IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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

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natives are either receiving 1,000 shares of Doc six months after the purchase date (valued at $ 110,000 at the date of purchase) or receiv ing a cash payment equal to the fair value of 800 shares as of Decem– ber3 l, 20X4 (estimated value $90,000 at the date of purchase). What should be the accounting entry at the date of purchase of the inventory? (a) Inventory $90,000, liability $90,000. (b) Inventory $100,000 , liability $ 100,000. (c) Inventory $ 100,000, liability $ 110,000, in– tangible asset $10,000. (d) Inventory $100,000, liability $90,000, equity $ 10,000. Answer: (d) 16.A. In the tax jurisdiction of Mack, a public limited company, a tax deduction is allowed for the intrinsic value of the share options issued to employees. The company issued options on January I, 20X4, worth $ 15 million to employees. They vest in three years. The share options' intrinsic value at December 3 1, 20X4, was $ 12 million. The tax rate in the jurisdiction is 30%. What is the tax effect of the above issue of share options at December 3 1, 20X4? (a) $ 1.5 million benefit to income statement. (b) $ 1.2 million benefit to income statement. (c) $ 1.5 million benefit recognized in equity. (d) $ 1.2 million benefit recognized in equity. Answer: (b) At December 31, 20X4, 30% of $12 milli on di vided by three yea rs = $ 1.2 million to income sta tement as the ta x effect of th e cumula– tive remuner ation expense exceed s th e tax benefit ($5 mill ion @ 30% compa r ed with $4 million @ 30 % ). B. In the above example, what would be the tax effect if the intrinsic value at December 3 1, 20X4, was $21 million? (a) $2. 1 million tax benefit to income. (b) $2.1 million recognized in equity. (c) $ 1.5 million tax benefit to income, $0.6 mil– lion recognized in equity. (d) $ 1.5 million recognized in equity, $0.6 mil- lion tax benefit to income. Answer: (c) A portion of the ta x ben efit is r ecog– nized in equity as the tax ben efit of $21 milli on x 1/3 x 30% ($2.1 million), exceeds the tax effect of the accumulated remunera tion expense $15 million x 1/3 x 30% ($1.5 million).