Deck 14: Share Based Payment

Question 1

Which of the following is not within the scope of AASB 2 Share-based Payment?

A) Equity instruments granted to employees of the acquiree in a business combination in their capacity as an employee.
B) Cancellation, replacement or other modification of share-based payment arrangements because of a business combination.
C) Cancellation, replacement or other modification of share-based payment arrangements because of other equity restructuring.
D) Transactions in which the entity receives or acquires goods or services as part of the net assets acquired in a business combination to which IFRS 3 Business Combinations applies.

Answer 1

D

Question 2

Which of the following is within the scope of AASB 2 Share-based Payment?

A) Cancellation, replacement or modification of share-based payments arising because of a business combination or restructuring.
B) Transactions in which the entity receives or acquires goods or services as part of the net assets acquired in a business combination to which IFRS 3 Business Combinations applies.
C) Transaction in which the entity receives or acquired goods or services under a contract which is within the scope of AASB 139 Financial Instruments: Recognition & Measurement.
D) Transactions with employees in the employee's capacity as a holder of equity instruments of the entity.

Answer 2

A

Question 3

On 1 July 2022, Geoffrey Limited granted 250 options to each of its 100 employees. The options are conditional on the employees remaining with the company for the 2 year vesting period. The options have a fair value of $15 at vesting date. In addition, the shares will vest as follows: On 30 June 2023 if the company's earnings have increased by more than 15%.
On 30 June 2024 if the company's earnings have increased by more than 12% averaged across the 2 year period.
At 30 June 2033 Geoffrey's earnings have increased by 12% and 5 employees have left.
The company expects that earnings will continue to increase at a similar rate during the year to 30 June 2024 and that the shares will vest at that time. It also expects that a further 7 employees will leave during the year.
The remuneration expense for the year ended 30 June 2022 for Geoffrey is:

A) $178 125
B) $330 000
C) $187 500
D) $165 000

Answer 3

D

Question 4

In relation to equity instruments granted by an entity where the entity makes modifications to the terms and conditions attaching to the grant:

A) if the modification occurs during the vesting period, the incremental fair value is recognised immediately.
B) terms or conditions may not be modified in a manner that is not beneficial to the employee.
C) where the exercise price of options is modified, the fair value of the options changes.
D) the incremental fair value is measured as the difference between the fair value of the modified instrument, estimated at the date of modification and that of the original equity instrument, estimated at the date of original granting.

Question 5

How are reload features accounted for?

A) As a market condition.
B) Separately from the initial options granted.
C) Included in the fair value of the initial options granted at measurement date.
D) As a modification to the initial terms and conditions of the initial options granted.

Question 6

On 1 July 2021 Salt & Pepper Limited granted 200 share options to each of its 50 employees. Each grant is conditional on the employee working for the company for the next two years. The fair value of each option is estimated to be $8.00. Salt & Pepper estimates that 6% of its employees will leave during the two year period and therefore forfeit their rights to the share options. During the year ended 30 June 2022 five employees left. At this time the company revised its estimate of total employee departures over the full two-year period to 10%.
During the year ended 30 June 2023 a further 4 employees left.
The amount to be recognised as an expense by Salt & Pepper for the year ended 30 June 2022 is:

A) $36 000.
B) $72 000.
C) $40 000.
D) $80 000.

Question 7

Bolder Limited grants 1000 share options to each of its 80 employees. Each grant is conditional on the employee working for the company for the next two years. The fair value of each option is estimated to be $10.00 at grant date and $12.50 at vesting date. The amount to be recognised as an expense by Bolder Limited in year 2 is:

A) $400 000.
B) $800 000.
C) $200 000.
D) $1 000 000.

Question 8

On 1 July 2021 Lucas Ltd grants 100 options to each of its 40 employees conditional on the employee remaining in service over the next three years. The fair value of each option is estimated to be $12. Lucas also estimates that 10 employees will leave over the three year vesting period. By 30 June 2022 four employees have left and the entity estimates that a further eight employees will leave over the next two years.
On 30 June 2022 Luca decided to reprice its share options, due to a fall in its share price over the last 12 months. At the date of repricing, Lucas estimates that the fair value of each original option is $3 and the fair value of each repriced option is $5.
During the year ended 30 June 2023 a further four employees left and Lucas estimates that another six employees will leave during the next year.
During the year ended 30 June 2024 only three employees left. The share options vested on 30 June 2024.
The cumulative remuneration expense for the year ended 30 June 2023 is:

A) $21 200
B) $32 400
C) $45 600
D) $60 000

Question 9

In situations where an option-pricing model is required to be used to determine the fair value of equity instruments granted, the accounting standard, AASB 2 Share-based Payment:

A) requires the use of a binominal option-pricing model.
B) requires the use of the Black-Scholes-Merton formula.
C) allows the entity to choose the option-pricing model it wishes to use, but contains a number of factors that the option-pricing model selected must take into account as a minimum.
D) requires expected dividends to be taken into account when measuring the shares or options granted.

Question 10

On 1 July 2019 Fraser Ltd granted 200 options to each of its 100 employees. The share options will vest on 30 June 2021 if the employees remain employed with the company on that date. The share options have a life of four years. The exercise price is $10, which is also Fraser's share price at the grant date. Fraser is unable to reliably estimate the fair value of the share options at the grant date. Fraser's share price and the number of options exercised are set out below. Share options may only be exercised at year end.
$$\begin{array} { | l | l | l | } \hline \text { Year ended } & \begin{array} { l } \text { Share price } \\\text { at year end }\end{array} & \begin{array} { l } \text { Number of options } \\\text { exercised at year end }\end{array} \\\hline \text { 30 Jure } 2020 & \$ 11 & - \\\hline \text { 30 Jurne } 2021 & \$ 12 & - \\\hline 30 \text { Jure } 2022 & \$ 13 & { 8 2 0 0 } \\\hline \text { 30 Jure } 2023 & \$ 14 & 10000 \\\hline\end{array}$$ The formula to calculate the remuneration expense for the year ended 30 June 2022 is:

A) 8200 x ($13-$12)
B) 8200 x $13
C) (8200 + 10 000) x ($13-$10)
D) (8200 + 10 000) x ($13-$12)

Question 11

On 1 July 2021, Denver Ltd granted 800 share options with an exercise price of $25 to the CFO, conditional on the CFO remaining in employment with the company until 30 June 2024. The exercise price will drop to $20 if Denver's earnings increase by an average of 10% per year over the three year period. On 1 July 2021 the estimated fair value of the share options with an exercise price of $25 is $15 per option, and if the exercise price is $20, the estimated fair value of the options is $18 per option. During the year ended 30 June 2022 Denver's earnings increased by 10% and they are expected to continue to increase at this rate over the next two years.
During the year ended 30 June 2023 Denver's earnings increased by 8% and Denver management expected that the earnings target would be achieved.
During the year ended 30 June 2024 Denver's earnings increased by 12%.
When calculating the remuneration expense to be recognised for the year ended 30 June 2023 which of the following dollar values should be included in the calculation?

A) $15.
B) $18.
C) $20.
D) $25.

Question 12

On 1 July 2021 Pearl Pty Ltd granted 800 share options with an exercise price of $35 to the Finance Director, conditional on the Finance Director remaining in employment with the company until 30 June 2024. The fair value of Pearl's shares at that time were assessed to be $40. The exercise price will drop to $30 if Pearl's earnings increase by an average of 8% per year over the three year period. On 1 July 2021 the estimated fair value of the share options with an exercise price of $35 is $10 per option, and if the exercise price is $30, the estimated fair value of the options is $12 per option. During the year ended 30 June 2022 Pearl's earnings increased by 10% and they are expected to continue to increase at this rate over the next two years.
During the year ended 30 June 2023 Pearl's earnings increased by 9% and Pearl management continued to expect that the earnings target would be achieved.
During the year ended 30 June 2024 Pearl's earnings increased by only 2%. At 30 June 2024 the share price is $23.
Assuming that the Finance Director decides not to exercise his options at 30 June 2024, the following entry would be recorded:

A) DR Wages expense; CR Options issued (equity)
B) DR Options issued (equity); CR Lapsed options reserve
C) DR Options issued (equity); CR Retained earnings
D) DR Options issued (equity); CR Wages expense

Question 13

In relation to modifications to the terms and conditions on which equity instruments were granted as part of an employee share scheme, which of the following statements is correct?

A) A reduction in the exercise price of options will reduce the fair value of the share options.
B) A reduction in a performance hurdle relating to profitability targets will reduce the fair value of the options.
C) An increase in the number of equity instruments granted is not an example of a modification.
D) A shortening of the vesting period will increase the fair value of the share options.

Question 14

On 1 July 2021 Lucas Ltd grants 100 options to each of its 40 employees conditional on the employee remaining in service over the next three years. The fair value of each option is estimated to be $12. Lucas also estimates that 10 employees will leave over the three year vesting period. By 30 June 2022 four employees have left and the entity estimates that a further eight employees will leave over the next two years.
On 30 June 2022 Luca decided to reprice its share options, due to a fall in its share price over the last 12 months. At the date of repricing, Lucas estimates that the fair value of each original option is $3 and the fair value of each repriced option is $5.
During the year ended 30 June 2023 a further four employees left and Lucas estimates that another four employees will leave during the next year.
During the year ended 30 June 2024 only three employees left. The share options vested on 30 June 2024.
The remuneration expense for the year ended 30 June 2022 is:

A) $11 200
B) $12 000
C) $13 500
D) $14 000

Question 15

A share-based payment transaction in which the entity receives goods or services as consideration for equity instruments of the entity is classified, in AASB 2 Share-based Payment, as:

A) an equity-settled share-based payment transaction.
B) a liability-settled share-based payment transaction.
C) a cash-settled share-based payment transaction.
D) an 'other' share-based payment transaction.

Question 16

On 1 July 2019 Fraser Ltd granted 200 options to each of its 100 employees. The share options will vest on 30 June 2021 if the employees remain employed with the company on that date. The share options have a life of four years. The exercise price is $10, which is also Fraser's share price at the grant date. Fraser is unable to reliably estimate the fair value of the share options at the grant date. Fraser's share price and the number of options exercised are set out below. Share options may only be exercised at year end.
$$\begin{array} { | l | l | l | } \hline \text { Year ended } & \begin{array} { l } \text { Share price } \\\text { at year end }\end{array} & \begin{array} { l } \text { Number of options } \\\text { exercised at year end }\end{array} \\\hline \text { 30 Jure } 2020 & \$ 11 & - \\\hline \text { 30 Jurne } 2021 & \$ 12 & - \\\hline 30 \text { Jure } 2022 & \$ 13 & { 8 2 0 0 } \\\hline \text { 30 Jure } 2023 & \$ 14 & 10000 \\\hline\end{array}$$ The cumulative remuneration expense to be recognised by Fantasy as at 30 June 2021 is:

A) $8 200
B) $18 200
C) $36 400
D) $182 000

Question 17

On 1 July 2021, Norman Pty Ltd granted 100 options to each of its 50 employees. The options are conditional on the employees remaining with the company for the 3 year vesting period. The options have a fair value of $5.00 at vesting date. In addition, the shares will vest as follows: On 30 June 2022 if the company's earnings have increased by more than 12%.
On 30 June 2023 if the company's earnings have increased by more than 10% averaged across the 2 year period.
On 30 June 2024 if the company's earnings have increased by more than 8% averaged across the 3 year period.
At 30 June 2022 Norman Pty Ltd's earnings have increased by 11% and 2 employees have left.
The company expects that earnings will continue to increase at a similar rate during the year to 30 June 2023 and that the shares will vest at that time. It also expects that a further 3 employees will leave during the year. The remuneration expense for the year ended 30 June 2022 for Norman Pty Ltd is:

A) $12 500
B) $25 000
C) $11 250
D) $22 500

Question 18

On 1 July 2021 Pearl Pty Ltd granted 800 share options with an exercise price of $35 to the Finance Director, conditional on the Finance Director remaining in employment with the company until 30 June 2024. The fair value of Pearl's shares at that time were assessed to be $40. The exercise price will drop to $30 if Pearl's earnings increase by an average of 8% per year over the three year period. On 1 July 2021 the estimated fair value of the share options with an exercise price of $35 is $10 per option, and if the exercise price is $30, the estimated fair value of the options is $12 per option. During the year ended 30 June 2022 Pearl's earnings increased by 10% and they are expected to continue to increase at this rate over the next two years.
During the year ended 30 June 2023 Pearl's earnings increased by 9% and Pearl management continued to expect that the earnings target would be achieved.
During the year ended 30 June 2024 Pearl's earnings increased by only 2%. At 30 June 2024 the share price is $23.
The remuneration expense to be recognised for the year ended 30 June 2022 is:

A) $2667.
B) $3200.
C) $8000.
D) $9600.

Question 19

As per AASB 2 Share-based Payment, a/an share-based payment transaction is one in which the entity acquires goods or services by incurring liabilities to the supplier for amounts that are based on the value of the entity's shares or other equity instruments of the entity.

A) equity-settled
B) liability-settled
C) cash-settled
D) "other"

Question 20

Abbott Limited grants 500 share options to each of its 20 employees. Each grant is conditional on the employee working for the company for the next three years. The fair value of each option is estimated to be $6.00 at grant date and $8.00 at vesting date. The amount to be recognised as an expense by Abbott Limited in year 2 is:

A) $40 000.
B) $20 000.
C) $60 000.
D) $80 000.

Question 21

Which of the following statements in relation to disclosures required under AASB 2 Share-based Payment is not correct?

A) Option pricing models used in valuing share options must be identified.
B) The number and weighted average exercise price of share options outstanding at the beginning and end of each period must be disclosed.
C) Information about share-based payment arrangements that are substantially the same may be aggregated.
D) The total expense arising from share-based payment transactions in which the services qualified for recognition as an asset must be disclosed.

Question 22

On 1 July 2021 Polly Ltd grants 300 options to each of its 100 employees conditional on the employee remaining in service over the next three years. The fair value of each option is estimated to be $12. Polly estimates that 15 employees will leave over the three year vesting period. By 30 June 2022 four employees have left and the entity estimates that a further ten employees will leave over the next two years.
On 30 June 2022 Polly decided to reprice its share options, due to a fall in its share price over the last 12 months. The repriced share options will vest on 30 June 2024. At the date of repricing, Polly estimates that the fair value of each original option is $3 and the fair value of each repriced option is $5.
During the year ended 30 June 2023 a further 6 employees leave and Polly estimates that another 3 employees will leave during the year ended 30 June 2024.
During the year ended 30 June 2024 four employees left. The entry at 30 June 2023 to account for the share based payment transaction is:

A) DR Wages expense; CR Cash
B) DR Wages expense; CR Options issued (equity)
C) DR Wages expense; CR Share capital
D) DR Wages expense; CR Liability to employee

Question 23

Which of the following disclosures is not required under AASB 2 Share-based Payment?

A) For liabilities arising from share-based payment transactions: the total intrinsic value at the end of the period for liabilities where the counter party's right had not yet vested.
B) For arrangements that were modified during the year: the incremental fair value granted as a result.
C) The weighted average price of share options at the date of exercise for options exercised during the period.
D) A description of the share-based payment plan, including the general terms and conditions, vesting requirements, maximum term of options granted and method of settlement must be disclosed.

Question 24

In a share based payment transaction where the entity has settlement choice, which of the following statements is true?

A) the entity must settle in equity unless there is no commercial substance to the transaction.
B) if an entity elects to settle in cash the settlement is accounted for as an expense.
C) where a present obligation does not exist the entity has a choice of classification as an equity or cash settled share based payment transaction.
D) the entity has a present obligation to settle in cash where it has a past practice or stated policy of settling in cash.