Question Tag: IFRS 2

Search 500 + past questions and counting.

  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Series

  • Filter by Topics

  • Filter by Levels

  • 6 Marks

CR – Nov 2020 – L3 – Q3a – Equipment Purchase via Share-Based Payment

Demonstrate with calculations how to account for a share-based payment with a choice of settlement in financial statements.

Tato Company (Tato), a listed company, purchased a significant item of equipment on 1 July 2018. The list price of the equipment was GH¢12 million, although the supplier always gives Tato a 10% discount on its list prices. Tato was unable to finance the purchase outright and the supplier therefore agreed to accept an arrangement whereby the amount of the payment would be determined by Tato’s share price on 30 June 2020.

At 30 June 2020, under the terms of the agreement, the supplier can choose to receive either:

  • Cash, equal to the value of 500,000 of Tato’s shares on that date; or
  • 540,000 Tato’s shares on 30 June 2020, provided that they cannot be sold for 1 year after that date.

Tato’s share price was GH¢19.80 per share on 1 July 2018 and GH¢20.40 on 30 June 2019.

Required:
Demonstrate with suitable calculations how the arrangement should be accounted for in Tato Company’s financial statements for the year ended 30 June 2019.

 

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2020 – L3 – Q3a – Equipment Purchase via Share-Based Payment"

  • 7 Marks

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.

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).

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement"

  • 8 Marks

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.

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.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Mar 2024 – L3 – Q2a – IFRS 2: Share-Based Payments"

  • 6 Marks

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.

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)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – July 2023 – L3 – Q2B – IFRS 2: Share-Based Payments"

  • 20 Marks

AAA – Dec 2023 – L3 – Q2 – Audit Evidence | Evaluation and Review

Evaluate the accounting treatment of cash-settled share-based payments, regulatory penalties, and property valuation, and outline relevant audit procedures for each.

You are the Manager responsible for the audit of Rail Expert Plc, a listed entity whose principal activity is the operation of a regional railway network. The audit for the year ended 28 February 2021 is the first year your firm is auditing Rail Expert Plc. The draft financial statements received from your client indicated a total asset of GH¢58 million and a profit before tax of GH¢7.4 million. The detailed audit fieldwork has started, and the audit supervisor has brought the following matters to your attention in relation to the testing of key accounting estimates:

a) Cash-settled share-based payment scheme
On 1 March 2020, Rail Expert Plc granted 550,000 share appreciation rights to 55 executives and senior employees of the company, with each eligible member of staff receiving 10,000 of the rights. The fair value of the rights was estimated on 28 February 2020 by an external expert using an options pricing model at GH¢4.50 each. Rail Expert Plc prides itself on good employee relations, and the senior management team has estimated that all 55 staff will qualify for the rights when they vest three years after the granting of the rights on 1 March 2020. The company recognized an expense of GH¢825,000 with its associated liability in the draft accounts. (7 marks)

b) Regulatory penalties
Rail Expert Plc has been subject to a review by the national railways regulator following a complaint from a member of staff with safety concerns. The regulator identified breaches in safety regulations and issued a penalty notice on 30 September 2020. Rail Expert Plc has appealed against the initial penalty payable. Negotiations with the regulator are still ongoing, and the amount payable has not yet been finalized. Rail Expert Plc currently estimates that the total penalty payable as a result of the breach will be GH¢1.3 million, which it expects to repay in equal annual installments over the next ten years, with the first payment falling due on 1 March 2021. The company’s draft statement of profit or loss for the current year recognizes an expense of GH¢1.3 million, and the draft statement of financial position includes a liability for the same amount. (7 marks)

c) Property development
Rail Expert Plc owns an industrial property which it has historically used as a maintenance depot for its engines and carriages. The company has an accounting policy of revaluing its properties to fair value, and at the interim audit, it was noted that the depot was recorded at a carrying amount of GH¢2.5 million in the non-current asset register. During the first week of the audit fieldwork, the audit supervisor identified a year-end journal which has uplifted the depot to a fair value of GH¢4.9 million in this year’s statement of financial position as at 28 February 2021. Management has advised that this represents the estimated sales value of the building following Rail Expert Plc’s plan to develop the building as a residential property. The client has confirmed that the property is suitable for conversion into residential apartments at an estimated cost of GH¢1.2 million and has negotiated secured finance for the development with their bank. The development will be subject to the payment of fees to the local council’s building regulator of GH¢173,000. (6 marks)

Required:
Evaluate the client’s accounting treatments above and state THREE (3) audit procedures you will undertake when auditing each of the transactions.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Dec 2023 – L3 – Q2 – Audit Evidence | Evaluation and Review"

  • 6 Marks

CR – Nov 2020 – L3 – Q3a – Equipment Purchase via Share-Based Payment

Demonstrate with calculations how to account for a share-based payment with a choice of settlement in financial statements.

Tato Company (Tato), a listed company, purchased a significant item of equipment on 1 July 2018. The list price of the equipment was GH¢12 million, although the supplier always gives Tato a 10% discount on its list prices. Tato was unable to finance the purchase outright and the supplier therefore agreed to accept an arrangement whereby the amount of the payment would be determined by Tato’s share price on 30 June 2020.

At 30 June 2020, under the terms of the agreement, the supplier can choose to receive either:

  • Cash, equal to the value of 500,000 of Tato’s shares on that date; or
  • 540,000 Tato’s shares on 30 June 2020, provided that they cannot be sold for 1 year after that date.

Tato’s share price was GH¢19.80 per share on 1 July 2018 and GH¢20.40 on 30 June 2019.

Required:
Demonstrate with suitable calculations how the arrangement should be accounted for in Tato Company’s financial statements for the year ended 30 June 2019.

 

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2020 – L3 – Q3a – Equipment Purchase via Share-Based Payment"

  • 7 Marks

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.

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).

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement"

  • 8 Marks

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.

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.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Mar 2024 – L3 – Q2a – IFRS 2: Share-Based Payments"

  • 6 Marks

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.

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)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – July 2023 – L3 – Q2B – IFRS 2: Share-Based Payments"

  • 20 Marks

AAA – Dec 2023 – L3 – Q2 – Audit Evidence | Evaluation and Review

Evaluate the accounting treatment of cash-settled share-based payments, regulatory penalties, and property valuation, and outline relevant audit procedures for each.

You are the Manager responsible for the audit of Rail Expert Plc, a listed entity whose principal activity is the operation of a regional railway network. The audit for the year ended 28 February 2021 is the first year your firm is auditing Rail Expert Plc. The draft financial statements received from your client indicated a total asset of GH¢58 million and a profit before tax of GH¢7.4 million. The detailed audit fieldwork has started, and the audit supervisor has brought the following matters to your attention in relation to the testing of key accounting estimates:

a) Cash-settled share-based payment scheme
On 1 March 2020, Rail Expert Plc granted 550,000 share appreciation rights to 55 executives and senior employees of the company, with each eligible member of staff receiving 10,000 of the rights. The fair value of the rights was estimated on 28 February 2020 by an external expert using an options pricing model at GH¢4.50 each. Rail Expert Plc prides itself on good employee relations, and the senior management team has estimated that all 55 staff will qualify for the rights when they vest three years after the granting of the rights on 1 March 2020. The company recognized an expense of GH¢825,000 with its associated liability in the draft accounts. (7 marks)

b) Regulatory penalties
Rail Expert Plc has been subject to a review by the national railways regulator following a complaint from a member of staff with safety concerns. The regulator identified breaches in safety regulations and issued a penalty notice on 30 September 2020. Rail Expert Plc has appealed against the initial penalty payable. Negotiations with the regulator are still ongoing, and the amount payable has not yet been finalized. Rail Expert Plc currently estimates that the total penalty payable as a result of the breach will be GH¢1.3 million, which it expects to repay in equal annual installments over the next ten years, with the first payment falling due on 1 March 2021. The company’s draft statement of profit or loss for the current year recognizes an expense of GH¢1.3 million, and the draft statement of financial position includes a liability for the same amount. (7 marks)

c) Property development
Rail Expert Plc owns an industrial property which it has historically used as a maintenance depot for its engines and carriages. The company has an accounting policy of revaluing its properties to fair value, and at the interim audit, it was noted that the depot was recorded at a carrying amount of GH¢2.5 million in the non-current asset register. During the first week of the audit fieldwork, the audit supervisor identified a year-end journal which has uplifted the depot to a fair value of GH¢4.9 million in this year’s statement of financial position as at 28 February 2021. Management has advised that this represents the estimated sales value of the building following Rail Expert Plc’s plan to develop the building as a residential property. The client has confirmed that the property is suitable for conversion into residential apartments at an estimated cost of GH¢1.2 million and has negotiated secured finance for the development with their bank. The development will be subject to the payment of fees to the local council’s building regulator of GH¢173,000. (6 marks)

Required:
Evaluate the client’s accounting treatments above and state THREE (3) audit procedures you will undertake when auditing each of the transactions.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Dec 2023 – L3 – Q2 – Audit Evidence | Evaluation and Review"

Elevate your professional expertise across key business domains with our comprehensive training programs

Our offerings

Contact Info

  • +233203701923
    +233543919232
  • info@nbcinstitute.com

Customer

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope
error: Content is protected !!
Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan