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4. An entity issues fully paid shares to 200 employees on December 31, 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 exceptional performance during the year. The shares have a market value of $500,000 on December 31, 20X4, and an average fair value for the year of $600,000. What amount would be expensed in the statement of comprehensive income for the above share-based payment transaction? a. $600,000 b. $500,000 c. $300,000 d. $250,000 5. An entity grants 1,000 share options to each of its five directors on July 1, 20X4. The options vest on June 30, 20X8. The fair value of each option on July 1, 2004, is $5, and it is anticipated that all of the share options will vest on June 30, 20X8. What will be the accounting entry in the financial statements for the year ended June 30, 20X5? a. Increase equity $25,000, increase in expense statement of comprehensive income $25,000. b. Increase equity $5,000, increase in expense statement of comprehensive income $5,000. c. Increase equity $6,250, increase in expense statement of comprehensive income $6,250. d. Increase equity zero, increase in expense statement of comprehensive income zero. 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 of service. However, the fair value of the share options cannot be reliably measured as the entity operates in a highly specialized market where there are no comparable companies. The exercise price is $10 per share, and the options were granted on January 1, 20X4, when the value of the shares was also estimated at $10 per share. At the end of the financial year, December 31, 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 31, 20X4? a. $1,000 b. $1,500 c. $ 500 d. $ 250 7. On June 1, 20X4, an entity offered its employees 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 entity’s year-end is June 30. The employees were to receive the share options on June 30, 20X6. At which date should the fair value of the share options be valued for the purposes of IFRS 2? a. June 1, 20X4. b. June 30, 20X4. c. September 5, 20X4. d. June 30, 20X6. 8. Many shares and most share options are not traded in an active market. Therefore, it is often difficult 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. c. Monte Carlo model. d. Intrinsic value. Items 9 through 11 are based on the following information: Ashleigh, a public limited company, has granted share options to its employees with a fair value of $6 million. The options vest in three years’ time. The Monte Carlo model was used to value the options, and these estimates had been made: • Grant date (January 1, 20X4): estimate of employees leaving the entity during the vesting period—5% • January 1, 20X5: revision of estimate of employees leaving to 6% before vesting date • December 31, 20X6: actual employees leaving 5% 9. What would be the expense charged in the statement of comprehensive income in year to December 31, 20X4? a. $6 million. b. $2 million. c. $1.90 million. d. $5.70 million. 10. Year to December 31, 20X5? a. $1.90 million. b. $1.88 million. c. $2 million. d. $3.78 million. 11. Year to December 31, 20X6? a. $1.90 million. b. $1.88 million. c. $2 million. d. $1.92 million. 12. Joice, a public limited company, has granted share options to its employees prior to the date from which IFRS 2 became applicable (November 7, 2002). The company decided after the issuance of IFRS 2 to reprice the options. The original exercise price of $20 was repriced at $15 per option. IFRS 2 would require the company to a. Apply the Standard to the share options from the original grant date and ignore the repricing. b. Apply the Standard to the share options from the original grant date, taking into account the repriced award. c. Apply the Standard to the repriced award only.
d. Ignore the Standard for the whole award of share options. 13. An entity has granted share options to its employees. The total expense to the vesting date of December 31, 20X6, has been calculated as $8 million. The entity has decided to settle the award early, on December 31, 20X5. The expense charged in the statement of comprehensive income since the grant date of January 1, 20X3, had been year to December 31, 20X3, $2 million, and year to December 31, 20X4, $2.1 million. The expense that would have been charged in the year to December 31, 20X5, was $2.2 million. What would be the expense charged in the statement of comprehensive income for the year to December 31, 20X6? a. $2.2 million. b. $8 million. c. $3.9 million. d. $2 million. 14. Elizabeth, a public limited company, has granted 100 share appreciation rights to each of its 1,000 employees in January 20X4. The management feels that as of December 31, 20X4, 90% of the awards will vest on December 31, 20X6. The fair value of each share appreciation right on December 31, 20X4, is $10. What is the fair value of the liability to be recorded in the financial statements for the year ended December 31, 20X4? a. $300,000 b. $10 million c. $100,000 d. $90,000 Items 15 and 16 are based on the following information: Jay, a public limited company, has granted 20 share appreciation rights to each of its 500 employees on January 1, 20X4. The rights are due to vest on December 31, 20X7, with payment being made on December 31, 20X8. Assume that 80% of the awards vest. Share prices are January 1, 20X4 15 December 31, 20X4 18 December 31, 20X7 21 December 31, 20X8 19 15. What liability will be recorded on December 31, 20X7, for the share appreciation rights? a. $ 60,000 b. $210,000 c. $ 48,000 d. $150,000 16. How should the settlement of the transaction be accounted for on December 31, 20X8? a. Payment to employees of $32,000, no gain recorded. b. Payment to employees of $16,000, gain of $32,000 is recorded. c. Payment to employees of $48,000, no gain recorded. d. Payment to employees of $32,000, gain of $16,000 is recorded. 17. Doc, a public limited company, has purchased inventory of $100,000. The company has offered the supplier a choice of settlement alternatives. The alternatives are either receiving 1,000 shares of Doc six months after the purchase date (valued at $110,000 at the date of purchase) or receiving a cash payment equal to the fair value of 800 shares as of December 31, 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, intangible asset $10,000. d. Inventory $100,000, liability $90,000, equity $10,000. 18. 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 1, 20X4, worth $15 million to employees. They vest in three years. The share options’ intrinsic value at December 31, 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 31, 20X4? a. $1.5 million benefit to statement of comprehensive income. b. $1.2 million benefit to statement of comprehensive income. c. $1.5 million benefit recognized in equity. d. $1.2 million benefit recognized in equity. 19. In the previous question, what would be the tax effect if the intrinsic value at December 31, 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 million recognized in equity. d. $1.5 million recognized in equity, $0.6 million tax benefit to income. $
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Title Page Copyright Page Foreword
Page 6 and 7:
DIVIDENDS DISCLOSURE: KEY ELEMENTS
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CONSOLIDATED FINANCIAL STATEMENTS A
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ELABORATION AND INTERPRETATION OF T
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MULTIPLE-CHOICE QUESTIONS Chapter 3
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FOREWORD TO THE FIRST EDITION by th
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PREFACE Achieving consistency in fi
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ABOUT THE AUTHORS Abbas Ali Mirza i
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ecognition and use of IFRS. A major
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SIC 12, Consolidation—Special-Pur
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The IFRS Advisory Council shall com
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Chapter 2 IASB FRAMEWORK INTRODUCTI
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ELEMENTS OF FINANCIAL STATEMENTS Th
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Chapter 3 PRESENTATION OF FINANCIAL
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XYZ Inc. is a manufacturer of telev
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Statement of Comprehensive Income I
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Available-for-sale financial assets
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Notes The notes should disclose the
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equired by the counterparty to sett
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The costs of purchase constitute al
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Based on the FIFO cost flow assumpt
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• Accounting policies adopted for
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f. Choices a and c. g. Choices a, b
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1. They should be “short term”
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2. Proceeds from disposal of debt i
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1. Cash collections from customers
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3. Placements and withdrawals of de
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Additional Information Retained ear
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c. Indirect Method Cash paid to sup
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Notes to the Consolidated Cash Flow
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Chapter 6 ACCOUNTING POLICIES, CHAN
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een applied. The impact of the new
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• For current and each prior peri
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An entity should disclose amounts a
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Notes to the Financial Statements (
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d. The entity would find the determ
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Given these facts, what is the “a
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existed at the end of the reporting
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Chapter 8 CONSTRUCTION CONTRACTS (I
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2. Costs that are attributable to c
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4. Revenue, costs, and profits to b
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Facts 34 Construction contracts Mil
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ecognized as revenue. Therefore, $7
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The Standard Applies to the Account
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ACCOUNTING FOR DEFERRED TAX To acco
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TEMPORARY DIFFERENCES NOT RECOGNIZE
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Required Show the impact on the fin
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Solution Zero. There is no temporar
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Solution Facts CASE STUDY 13 East i
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Since 20X4, Frontier has incurred s
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calculated that the liability and e
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Chapter 10 PROPERTY, PLANT, AND EQU
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Required 2. Initial delivery and ha
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disposal. Any gain on disposal is t
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financing liability and the financi
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Chapter 11 LEASES (IAS 17) BACKGROU
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the fair value of the asset. During
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ate in the lease is 9.3% (approxima
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Discuss how this transaction should
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The basic lease accounting model ha
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6. The lease of land and buildings
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Chapter 12 REVENUE (IAS 18) BACKGRO
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• Do not involve the same counter
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• The costs incurred and the cost
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Up to March 31, 20X9, the value of
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e that the real estate developer as
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Turnover is recognized when the ris
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Chapter 13 EMPLOYEE BENEFITS (IAS 1
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The accounting for a defined contri
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The amount of the expense or income
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• Fair value of plan assets: $50
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8. Past service cost: $115 million.
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Pensions Employee costs Employee co
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9. An entity operates a defined ben
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For quite some time, it has been un
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Solution Citimart Inc. would need t
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The Standard does not favor either
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Chapter 15 THE EFFECTS OF CHANGES I
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Facts An entity purchases equipment
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The exchange difference is calculat
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disposal was recognized. The same a
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Difference 7 Total 89.5 (say 90m) T
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ate on December 31, 20X9 is $1 =
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On December 1, 2009, Compassionate
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1. In order to capitalize the borro
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Chapter 17 RELATED-PARTY DISCLOSURE
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Solution Yes, under IAS 24 (revised
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warrant disclosure because it may n
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Facts Zeeba Inc. is part of a major
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The Used Equipment Co (Pty) Limited
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Key management personnel are define
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Chapter 18 ACCOUNTING AND REPORTING
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Total accounts payable 41,000 Accru
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Employee contributions 50,000 Total
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Chapter 19 CONSOLIDATED AND SEPARAT
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2. Noncontrolling interests in the
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When an entity loses control of a s
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Initially, the fair value of the as
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c. The ultimate parent entity produ
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EQUITY METHOD Under the equity meth
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What is the relationship between Co
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What amount should be shown in A’
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(f) (g) (h) December 31 60 73 Assoc
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. The carrying value of the associa
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PRACTICAL INSIGHT Turkiye Petrol Ra
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Cash 5,150 Share capital (300/100
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Chapter 22 INTERESTS IN JOINT VENTU
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Facts Three entities decide to form
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current period (IFRIC 1.5). Thus in
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Methods of valuation techniques use
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of impairment exists, the carrying
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Chapter 23 FINANCIAL INSTRUMENTS: P
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Contracts for contingent considerat
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has the unconditional right to refu
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principal and interest cash flows)
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On January 15, 20X5, Entity A issue
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instruments. A financial instrument
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The major components of market risk
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Credit risk is the risk that a cust
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1. Are there any circumstances when
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• A purchased put option to sell
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• Sales that are so close to matu
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eceived nothing on entering into th
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price plus interest. In this case,
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CASE STUDY 4 This case illustrates
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financial liabilities measured at f
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Example If Entity A receives a cash
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If the reporting period does not co
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cash flow pattern, credit quality,
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of the cash flows. 2. Entity A purc
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PRACTICAL INSIGHT IAS 39 does not p
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This case illustrates how to accoun
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This case illustrates how to accoun
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This case illustrates when to separ
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change in fair value of the derivat
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A cash flow hedge is a hedge of the
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This case illustrates the accountin
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PRACTICAL INSIGHT It is often possi
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Derivatives are measured on the bal
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15. Which of the following is not o
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• As amounts attributable to the
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The theoretical ex-rights fair valu
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Diluted earnings per share Adjusted
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Earnings: diluted earnings per shar
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• Basic and diluted earnings per
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The numbers of shares included in t
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Chapter 26 INTERIM FINANCIAL REPORT
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should be applied and previously re
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Consolidated balance sheet at June
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1. Under IAS 34, interim financial
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was $5 million. It was planned at t
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development costs. An impairment lo
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The fair value less cost to sell of
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can be reasonably allocated. 3. Thi
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PRACTICAL INSIGHT Austrian Airlines
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Impairments charge in the year Ther
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. Loss on goodwill. c. Loss on a bu
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Recognition of Provisions Those lia
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An onerous contract is an agreement
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In order to recognize a provision (
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A Singapore-based shipping company
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c. Because Amazon Inc. can avoid th
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In order to meet the definition of
Page 330 and 331: Examples of activities that may fai
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Page 334 and 335: Entities are to apply the provision
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Page 338 and 339: Chapter 30 INVESTMENT PROPERTY (IAS
Page 340 and 341: If, on acquisition, it is not possi
Page 342 and 343: pool in which the fair value model
Page 344 and 345: Chapter 31 AGRICULTURE (IAS 41) BAC
Page 346 and 347: Required Value of biological asset
Page 348 and 349: 2-year-old animal at November 1, 20
Page 350 and 351: Notes to Group Financial Statements
Page 352 and 353: d. There is no requirement in the S
Page 354 and 355: Financial statements presented by a
Page 356 and 357: Solution In order to prepare the op
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Page 360 and 361: 2. No journal entry is required as
Page 362 and 363: IFRS 1 discusses exemptions under t
Page 364 and 365: Solution In valuing the shares of V
Page 366 and 367: • Unilever was an early adopter (
Page 368 and 369: Chapter 33 SHARE-BASED PAYMENTS (IF
Page 370 and 371: date of the cancelation is deducted
Page 372 and 373: party, to satisfy its obligations t
Page 374 and 375: Playful has ordered an amount of in
Page 376 and 377: May 31, 20X8 August 1, 20X8 5,000
Page 378 and 379: Should the plans be valued at fair
Page 382 and 383: Chapter 34 BUSINESS COMBINATIONS (I
Page 384 and 385: Future losses or other costs that a
Page 386 and 387: 93 Interest (13) Profit before tax
Page 388 and 389: This choice of method of accounting
Page 390 and 391: The error in 20X9, regarding the om
Page 392 and 393: This makes a total NCI of $554m. c)
Page 394 and 395: $m J retained earnings 360 Share of
Page 396 and 397: Intercompany transactions and the r
Page 398 and 399: 11. The “excess of the acquirer
Page 400 and 401: Chapter 35 INSURANCE CONTRACTS (IFR
Page 402 and 403: Required Discuss how the reinsuranc
Page 404 and 405: Guaranteed residual values Guarante
Page 406 and 407: Chapter 36 NONCURRENT ASSETS HELD F
Page 408 and 409: SUNDRY POINTS Exchanges of noncurre
Page 410 and 411: Before classification of the item a
Page 412 and 413: Noncurrent assets Current assets No
Page 414 and 415: c. At carrying value. d. In accorda
Page 416 and 417: IAS 8 specifies a hierarchy of crit
Page 418 and 419: fuel used, rig costs, delay rentals
Page 420 and 421: Chapter 38 FINANCIAL INSTRUMENTS: D
Page 422 and 423: other than credit risk (i.e., chang
Page 424 and 425: 2. Whether fair values are determin
Page 426 and 427: d. Transfers into or out of Level 3
Page 428 and 429: equires that any derivative that do
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The amount recognized in the income
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a. To provide presentation and disc
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amongst the top management personne
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Recreational clubs $ 50 million vs
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Chapter 40 FINANCIAL INSTRUMENTS (I
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Discussion The entity’s objective
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The following are indicators of whe
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However as IFRS 9 eliminates the av
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Facts CASE STUDY 6 Hant has an equi
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Chapter 41 IFRS FOR SMEs INTRODUCTI
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the IFRS for SMEs, if an entity can
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2. The subsidiary’s business acti
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All grants are measured at the fair
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The present value of the fine will
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3. If SMEs choose to follow the Sta
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1. b 2. a 3. a 4. c 5. a 1. a 2. c*
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1. b 2. a 3. b 1. d 2. b 3. c 4. c
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2. b 3. b 4. a 5. a 6. b 7. b 8. b
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18. d* 19. b 20. b 21. a 22. b 23.
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INDEX Abandonment Accounting compou
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Control business combinations conso
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interests. See IAS 32, Financial In
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events after the reporting period G
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gross basis versus net basis indire
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IAS 18, Revenue amendment to backgr
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net assets available for benefits n
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fair value per share financial stat
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initial measurement interest income
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scope of share-based payment transa
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credit risk effective date fair val
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property, plant, and equipment Impa
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Market risk Materiality Measurement
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Recoverable amount, impairment loss
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usiness combinations financial inst
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