IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 34 / Share-Based Payments (l FRS 2)

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MULTIPLE-CHOI CE QUESTIONS 1. . Which of the following transactions involving the Issuance of shares does not come within the defi– nition of a "share-based" payment under IFRS 2? (a) Employee share purchase plans. (b) Employee share option plans. (c) Share-based payme nt relating to an acquisi– tion of a subsidiary. (d) Share appreciation rights. An swer: (c) 2. Which of the following is true regarding the re– quirements of IFRS 2? (a) Private companies are exempt. (b) "Small" companies are exempt. (c) Subsidiaries using their parent entity's shares as consideration for goods and ser– vices are exemp t. (d) There are no exemptions from IFRS 2. Answer: (d) 3. An entity issues shares as consideration for the purchase of inventory. The shares were issued on Janu ary I, 20X4. The inventory is eventually sold on December 31, 20X5. The value of the inventory on January I, 20X4, was $3 million. This value was un– changed up to the date of sale. The sale proceeds were $5 million . The shares issued have a market value of $3.2 million . Which of the followi ng statements cor– rectly describe s the accounting treatment of this share-based payment transaction? (a) Equity is increased by $3 million, inventory IS Increased by $3 million; the inventory value is expensed on sale on December 31, 20X5 . (b) Equity is increased by $3.2 million, inven– tory is increased by $3.2 million; the inven– tory value is expensed on sale on De– cember 31, 20X5 . (c) ~q~ity is increased by $3 million, inventory IS Increased by $3 million; the inventory value is expensed over the two years to De– cember 31, 20X5. (d) Equity is increased by $3.2 million, inven–

(c) $300 ,000 (d) $250,000

Answer: (b) S. An entity grants 1,000 share options to each of its five directors on July I, 20X4. The options vest on June 30, 20X8 . The fair value of each option on July I, 2004, is $5, and it is anticipated that all of the share options will vest on June 30, 20X8. What will be the acco unting entry in the financial statements for the year ended June 30, 20X5? (a) Increase equity $25,000, increase in expense income statement $25,000 . (b) Increase equity $5,000, increase in expense income statement $5,000. (c) Increase equity $6,250, increase in expense income statement $6,250. (d) Increase equity zero, increase in expense in- come statement zero . Answer: (c) 6, Entity A is an unlisted entity, and its shares are owned by two directors. The directors have decided to issue 100 share options to an employee in lieu of many years' service . However, the fair value of the share options cannot be reliably measured as the en– tity operates in a highly specialized market where there are no comparable companies. The exercise price is $10 per share. and the options were grante d on January I. 20X4, when the value of the shares was also estimated at $ 10 per share. At the end of the fi– nancial year, December 3 1, 20X4, the value of the shares was estimated at $ 15 per share and the options vested on that date . What value should be placed on the share options issued to the employee for the year ended December 3 1, 20X4? Answer: (c) 7. On June I, 20X4 , an entity offered its employ ees share options subject to the award being ratified in a general meeting of the shareholders. The award was approved by a meeting on September 5, 20X4. The entit,is year-end is June 30. The emp loyees were to receive the share options on June 30, 20X6 . At which date should the fair value of the share optio ns be val– ued for the purposes of IFRS 2? Answer: (e) 8. Many shares and most share options are not traded in an active market. Therefore , it is often diffi– cult to arrive at a fair value of the equity instruments being issued. Which of the following option valuation techniques should not be used as a measure of fair value in the first instance? (a) Black-Scholes model. (b) Binomial model. (a) $ 1,000 (b) $ 1.500 (c) $ 500 (d) $ 250 (a) June I, 20X4. (b) June 30, 20X4. (c) September 5, 20X4. (d) June 30, 20X6.

tory is increased by $3.2 million; the inven– tory value is expensed over the two years to December 31. 20X5 .

Answer: (a) 4.

An entity issues fully paid shares to 200 employ– ees on December 3 1, 20X4 . Normally shares issued to employees vest over a two-year period, but these shares have been given as a bonus to the employees because of their exce ptional performance during the year. The shares have a market value of $500,000 on December 3 1, 20X4 , and an average fair value for the year of $600 ,000. What amount would be expensed in the income statement for the above share-based payment transaction?

(a) $600,000 (b) $500,000