receives the services that entitle the counterparty to receive cash,other assets or equity instruments of the entity,under a share-based payment arrangement.Vesting conditions are either service conditions or performance conditions.Service conditions require the counterparty to complete a specified period of service.Performance conditions require the counterparty to complete a specified period of service and specified performance targets to be met (such as a specified increase in the entity's profit over a specified period of time).A performance condition might include a market condition.
For more information refer to 'Have the entitlements vested?
'

Question 77

AASB 2 states that when goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets,they shall be recognised as:

A) liabilities.
B) equity.
C) income.
D) expenses.