PFRS 2

Question 1

The compensation associated with share option plan is

A. The book value of a share times the number of options
B. The estimated fair value of the options
C. Allocated to expense upon expiration
D. Recorded as expense on the date of grant

Answer 1

B. The estimated fair value of the options

Question 2

The most important objective for share options is

A. Measuring the compensation expense during the service period.
B. Measuring the fair value.
C. Disclosing increases or decreases in the share options.
D. Recognition of services rendered.

Answer 2

A. Measuring the compensation expense during the service period.

Question 3

Share options should be reported as expense

A. Using the intrinsic value method
B. Using the fair value method
C. Using the fair value or the intrinsic value method
D. Only on rare occasions

Answer 3

B. Using the fair value method

Question 4

When recognizing compensation under a share option plan, unanticipated forfeitures are treated as

A. A change in accounting policy
B. A loss
C. An income item
D. A change in accounting estimate

Answer 4

D. A change in accounting estimate

Question 5

Which statement is true about share options?

A. IFRS requires using the intrinsic method.
B. If previous experience indicates that share options shall be forfeited before vesting, the fair value estimate on grant date should be adjusted.
C. Compensation expense must be adjusted during the service period to reflect changes in the market price.
D. Share options are recognized whether vested or unvested.

Answer 5

B. If previous experience indicates that share options shall be forfeited before vesting, the fair value estimate on grant date should be adjusted.

Question 6

It is the difference between the fair value of the shares to be subscribed and the price required to be paid for those shares.

A. Fair value
B. Intrinsic value
C. Market value
D. Book value

Answer 6

B. Intrinsic value

Question 7

The date on which total compensation expense is computed in a share option plan is

A. Date of grant
B. Date of exercise
C. Date when the option price exceeds the market price
D. Date when the market price exceeds the option price

Answer 7

A. Date of grant

Question 8

When issuing share options, which of the following factors is most relevant in determining the accounting treatment?

A. The par value of the shares issued
B. The market value of the shares issued
C. The authorized number of shares
D. Whether the share options are issued in lieu of salary

Answer 8

D. Whether the share options are issued in lieu of salary

Question 9

In what circumstances id compensation immediately recognized under a share option plan?

A. In all circumstances
B. When options are exercisable within two years.
C. When the options are immediately exercisable.
D. In no circumstances

Answer 9

C. When the options are immediately exercisable.

Question 10

Compensation expense from a share option is generally

A. Recognized in the period of exercise.
B. Recognized in the period of grant.
C. Allocated over the service period of the employees.
D. Allocated over the service period to retirement.

Answer 10

C. Allocated over the service period of the employees.

Question 11

How is compensation expense measured for equity settled share-based payment transaction?

A. Use the normal hourly rate of employees
B. The intrinsic value of share options
C. The fair value of share options
D. The difference between market price and fair value

Answer 11

C. The fair value of share options

Question 12

Which option valuation technique should not be used as a measure of fait value in the first instance?

A. Black-Scholes model
B. Binomial model
C. Monte-Carlo model
D. Intrinsic value

Answer 12

D. Intrinsic value

Question 13

Share options are what type of share-based payment?

A. Asset-settled share-based payment transaction
B. Equity-settled share-based payment transaction
C. Cash-settled share-based payment transaction
D. Liability-settled share-based payment transaction

Answer 13

B. Equity-settled share-based payment transaction

Question 14

Which statement is true in relation to share options?

A. The services received shall be measured at the fair value of the employees’ services.
B. Fair value shall be measured at the date of vesting.
C. Fair value shall be measured at the date of exercise.
D. All of these statements are not true.

Answer 14

D. All of these statements are not true.

Question 15

What interest rate is used to discount both exercise price of the option and the future dividend stream?

A. The entity’s incremental borrowing rate
B. The current market rate in the industry
C. The risk-free interest rate
D. Any rate that entities can justify as being reasonable

Answer 15

C. The risk-free interest rate

Question 16

The payment for services in cash and based on the price of the entity’s ordinary shares is what type of share-based payment transaction?

A. Asset-settled share-based payment transaction
B. Liability-settled share-based payment transaction
C. Cash-settled share-based payment transaction
D. Equity-settled share-based payment transaction

Answer 16

C. Cash-settled share-based payment transaction

Question 17

A cash-settled share-based payment transaction increases

A. A current asset
B. A noncurrent asset
C. Equity
D. A liability

Answer 17

D. A liability

Question 18

Compensation for a share-based payment to employees classified as liability is measured at

A. The change in fair value for each reporting period
B. The total fair value at grant date
C. The present value of cash payment
D. The total cash outlay for the period

Answer 18

A. The change in fair value for each reporting period

Question 19

In accounting for share appreciation right, compensation expense is generally

A. Not recognized
B. Recognized on the the of grant
C. Allocated over the service period of employees
D. Recognized on the date of exercise

Answer 19

C. Allocated over the service period of employees

Question 20

Which statement is true regarding share appreciation right?

A. Any change in estimated total compensation is recorded as a prior period error.
B. The total amount of compensation is not known until the date the share appreciation right is exercised.
C. The liability is adjusted only to reflect each additional year of service.
D. The share appreciation right is not recognized.

Answer 20

B. The total amount of compensation is not known until the date the share appreciation right is exercised.

Question 21

What is the measurement date for share-based payment to employees classified as liability?

A. The service inception date
B. The grant date
C. The settlement date
D. The end of reporting period

Answer 21

C. The settlement date

Question 22

For share appreciation rights, the measurement date for compensation is the

A. Date of rights mature
B. Date of share reaches a predetermined amount
C. Date of grant
D. Date of exercise

Answer 22

D. Date of exercise

Question 23

For cash settled share-based payment transaction, any change in fair value of liability is

A. Included in profit or loss
B. Included in retained earnings
C. Treated as component of other comprehensive income
D. Not recognized

Answer 23

A. Included in profit or loss

Question 24

If share-based payment transaction provides that the employees have the right to choose the settlement whether in cash or shares, the entity is deemed to have issued

A. A compound financial instrument
B. An equity instrument
C. A liability instrument
D. Either an equity or a liability instrument but not both

Answer 24

A. A compound financial instrument

Question 25

If the entity has the choice of settlement in a cash and share alternative, the entity shall account for the instrument initially as

A. Equity only
B. Liability only
C. Partly equity and partly liability
D. Either equity or liability but not both

Answer 25

D. Either equity or liability but not both

Question 26

An entity shall recognize the goods or services received in a share-based payment transaction

A. Only when the share-based payment is cash-settled.
B. When the entity receives the goods or services.
C. Only when the vesting period ends.
D. Only on the date that the equity instruments are granted.

Answer 26

B. When the entity receives the goods or services.

Question 27

If share options granted to employees under a share-based payment vest immediately

A. The entity should defer recognition of the services rendered by the employees.
B. The entity should record a liability.
C. The employees are unconditionally entitled to the share-based payments.
D. The entity should account for the services when these are rendered by the employees during the vesting period.

Answer 27

C. The employees are unconditionally entitled to the share-based payments.

Question 28

For equity-settled share-based payment transactions, an entity shall measure the goods or services received

A. Always at the fair value of goods and services received.
B. Always at the fair value of the equity instruments issued.
C. At the cost of goods and services provided by employees.
D. At the fair value of the goods or services received unless that fait value cannot be estimated reliably.

Answer 28

D. At the fair value of the goods or services received unless that fait value cannot be estimated reliably.

Question 29

For transactions for employee services as in share options, the fair value of the equity instruments is measured

A. On the grant date.
B. On the exercise date
C. At the end of the vesting period or exercise period, whichever is late.
D. At the date when the entity knows how many instruments will vest.

Answer 29

A. On the grant date.

Question 30

For transactions with parties other than employees, the measurement date is

A. The grant date.
B. The exercise date.
C. When he entity obtains the goods or the counterparty renders services.
D. When the warranty period for the goods or services expires.

Answer 30

C. When he entity obtains the goods or the counterparty renders services.

Question 31

On the vesting date, the entity should

A. Never adjust the number of equity instruments that ultimately vest.
B. Revise the estimate to equal the number of equity instruments that ultimately vest for vesting conditions based on employee service and based in nonmarket performance.
C. Revise the estimate to equal the number of equity instruments that ultimately vest for vesting conditions based on employee service and based on market performance.
D. Revise the estimate to equal the number of equity instruments that ultimately vest for all vesting conditions.

Answer 31

B. Revise the estimate to equal the number of equity instruments that ultimately vest for vesting conditions based on employee service and based in nonmarket performance

Question 32

For share-based payment transaction offering a choice of settling the transaction in cash or by transfer of equity instrument, the entity should account for the transaction ad

A. Cash-settled share-based payment.
B. Cash-settled share-based payment unless the entity has a past practice of settling by issuing equity instrument.
C. Cash-settled share-based payment transaction unless the option to settle in cash had no commercial substance.
D. Cash-settled share-based payment transaction u less the entity has a past practice of settling by issuing equity instrument or the options to settle in cash has a commercial substance

Answer 32

D. Cash-settled share-based payment transaction u less the entity has a past practice of settling by issuing equity instrument or the options to settle in cash has a commercial substance

Question 33

In measuring the fair value of shares and the related goods or services received, an entity

A. Must always use observable market price of the entity’s own shares.
B. Uses observable market price but only for nonemployee share-based transaction.
C. Uses price established by the board of directors for that type of share-based transaction.
D. Uses observable market price and other measures according to a measurement hierarchy.

Answer 33

D. Uses observable market price and other measures according to a measurement hierarchy.

Question 34

For modification of vesting condition in an entity-settled share-based payment transaction for employee services, the entity should

A. Recognize the increase in fair value over the remaining vesting period from the date of the modification.
B. Take the modified vesting condition into account only if it is beneficial to employees and recognize the increase in fair value over the original vesting period.
C. Take the modified vesting condition into account only if it is beneficial to employees and recognize the increase in fair value over the remaining vesting period from date of the modification.
D. Make no adjustment for the compensation expense

Answer 34

C. Take the modified vesting condition into account only if it is beneficial to employees and recognize the increase in fair value over the remaining vesting period from date of the modification

Question 35

For a cash-settled share-based payment transaction for employee services, the entity should

A. Recognize as expense the cash paid out to the employees in the final year.
B. Recognize as expense the cash paid out to the employees over the vesting period
C. Recognize as expense the estimate of the cash to be paid out to the employees over the vesting period.
D. Recognize as expense the grant date fair value of the liability over the vesting period.

Answer 35

C. Recognize as expense the estimate of the cash to be paid out to the employees over the vesting period.