Question Tag: Employee Benefits

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CR – Nov 2018 – L3 – SB – Q2 – Share-Based Payments (IFRS 2)

Examination of KutuKutu Plc.'s share-based payment policies and transactions under IFRS 2

Question

(1) KutuKutu Plc. has a policy in place to pay its employees a performance bonus. This bonus is to be paid in cash and is unrelated to the movement in its share price. KutuKutu Plc. has the choice of settling the bonus in cash or in equity shares to the value of the cash bonus. Based on bonuses paid in prior years, KutuKutu Plc. has always settled the bonuses of qualified employees in shares.

(2) KutuKutu Plc. grants one share option to each of its 50 employees on January 1, 2016. The share options will vest at the end of 2 years provided that:

The employees remain in KutuKutu Plc.’s employment at that date; and
The Earnings before Interest, Tax, Depreciation, and Amortisation (EBITDA) of KutuKutu Plc. for the second year achieves a specified target.

At the grant date, each recipient is required to make a non-refundable cash payment of N2,000 to KutuKutu Plc. This payment is based on the estimated fair value (FV) of the share option which reflects the probability that the target EBITDA will be achieved in the second year. FV of each option would be N250 (excluding the effect of the EBITDA condition).

If KutuKutu Plc. does not achieve the target EBITDA or if an employee leaves the employment of KutuKutu Plc., no shares will be issued, and the employee will not be entitled to a repayment. Accordingly, both service and non-market vesting conditions are deemed to be substantive.

Required:

a. Do the transactions entered into in (1) above meet the definition of equity-settled share-based payment transactions within the scope of IFRS 2? (8 Marks)

b. How should the transaction in (2) above be accounted for? (12 Marks)

Answer

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Tags: Cash-Settled Transactions, Employee Benefits, Equity-Settled Transactions, Financial Reporting, IFRS 2, Share-Based Payments
Level: Level 3

Topic: Share-Based Payments (IFRS 2)

CSME – May 2023 – L1 – SB – Q5 – Ethics in Business

Differences between creative and critical thinking and their impact on employer benefits.

Question

Creative and critical thinking are essential skills that chartered accountants should possess for optimal performance.

(a) Differentiate between creative and critical thinking. (4 Marks)

(b) Explain the modes through which creative thinking is expressed. (8 Marks)

(c) Explain how the creative thinking of employees benefits their employers. (3 Marks)

Answer

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Tags: Analytical Skills, Creative Thinking, Critical Thinking, Employee Benefits, Professional Skills
Level: Level 2

Topic: Ethics in Business
Series: MAY 2023

CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

Question

Nzema prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) with a financial year end of 31 December 2018. On 1 January 2018, Nzema commenced a defined benefit pension plan for a number of head office employees. Under the pension scheme, Nzema has an obligation to provide these staff with agreed post-employment benefits. Nzema carries the actuarial and investment risk associated with the pension scheme.

The following information has been compiled from workings by Nzema’s accounting staff and actuarial reports for the 2018 financial year:

GH¢
Interest income on plan assets	16,500
Employer contributions to plan	550,000
Current service cost	600,000
Interest on plan liability	18,000
Fair value of plan assets at 31/12/2018	580,000
Present value of plan obligation at 31/12/2018	620,000

The Accountant was not sure which accounting standard to apply when accounting for the pension scheme. The only adjustment made to account for the scheme was to expense the company’s contributions of GH¢550,000 for the 2018 financial year in the Statement of Profit or Loss and Other Comprehensive Income and to credit the ‘Cash’ account.

Required:
Recommend, with appropriate calculations, the necessary accounting treatment for this accounting issue.

Answer

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Tags: Actuarial Gains/Losses, Defined Benefit Plan, Employee Benefits, Interest on Plan Liability, Pension Liability
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: MAY 2020

BL – May 2015 – L1 – SB – Q6e – Employment Law

Identify situations when an employee is entitled to redundancy benefits.

Question

State any THREE instances in which an employee may be entitled to redundancy benefits. (3 Marks)

Answer

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Tags: Business Law, Employee Benefits, Employment Contracts, Employment Law, Labor Law, Redundancy
Level: Level 1

Topic: Employment law
Series: MAY 2015

PT – April 2022 – L2 – Q3a – Income Tax Liabilities

Explain the tax treatment for overtime allowance and bonus payments in Ghana.

Question

a) Explain the tax treatment for Overtime Allowance Payment and Bonus Payment.
(6 marks)

Answer

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Tags: Bonus payment, Employee Benefits, Income Tax, Overtime payment, Taxation

Topic: Income Tax Liabilities
Series: APR 2022

PT – April 2022 – L2 – Q3c – Income Tax Liabilities

Determine the tax implication of overtime allowance paid to Bawa in February 2021.

Question

c) Bawa is a junior staff member of Blinks Ltd. Her monthly basic salary is GH¢2,000. She was paid an overtime allowance totalling GH¢500 during the month of February 2021.

Required:
What is the tax implication of the overtime allowance paid?
(3 marks)

Answer

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Tags: Employee Benefits, Income Tax, Overtime payment, Taxation of income

Topic: Employment Income, Income Tax Liabilities, Taxation of Overtime
Series: APR 2022

PT – April 2022 – L2 – Q3d – Income Tax Liabilities

Calculate the tax liability on Eunice Danso's bonus income for 2021.

Question

Eunice Danso works with Gyidi Ltd and earns an annual basic salary of GH¢50,000. She was paid a bonus of GH¢6,000 in 2021.

Required:
Determine the tax liability on the bonus. (3 marks)

Answer

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Tags: Bonus payment, Employee Benefits, Income Tax, Tax computation, Tax implications

Topic: Bonus Payment Taxation, Employment Income, Individual Taxation, Tax Calculation
Series: APR 2022

PT – July 2023 – L2 – Q3a – Income Tax Liabilities

Calculation of loan benefits for three employees based on their loan details and income.

Question

The table below shows the incomes of three employees of Agana Ltd in 2022 year of assessment.

Income Details	Adom	Aseda	Ayeyie
Basic Salary (GH¢)	120,000	160,000	180,000
Medical Allowance (5% of Basic Salary)	6,000	8,000	9,000
Rent Allowance (10% of Basic Salary)	12,000	16,000	18,000
Fuel Allowance (15% of Basic Salary)	18,000	24,000	27,000
Total Cash Emoluments	156,000	208,000	234,000

Besides the cash emoluments stated above, the employees received loans from the employer as follows:

i) Adom received a loan of GH¢24,000 at a rate of 5% payable within 12 months.
ii) Aseda received a loan of GH¢48,000 at a rate of 8% payable within 24 months.
iii) Ayeyie received a loan of GH¢100,000 at a rate of 10% payable within 36 months. This loan is in addition to an outstanding loan of GH¢50,000 with the same terms and conditions during the previous twelve months. (Assume that the statutory rate is 30% per annum).

Required:
Determine the loan benefits applicable to each of the three employees for the 2022 year of assessment. (16 marks)

Answer

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Tags: Employee Benefits, Employment Income, Income Tax, Loan Benefits, Tax computation
Level: Level 2

Topic: Income Tax Liabilities
Series: JULY 2023

CR – May 2018 – L3 – Q2a – IAS 19 Employee Benefits

Calculate the net actuarial gain/loss and net pension liability for a defined benefit plan under IAS 19.

Question

Zumah Ltd operates a defined benefit pension plan for its employees. On 1 April 2015, the fair value of the pension plan assets was GH¢8,200,000, and the present value of the pension plan liabilities was GH¢8,500,000. The actuary estimated that the service cost for the year to 31 March 2016 was GH¢2,100,000. The pension plan paid GH¢500,000 to retired members, and Zumah Ltd paid GH¢1,900,000 in contributions to the pension plan in the year to 31 March 2016. The actuary estimated that the discount rate for the year to 31 March 2016 was 6%.

On 31 March 2016, Zumah Ltd announced improvements to the benefits offered by the pension plan to all its members. The actuary estimated that the past service cost associated with these improvements was GH¢2,000,000. At 31 March 2016, the fair value of the pension plan assets was GH¢10,200,000, and the present value of the pension plan liabilities (including the past service costs) was GH¢12,500,000.

Required:
In accordance with IAS 19 Employee Benefits:
i) Calculate the net actuarial gain or loss that will be included in Zumah Ltd’s other comprehensive income for the year ended 31 March 2016. (3 marks)
ii) Calculate the net pension asset or liability that will be included in Zumah Ltd’s statement of financial position as at 31 March 2016. (2 marks)

Answer

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Tags: Actuarial Gains/Losses, Defined Benefit Plan, Employee Benefits, Financial Position, IAS 19, Pension liabilities
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: MAY 2018

CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement

Advise Mariam Plc on the correct accounting treatment for share appreciation rights (SARs) in compliance with IFRS 2 and IFRS 13.

Question

On 1 April 2018, Mariam Plc granted 500 share appreciation rights (SARs) to its 300 employees. All of the rights vested on 31 March 2020 and can be exercised from 1 April 2020 up to 31 March 2022. At the grant date, the value of each SAR was GH¢10, and it was estimated that 5% of the employees would leave during the vesting period. The fair value of the SARs is as follows:

Date	Fair Value of SAR (GH¢)
31 March 2019	9
31 March 2020	11
31 March 2021	12

All the employees who were expected to leave the employment did leave the company as expected before 31 March 2020. On 31 March 2021, 60 employees exercised their options when the intrinsic value of the right was GH¢10.50 and were paid in cash. Mariam Plc is, however, confused as to whether to account for the SARs under IFRS 2: Share-based Payment or IFRS 13: Fair Value Measurement and would like to be advised as to how the SARs should have been accounted for from the grant date to 31 March 2021.

Required:

Advise Mariam Plc on how the above transactions should be accounted for in its financial statements with reference to relevant International Financial Reporting Standards (IFRS).

Answer

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Tags: Employee Benefits, Fair Value Measurement, IFRS 13, IFRS 2, Share Appreciation Rights (SAR), Share-Based Payments
Level: Level 3

Topic: IFRS 13 Fair value measurement, IFRS 2: Share-Based Payments
Series: NOV 2021

CR – Apr 2022 – L3 – Q2b – IAS 19: Employee benefits

Recommend accounting treatment for pension obligations and restructuring costs in financial statements in accordance with relevant IFRS.

Question

Kaase Ltd, a public limited company, operates in the technology sector in Ghana. The company has decided to restructure one of its business segments, affecting employees in two locations. In the first location (A), half of the factory units were closed by 31 March 2021, and the affected employees’ pension benefits were frozen. After restructuring, the present value of the defined benefit obligation in this location was GH¢8 million. Before restructuring, the value was GH¢10 million, and the fair value of plan assets was GH¢7 million, resulting in a net pension liability of GH¢3 million.

In the second location (B), all activities were discontinued, and employees will receive GH¢4 million in exchange for a pension liability of GH¢2.4 million. Kaase Ltd estimates that restructuring costs excluding pension costs will be GH¢6 million. No formal announcement has been made due to a planned rights issue. The pension liability is currently included in non-current liabilities.

Required:
Recommend the accounting treatment of the above transaction in the financial statement of Kaase Ltd, including financial statement extracts for the year ended 31 March 2021, in accordance with relevant International Financial Reporting Standards (IFRS).

Answer

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Tags: Defined benefit plans, Employee Benefits, IAS 19, IAS 37, Pension obligations, Restructuring costs
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: APR 2022

CR – Mar 2024 – L3 – Q2a – IFRS 2: Share-Based Payments

This question requires the accounting treatment for a share-based payment scheme at Zara Plc over the years 2020, 2021, and 2022, under IFRS 2.

Question

Zara Plc operates within the thriving food packaging industry in Ghana. At 1 January 2020, the firm agreed to grant 10,000 shares each to 500 employees, conditional on the employees remaining in the firm’s employment during the vesting period. The terms of the scheme indicated that the shares will vest at:

i) 31 December 2020, if the firm’s EPS growth is greater than 18%
ii) 31 December 2021, if the firm’s EPS growth is greater than an average of 13% per year over the 2-year period
iii) 31 December 2022, if the firm’s EPS growth is greater than an average of 10% per year over the 3-year period

The award was estimated to have a fair value of GH¢8 per share at the grant date. The following events took place during the three years at:

31 December 2020: EPS was up 14%, and 30 staff left. The firm expected EPS to continue growing at the same level and hence for shares to vest at 31 December 2021. A further 30 employees were expected to leave in 2021.
31 December 2021: EPS was up by only 10%, so shares did not vest. 28 employees left during the year. The firm expected a further 25 employees to leave in 2022 and that EPS would increase by greater than 6%, thereby achieving an average EPS growth rate of 10% per year.
31 December 2022: 23 employees left, and EPS was up 8%. The average EPS over the three-year period was greater than 10%.

Required:
Recommend how Zara Plc would account for the share-based payment scheme during the years ended 31 December 2020, 2021, and 2022. Show extracts from only the 2021 financial statements.

Answer

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Tags: Employee Benefits, IFRS 2, Share-Based Payments, Vesting Conditions
Level: Level 3

Topic: IFRS 2: Share-Based Payments
Series: MAR 2024

CR – July 2023 – L3 – Q2B – IFRS 2: Share-Based Payments

Account for the share-based payment scheme under IFRS 2 and prepare relevant extracts for profit or loss and statement of financial position.

Question

On 1 April 2020, each of the seven (7) directors of Jantua Ltd received 16,000 share options as an award. Jantua Ltd prepares its accounts to 31 March each year. The condition attached to the award is that the directors must remain employed by Jantua Ltd for three years. The fair value of each option at the grant date was GH¢100 and the fair value of each option at 31 March 2022 was GH¢110. At 31 March 2021, it was estimated that two (2) directors would leave before the end of three years. Due to an economic upturn, the estimate of directors who were going to leave was revised to one (1) director at 31 March 2022. The expense for the year as regards the share options had not been included in profit or loss for the current year, and no director had left by 31 March 2022.

Required:
With reference to International Financial Reporting Standards, advise the directors on how to account for the above transactions of Jantua Ltd in its financial statements as at 31 March 2022.
(6 marks)

Answer

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Tags: Employee Benefits, Equity-Settled, Expense Recognition, Financial Statements, IFRS 2, Share-Based Payments
Level: Level 3

Topic: IFRS 2: Share-Based Payments
Series: JULY 2023

AT – March 2023 – L3 – Q2c – Tax planning

Advise on which housing option is more tax-efficient for the Managing Director in relation to employment and rental income.

Question

The Management of 6Up Ltd has asked for advice on which of the following options is better for their Managing Director in connection with tax planning:

Option 1:
To rent the Managing Director’s personal house for use by the Managing Director as part of his condition of employment while taking a withholding tax at the rate of 8% on the rental payment.

Option 2:
To rent another place for the Managing Director instead of his own place so he may consider renting out his place of residence.

Required:
Advise on which option is better from the standpoint of tax planning implication for the Managing Director.

Answer

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Tags: Employee Benefits, Housing benefits, Tax Planning, Withholding Tax
Level: Level 3

Topic: Tax planning
Series: MAR 2023

BMIS – Nov 2017 – L1 – Q4b – HR – Training and developmen

Outline the benefits of training and development for both the company and the employee.

Question

b) Training presents a prime opportunity to expand the knowledge base of all employees, but many employers find the development opportunities expensive.

Despite the potential drawbacks, training and development provide both the company and the employee with benefits that make the cost and time a worthwhile investment.

Required:
Outline THREE benefits to be derived from training and development by
i) a company and
ii) an employee.
(6 marks)

Answer

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Tags: Company Benefits, Employee Benefits, Human Resources, Training and Development
Level: Level 1

Topic: HR - Training and Development
Series: NOV 2017

BMIS – Nov 2015 – L1 – Q3 – HR – Other human resources functions

Discuss compensation strategies, characteristics of an effective system, and types of compensation.

Question

The strategy and structure of compensation programs have important implications for businesses and their ability to create and sustain competitive advantage.

a) What is meant by ‘Compensation’? (2 marks)
b) State FOUR characteristics of an effective compensation system. (8 marks)
c) Explain the following:
i. Direct compensation (5 marks)
ii. Indirect compensation (5 marks)

Answer

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Tags: Compensation, Direct Compensation, Employee Benefits, HR Management, Indirect Compensation
Level: Level 1

Topic: HR - Other Human Resources functions
Series: NOV 2015

Question Tag: Employee Benefits

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CR – Nov 2018 – L3 – SB – Q2 – Share-Based Payments (IFRS 2)

Examination of KutuKutu Plc.'s share-based payment policies and transactions under IFRS 2

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CSME – May 2023 – L1 – SB – Q5 – Ethics in Business

Differences between creative and critical thinking and their impact on employer benefits.

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CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

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BL – May 2015 – L1 – SB – Q6e – Employment Law

Identify situations when an employee is entitled to redundancy benefits.

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PT – April 2022 – L2 – Q3a – Income Tax Liabilities

Explain the tax treatment for overtime allowance and bonus payments in Ghana.

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PT – April 2022 – L2 – Q3c – Income Tax Liabilities

Determine the tax implication of overtime allowance paid to Bawa in February 2021.

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PT – April 2022 – L2 – Q3d – Income Tax Liabilities

Calculate the tax liability on Eunice Danso's bonus income for 2021.

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PT – July 2023 – L2 – Q3a – Income Tax Liabilities

Calculation of loan benefits for three employees based on their loan details and income.

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CR – May 2018 – L3 – Q2a – IAS 19 Employee Benefits

Calculate the net actuarial gain/loss and net pension liability for a defined benefit plan under IAS 19.

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CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement

Advise Mariam Plc on the correct accounting treatment for share appreciation rights (SARs) in compliance with IFRS 2 and IFRS 13.

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CR – Apr 2022 – L3 – Q2b – IAS 19: Employee benefits

Recommend accounting treatment for pension obligations and restructuring costs in financial statements in accordance with relevant IFRS.

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CR – Mar 2024 – L3 – Q2a – IFRS 2: Share-Based Payments

This question requires the accounting treatment for a share-based payment scheme at Zara Plc over the years 2020, 2021, and 2022, under IFRS 2.

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CR – July 2023 – L3 – Q2B – IFRS 2: Share-Based Payments

Account for the share-based payment scheme under IFRS 2 and prepare relevant extracts for profit or loss and statement of financial position.

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AT – March 2023 – L3 – Q2c – Tax planning

Advise on which housing option is more tax-efficient for the Managing Director in relation to employment and rental income.

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BMIS – Nov 2017 – L1 – Q4b – HR – Training and developmen

Outline the benefits of training and development for both the company and the employee.

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BMIS – Nov 2015 – L1 – Q3 – HR – Other human resources functions

Discuss compensation strategies, characteristics of an effective system, and types of compensation.

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