Question 1

An entity should recognise the cost fo of profit sharing plans as an expense not as a distribution of profits.

Accepted Answer

Profit sharing plans are a form of employee compensation and should be recognised as an expense in the entity's financial statements. They should not be viewed as a distribution of profits, which is a separate concept. By recognising the cost of these plans as an expense, the entity can accurately reflect the impact of employee compensation on its financial performance.

Question 2

Regarding defined benefit plan which of the following is an entity not required to disclose?&#10;A)the characteristics and risk of the plan&#10;B)the amounts in the financial statements that arise from the plan.&#10;C)how the defined benefit plan may affect the amounts,timing and uncertainty of the future cash flows.&#10;D)a comparison with other similar plans.

Accepted Answer

A comparison with other similar plans is not a required disclosure for a defined benefit plan. Entities are required to disclose information about the characteristics and risks of the plan, the amounts in the financial statements arising from the plan, and how the plan may affect future cash flows, but not comparisons with other plans.

Question 3

Which of the following does NOT qualify as equity - based compensation?&#10;A)shares issues to directors&#10;B)share options issued to directors&#10;C)shares issued to employees&#10;D)cash issued to employees where they have the discretion to buy shares.

Accepted Answer

Cash issued to employees where they have the discretion to buy shares does not qualify as equity-based compensation as it is not directly tied to the ownership of shares, unlike options or actual shares issued.

Question 4

Suppose an entity grants 40 share options to each of its 100 employees on the condition that they remain in service for 3 years.The employees may choose to exercise their options at the end of year 3,4 or 5.The payment will be in cash based on the value of the option at the exercise date.During the first year 7 employees leave and the company estimate that 13 people will leave in year 2.In fact,6 leave and the company estimate that 8 will leave in year 3.In the third year 10 people leave.At the end of the third year 10 employees exercise their options; and in year 4 a further 20.The remainder exercise their options in the final year.The company estimates the fair value of the options in years 1 - 4 as €20,€22,€28 & €34 respectively.Intrinsic values in years 3 - 5 are estimated as €2,500,€3,000 & €4,000 respectively. What is the remuneration expense in year 2?

A)€21,333
B)€25,014
C)€38,693
D)€46,347

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Accepted Answer

To calculate the remuneration expense in year 2, we need to first determine how many share options remain outstanding at the end of year 2.

We were initially granted 40 share options per employee, for a total of 4,000 share options (40 x 100). However, 7 employees left in year 1, so we can subtract 280 share options (7 x 40) from the total.

The company estimated that 13 employees would leave in year 2, but only 6 actually did. Therefore, we can subtract 240 share options (6 x 40) from the total that remained after year 1.

So, at the end of year 2, there are 3,480 share options remaining (4,000 - 280 - 240).

The remuneration expense for year 2 is calculated as follows:

Remuneration expense = (fair value of share options in year 2 x remaining share options) / remaining vesting period

The fair value of share options in year 2 is €20, and the remaining vesting period is 2 years (since the share options were granted with a 3-year vesting period and 1 year has already passed).

Therefore, the remuneration expense in year 2 is:

(€20 x 3,480) / 2 = €27,840

So the closest option is B)€25,014.

Question 5

The fair value of equity instruments granted to employees should be measured at the date when the employee sells the shares.

Accepted Answer

The fair value of equity instruments granted to employees should be measured at the grant date, not at the date when the employee sells the shares. This is in accordance with accounting standards such as IFRS 2 and ASC 718.

Question 6

Which of the following is NOT a pay related form of pensions?&#10;A)final pay plan scheme&#10;B)final average pay plan scheme&#10;C)industry average pay plan scheme&#10;D)career average pay plan scheme

Accepted Answer

Final pay plan scheme, final average pay plan scheme, and career average pay plan scheme are all pay related forms of pensions. Industry average pay plan scheme is not pay related, because it is based on the average pay across a particular industry or group of employers, rather than an individual's pay.

Question 7

Under IAS 19 which of the following is NOT a component of the defined benefit cost?&#10;A)the service cost&#10;B)the net interest on the defined net benefit liability&#10;C)the defined benefit liability&#10;D)the re-measurements of the defined benefit liability

Accepted Answer

The defined benefit liability is not a component of the defined benefit cost under IAS 19. The components of the defined benefit cost are the service cost, the net interest on the defined net benefit liability, and the re-measurements of the defined benefit liability.

Question 8

All employee benefits are dealt with under IAS 19

Accepted Answer

While IAS 19 (International Accounting Standard 19) deals with employee benefits, it does not cover share-based payment transactions, which are dealt with under IFRS 2 (International Financial Reporting Standard 2).

Question 9

The difference between the exercise price and the market price is the key value driver of warrants & options.

Accepted Answer

The difference between the exercise price and the market price, also known as the "intrinsic value," is the main determinant of the value of warrants and options. If the intrinsic value is high, the warrant or option is worth more, and vice versa.

Question 10

The rate used to discount post - employment benefit obligations should always be the market rates on government bonds.

Accepted Answer

The rate used to discount post-employment benefit obligations should be based on the yield of high-quality corporate bonds with a maturity profile similar to the liabilities being valued, not just government bonds. This is because post-employment benefit obligations are typically paid out over a longer time frame than government bonds.

Deck 22: Employee Benefits