Test Bank - Share-Based Payments | 9e

View Product website:

https://selldocx.com/docx/test-bank-share-based-payments-9e-1075

Chapter 17 Testbank

1. To assist users of financial statements, an entity must provide the effect of expenses arising from share-based transactions on the entity's profit or loss for the period.

True   False

2. The Institute of Chartered Accountants in Australia (ICAA) warns that executive remuneration could fall because of the implementation of international financial reporting standards.

True   False

3. With the release of AASB 2, many organisations that did not previously recognise any expenses in relation to certain share-based transactions were subsequently required to do so, including share-based payment transactions with employees.

True   False

4. For many years organisations were criticised for failing to be properly accountable for their share-based payment transactions. The disclosure requirements of AASB 2 are intended to address this concern.

True   False

5. A financial instrument with both a liability and an equity component is known as a compound financial instrument.

True   False

6. Which of the following items is not considered to be a share-based payment transaction within the scope of AASB 2?

A. Options issued to employees in exchange for services rendered

B. Shares issued to employees for services rendered

C. Shares issued to consultants for services rendered

D. Bonus shares issued to employees as a shareholder of the entity

7. Which of the following statements about equity-settled share-based payment transactions is incorrect?

A. These are transactions in which the entity receives goods and services as consideration for shares or share options issued by the entity.

B. There is a presumption that the fair value of the transactions with other parties (other than employees) can be measured reliably.

C. The fair value of equity-settled instruments is required to be re-estimated at balance date.

D. The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction.

8. Which of the following statements is incorrect regarding cash-settled share-based payment transactions?

A. The entity acquires goods and services by incurring a liability to transfer cash or other assets that are based on the price or value of the entity's shares or other equity instruments of the entity.

B. Share appreciation rights (SARs) is one example of a cash-settled share-based payment transaction.

C. Cash-settled share-based payment transactions are required to be re-measured at fair value at each reporting date until settlement date.

D. The equity shall be measured, initially and at each reporting date until settled, at the fair value of the share appreciation rights, by applying an option pricing model, taking into account the terms and conditions on which the share appreciation rights were granted, and the extent to which the employees have rendered service to date.

9. Market prices for share options granted to employees are typically not available because:

A. options granted to employees are subject to terms and conditions that do not apply to traded options

B. it is difficult to obtain the fair value of these options using option pricing models

C. employee options have long lives and are usually exercised early

D. options granted to employees are subject to terms and conditions that do not apply to traded options and it is difficult to obtain the fair value of these options using option pricing models

10. On 1 July 2017 Lancashire Ltd granted 100 share options to each of its 50 employees conditional upon the employee working for the entity for the next three years. On the same date, the entity estimated the fair value of each share option at $15. Based on probability estimates, 15 employees are expected to leave the entity in one year and another five employees in two years. Actual resignations for the year ending 2018 was 12 employees and the fair value of the option was $12 on 30 June 2019. In accordance with AASB 2, what is the cumulative remuneration expense (related to the share option issue) as at 30 June 2016?

A. $24 000

B. $26 400

C. $33 000

D. $45 000

11. On 1 July 2019 York Ltd (a start-up biotech company) granted its senior manager a choice of receiving cash equivalent of 100 000 shares or 120 000 shares. The grant is conditional upon the senior manager working for the entity for three years but if the share alternative is chosen, the grant vests after two years. At grant date the entity's share price is $12.50. The entity does not expect to pay dividends in the next three years. After taking into account the effects of post-vesting transfer restrictions, the entity estimates the grant-date fair value of the share alternative to be $12.

What is the fair value of the equity component of the compound instrument?

A. $10 000

B. $20 000

C. $190 000

D. $300 000

12. Which of the following is an acceptable measure of fair value of the equity instruments granted?

A. Cost of the equity instrument at initial recognition

B. Fair value of a similar equity instrument on the measurement date in an arm’s length transaction between knowledgeable, willing parties

C. Fair value of a similar equity instrument

D. Net realisable value of the equity instrument

13. AASB 2 states that when goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they shall be recognised as:

A. liabilities

B. equity

C. revenue

D. expenses

14. Which of the following is not a main heading for AASB 2 disclosures?

A. The nature and extent of share-based payment arrangements

B. How the fair value of goods or services received or the fair value of equity instruments granted were determined

C. The fair value of a similar equity instrument

D. The effect of expenses arising from shared-based transactions on the entity’s profit or loss for the period

15. A _________ includes situations in which an entity acquires particular assets in exchange for equity instruments of that entity.

A. share-based transaction

B. debt-based transaction

C. credit-based transaction

D. None of the given answers are correct.

16. _________ applies when a share-based transaction is used to acquire goods as part of the net assets acquired in a ’business combination’.

A. AASB 2

B. AASB 3

C. AASB 13

D. None of the given answers are correct.

17. Australian Venture Capital Association Limited believes that the inclusion of employee share options (ESOs) as an expense is fundamentally flawed and particularly punitive when applied to unlisted, _____________companies.

A. low growth

B. high growth

C. medium growth

D. liquidating

18. _________ are the currency that empowers innovative start-up companies to attract skilled managers into high-risk environments.

A. Options

B. Cash

C. Grants

D. Assets

19. __________requires extensive disclosure about the nature and extent of share-based payment arrangements that existed during the period.

A. AASB 2

B. AASB 3

C. AASB 13

D. None of the given answers are correct.

20. The disclosure standard of AASB 2 requires extensive disclosure under three main headings. Which of the following is not one of these?

A. The nature and extent of share-based payment arrangements that existed during the period

B. How the fair value of the goods or services received or the fair value of the equity instruments granted during the year was determined

C. The effect of expenses arising from share-based transactions on the entity’s profit or loss for the period

D. The fair value of machines alone

21. AVCAL stands for ___________.

A. Australian Venture Capital Association Limited

B. Asia Venture Capital Association Limited

C. American Venture Capital Association Limited

D. None of the given answers are correct.

22. AASB 2 does not apply when a share-based transaction is used to acquire goods as part of the net assets acquired in a ___________, where AASB 3 applies to such a context.

A. capital combination

B. business combination

C. land combination

D. None of the given answers are correct.

23. Prior to AASB 2 being released in 2004, shareholders were often unaware of the issuance of various ____________and the potential dilutive effect such equity issues would have on their own shareholding.

A. equity instruments

B. assets

C. expenses

D. All of the given answers are correct.

24. __________is defined as a contract that gives the holder the right, but not the obligation, to subscribe to the entity’s shares at a fixed or determinable price for a specified period of time.

A. A liability

B. An asset

C. A share option

D. Capital

25. _______________ entitle employees, generally as part of their remuneration package, to future cash payments based on pre-specified increases in the entity’s share price.

A. Share appreciation rights

B. Share option rights

C. Share package rights

D. None of the given answers are correct.

26. The ___________is defined as the period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied (AASB 2).

A. vesting period

B. non-vesting period

C. share-pricing period

D. None of the given answers are correct.

27. The release of AASB 2 has reduced the discretion that reporting entities now have with respect to accounting for options and other _______________.

A. investment limits

B. share-based payments

C. period of investments

D. None of the given answers are correct.

28. For cash-settled share-based payment transactions, the entity shall measure the goods or services acquired and the liability incurred at the _________of the liability.

A. book value

B. market value

C. intrinsic value

D. fair value

29. Share-based payment transactions with cash alternatives will be measured at __________with a debt and an equity component.

A. fair value

B. market value

C. intrinsic value

D. book value

30. Explain the reasoning that led to the development of AASB 2.

______________________________________________________________________________

31. What is an equity instrument?

______________________________________________________________________________

32. What is a share option?

______________________________________________________________________________

33. What is a vesting period?

______________________________________________________________________________

34. Define fair value.

______________________________________________________________________________

35. What is a cash-settled share-based payment transaction?

______________________________________________________________________________

36. What are share appreciation rights (SARs)?

______________________________________________________________________________

37. What is meant by share-based payment transaction with cash alternatives?

______________________________________________________________________________

38. What are the components in a compound financial instrument?

______________________________________________________________________________

39. Discuss briefly the possible economic implications of AASB 2.

______________________________________________________________________________

40. Discuss briefly the extensive disclosure requirement headings for AASB 2.

______________________________________________________________________________

Chapter 17 Testbank