IFA Mid Term Workshop Questions - Updated.docx PDF

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IFA Mid Term Workshop Questions - Updated.docx
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Question 1 KWWI Problem P16-3 Assume that Sarazan Company has a share-option plan for top management. Each share option represents the right to purchase an ordinary share in the future at a price equal to the fair value of the shares at the date of the grant. Sarazan has 5000 share options outstanding, which were granted at the beginning of 2010. The following data relate to the option grant. Exercise price for options $40 Market price at grant date (January 1, 2010) $40 Fair value of options at grant date (January 1, 2010) $6 Service period 5 years Required: (a) Prepare the journal entries for the first year of the share-option plan. (b) Prepare the journal entries for the first year of the plan assuming that, rather than options, 700 restricted shares were granted at the beginning of 2010. (c) Now assume that the market price of Sarazon shares on the grant date was $45 per share. Repeat the requirements for (a) and (b). Question 2 Tan, Lim & Lee P13-5 Icon Company initiated a share option plan for its chief executive officer on 1 January 20x1. The terms of the share option plan are as follows: (a) The vesting date is 31 December 20x3 and the chief executive officer must still remain in the company’s employ at that date. (b) The number of options that will vest is dependent on the average rate of growth of earnings per share over the next three years as follows: (i) If the average rate of growth of earnings per share per year is less than 10%, the number of share options is nil. (ii) If the average rate of growth of earnings per share per year is between 10% and 15%, 100,000 share options will be given to the chief executive officer. (iii) If the average rate of growth of earnings per share per year exceeds 15%, 150,000 share options will be given to the chief executive officer. The fair value of one option was estimated at $5 at the grant date. Icon Company expected the average annual growth rate of the company to be not less than 10% per year. Earnings per share for the year ended 31 December 20x1 increased by 13% and the company expected this rate of growth to be maintained for the next two years. For the year ended 31 December 20x2, earnings per share increased by 20% and the company expected the average rate of growth of earnings per share for the three years to 31 December 20x3 to be 16.5% (average of 20x1 and 20x2 growth rates). The actual earnings per share for the year ended 31 December 20x3 was 10%. Ignore taxation. Required: 1

1. Calculate the remuneration expense relating to the share options for the period 20x1 to 20x3. 2. Prepare the journal entries relating to the share options for each of the years. Question 3 Jasper Ltd. has the following defined benefit pension plan balances on 1 January 2012. All figures are in Singapore dollars (S$). Defined benefit obligation 4,200,000 Fair value of plan assets 4,075,000 The discount rate applicable to the plan is 10%. On 1 July, 2012, Jasper Ltd. amends its pension agreement so that past service costs of S$500,000 are created. Other data related to the pension plan are as follows. 2012 Service costs 150,000 Contributions (funding) to the plan 140,000 Benefits paid 200,000 Actual return on plan assets 252,000 Expected rate of return on assets 10% Required: Apply FRS 102 Share-based Payment and FRS 19 Employee Benefits. Show journal entries recorded for the pension plan on 31 December 2012. (25 marks) Question 4 Silver Co. buys quoted debt securities issued by K Co. at cost of $103,000 on 1 January 2010. Silver Co. classifies the debt securities as available-for-sale (AFS). The details of the quoted debt securities are as follows: Principal sum $100,000 Coupon rate, interest settled annually 6% per annum Years to maturity from purchase date 3 years Effective interest rate at purchase date 4.901% per annum Fair value as at 31 Dec 2010 $107,400 Fair value as at 31 Dec 2011 $32,500 The decline of debt securities issued by K Co. in fair value in the year 2011 is due to a major corporate scandal leading to a significant loss in market share that threatens the going concern of K Co. Requirements 4.1 Explain the differences in the conditions to classify debt and equity securities as availablefor-sale under FRS 39 versus FVTOCI under IFRS 9 using the following matrix: FRS 39 AFS

IFRS 9 FVOCI

Debt securities 2

Equity securities (16%) 4.2. Show the journal entries in Silver Co.’s book in relation to the AFS debt securities on 1 January 2010, 31 December 2010, and 31 December 2011. (20%) 4.3 K Co. treated the bonds issued at amortized cost. Show the journal entries in K Co.’s book on 1 January 2010 and 31 December 2010. (4%)

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