IFRS for SMEs) IFRS for SMEs Employee Benefits and Share-Based Payment 2 — Questions and Answers
Question 1: Under IFRS for SMEs, how are termination benefits recognized?
- When the entity is demonstrably committed to providing termination benefits (Correct answer)
- When cash is paid to terminated employees
- When a termination plan is approved by shareholders
- At the end of the employee's notice period only
Correct answer: When the entity is demonstrably committed to providing termination benefits
Termination benefits are recognized when the entity is demonstrably committed to terminating employment before normal retirement or providing benefits as an offer to encourage voluntary redundancy.
Question 2: Under IFRS for SMEs, profit-sharing and bonus payments are recognized as a liability when:
- The entity has a present legal or constructive obligation to make such payments (Correct answer)
- Profits are actually distributed to employees
- Management formally approves bonuses
- Tax authorities confirm deductibility
Correct answer: The entity has a present legal or constructive obligation to make such payments
A liability for profit-sharing or bonuses is recognized when the entity has a present obligation arising from past events and a reliable estimate can be made.
Question 3: Under IFRS for SMEs, equity-settled share-based payment transactions are measured at:
- Fair value of the equity instruments granted at the grant date (Correct answer)
- Intrinsic value at each reporting date
- Market value of shares at exercise date
- Par value of shares issued
Correct answer: Fair value of the equity instruments granted at the grant date
Equity-settled share-based payments are measured at the fair value of the equity instruments at the grant date and recognized over the vesting period.
Question 4: Under IFRS for SMEs, cash-settled share-based payments are measured at:
- Fair value of the liability remeasured at each reporting date (Correct answer)
- Fair value only at the grant date
- Intrinsic value at exercise date
- Nominal value of shares that would have been issued
Correct answer: Fair value of the liability remeasured at each reporting date
Cash-settled share-based payments (e.g., stock appreciation rights) are measured at the fair value of the liability at each reporting date until settled.
Question 5: If a share option plan has a three-year vesting period, IFRS for SMEs requires the share-based payment expense to be recognized:
- Evenly over the three-year vesting period (Correct answer)
- All in the year the options are granted
- Only when options are exercised
- Only in the year vesting conditions are met
Correct answer: Evenly over the three-year vesting period
The expense for equity-settled share-based payments with vesting conditions is recognized over the vesting period as employees render service.
Question 6: Under IFRS for SMEs, if share options are granted with no vesting conditions (immediately vested), the expense is recognized:
- Immediately on the grant date (Correct answer)
- Over an assumed vesting period of one year
- When options are exercised
- Deferred until the expiry of the option
Correct answer: Immediately on the grant date
When equity instruments vest immediately, the presumption under IFRS for SMEs is that the service has already been received and the full expense is recognized at grant date.
IFRS for SMEs) IFRS for SMEs Employee Benefits and Share-Based Payment 2
Under IFRS for SMEs, how are termination benefits recognized?