Deck 18: Accounting for Share-Based Payments

Question 1

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".

Answer 1

False

Question 2

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

Answer 2

False

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

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

Question 5

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 6

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

Question 7

AASB 2 requires the re-measurement of equity-settled transaction at fair value at reporting date.

Question 8

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.

Question 9

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

Question 10

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 11

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

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

Question 15

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 16

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

Question 17

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

Question 18

A share-based payment is a transaction which 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 19

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 20

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 21

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

A) Company A grants 5 000 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) All of the given answers.
E) Company A grants 5 000 options each to its directors in return for services to be received over two years; Company B purchases machinery in exchange for shares.

Question 22

What would be the appropriate journal entry to account for the share-based payment transaction for the year ending 30 June 2010?

A)
B)
C)
D)
E) None of the given answers.

Question 23

What would be the appropriate journal entry to account for the share-based payment transaction for the year ending 30 June 2011?

A)
B)
C)
D)
E) None of the given answers.

Question 24

Which of the following items are considered 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.
E) All of the given answers.

Question 25

What would be the appropriate journal entry to account for the share-based payment transaction for the year ending 30 June 2012?

A)
B)
C)
D)
E) None of the given answers.

Question 26

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

A) 72
B) 75
C) 78
D) 82
E) None of the given answers

Question 27

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 usually exercised early.
D) All of the given answers.
E) 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 28

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

A) 75
B) 78
C) 85
D) 88
E) 90

Question 29

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.
E) Option issued to suppliers for purchase of inventories.

Question 30

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.
E) Goods or services received or acquired in an equity settled share-based payment transaction shall be recognised as expenses when it does not qualify for recognition as assets.

Question 31

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.
E) The entity shall recognise a corresponding increase in liability if the goods or services were acquired in a cash-settled share-based payment transaction.

Question 32

On 1 July 2009 Lancashire Ltd grants 100 share options to each of its 50 employees conditional upon the employee working for the entity for the next three 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 2010 was 12 employees and the fair value of the option is $12 on 30 June 2011.
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
E) $75,000

Question 33

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.
E) $28,600; $26,200; $25,000.

Question 34

On 1 July 2009, 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:

Earnings information available follows:

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

A) 1 July 2009
B) 30 June 2010
C) 30 June 2011
D) 30 June 2012
E) None of the given answers

Question 35

On 1 July 2009 Lancaster Ltd grants 100 share options to each of its 50 employees conditional upon the employee working for the entity for the next three 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 vests. 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 2010?

A) Zero
B) $10,833
C) $32,500
D) $65,000
E) None of the given answers.

Question 36

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.
E) Exchange of shares as part of the purchase of net assets acquired in a business combination.

Question 37

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

Question 38

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

A) grant date.
B) balance date.
C) exercise date.
D) settlement date.
E) None of the given answers.

Question 39

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

A) Company A grants 5,000 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) All of the given answers.
E) Company A grants 5 000 options each to its directors in return for services to be received over two years; Company B purchases machinery in exchange for shares.

Question 40

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

A) date of grant.
B) expiry date of option.
C) date when all vesting conditions are satisfied.
D) balance date.
E) None of the given answers.

Question 41

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
E) None of the given answers

Question 42

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)
B)
C)
D)

Question 43

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)
B)
C)
D)

Question 44

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) Estimate using a valuation technique 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
E) All of the given answers.

Question 45

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.
E) Similar treatment with cash-settled transactions if the entity has incurred a liability to settle in cash or other assets and similar treatment with equity-settled transactions if the entity has not incurred a liability.

Question 46

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
E) $146,000

Question 47

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
E) $144,000

Question 48

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
E) $148,000

Question 49

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
E) None of the given answers

Question 50

On 1 July 2009 York Ltd (a start-up biotech company) grants its senior manager a choice of receiving cash equivalent of 100,000 shares or 120,000 shares. The grant is conditional upon the senior manager working for the entity for three 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 three 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
E) None of the given answers.

Question 51

North Terraces Ltd issued share options to its executives two years ago. The options did not vest and has 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 recognized 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.
E) None of the given answers

Question 52

On 1 July 2009 Chester Ltd granted an executive director a choice between receiving a cash payment equivalent to 5,000 shares or receiving 6,000 shares. The grant is conditional upon the director being under the employ of the entity for three 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) It should be accounted for similar to a compound financial instrument.
D) Recognise salaries benefit expense at vesting date.
E) None of the given answers.

Question 53

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
E) None of the given answers

Question 54

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:

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;
E) $60 000

Question 55

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)
B)
C)
D)

Question 56

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) $9,840
B) $12,000
C) $29,520
D) $36,000
E) None of the given answers

Question 57

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:

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;
E) None of the given answers

Question 58

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)
B)
C)
D)

Question 59

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 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.
E) None of the given answers.

Question 60

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
E) None of the given answers

Question 61

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:

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;
E) None of the given answers

Question 62

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:

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;
E) None of the given answers