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