UNIVERSITY

OF SANTO TOMAS
UST - ALFREDO M. VELAYO COLLEGE OF ACCOUNTANCY

2ND TERM, ACADEMIC YEAR 2020-2021
IAC 11 – INTEGRATED REVIEW IN FINANCIAL ACCOUNTING AND REPORTING

ACCOUNTING FOR EMPLOYEE BENEFITS

1. A company has 120 rank-and-file employees who are each entitled to ten working days of
paid sick leave for each year. As per company policy, unused sick leaves may be carried
forward for one calendar year only.

On December 31, 2021, the average unused entitlement was two days per employee. The
entity expected, based on experience, that in 2022, 75 employees will take an average of
10 days each of sick leave, 20 employees will take an average of 11 days each of sick
leave, 18 employees will take an average of 12 days each of sick leave, and 7 employees
will take an average of 15 days each of sick leave.

In 2022, 90 employee each took 11 days of sick leave, while the remaining employees
each took 10 days of sick leave. And on December 31, 2022, the entity expected that in
2023, 85 employees will take an average of 10 days each of sick leave, 25 employees will
take an average of 12 days each of sick leave, and the remaining 10 employees will take
an average of 11 days each of sick leave.

In 2021, the company paid all its rank-and-file employees P500 per day. The company
policy provided that starting 2022, all rank-and-file employees will receive an increase of
P25 per day.

What is the amount of liability for compensated absences on December 31, 2021 for the
company’s rank-and-file employees?
a. P11,025
b. P36,750
c. P40,425
d. P47,775

2. What is the amount of vacation pay expense in 2022 for the company’s rank-and-file
employees?
a. P630,000
b. P672,000
c. P666,225
d. P677,250

3. A company provides lump-sum benefit payable on termination of service equal to 10% of

final salary for each year of service. The employee’s salary in Year 1 is P1,500,000 and is
assumed to increase to P2,160,000 at the end of Year 3, the employees retirement date.
The discount rate is 5% per year. Assuming there are no changes in actuarial
assumptions, determine the benefit obligation at the end of Year 2 using the projected
unit credit method? Note: Round-off PV fac tors to 4-decimal places.
a. P391,821
b. P411,426
c. P432,000
d. P647,997

4. On January 1, 2021, the memorandum records of the company showed the following
balances related to its defined benefit plan:
Fair value of plan asset P5,500,000
Defined benefit obligation 4,500,000

The transactions affecting the defined benefit plan for 2021 are as follows:
 Current service cost P750,000
Settlement discount rate 10%
Actual return on plan assets 520,000
Contribution to the plan 500,000
Benefits paid to retirees 200,000

What is the compound journal entry to record the foregoing transactions?

a. Post-employment benefit expense------------680,000

Remeasurement gain/loss (OCI)------------------30,000
Cash--------------------------------------------------500,000
Prepaid/accrued benefit cost----------------------150,000

b. Post-employment benefit expense------------650,000

Remeasurement gain/loss (OCI)---------------30,000
Cash--------------------------------------------------500,000
Prepaid/accrued benefit cost----------------------180,000

c. Post-employment benefit expense------------650,000

Remeasurement gain/loss (OCI)------------------30,000
Cash--------------------------------------------------500,000
Prepaid/accrued benefit cost----------------------120,000

d. Post-employment benefit expense------------680,000

Cash--------------------------------------------------500,000
Prepaid/accrued benefit cost----------------------180,000

5. On January 1, 2020, the memorandum records of a company showed the following

balances related to its defined benefit plan:
Fair value of plan asset P 9,000,000
Defined benefit obligation 11,000,000

6. The transactions affecting the defined benefit plan for 2020 are as follows:
Current service cost P 1,500,000
Settlement discount rate 10%
Expected return 12%
Contribution to the plan 1,000,000
Benefits paid to retirees 400,000
Past service cost 600,000
Defined benefit obligation 12/31/20 10,400,000

What amount of defined benefit cost should be reported in 2020 profit or loss?
a. P0
b. P2,300,000
c. P3,400,000
d. P4,000,000

7. The following information pertains to a corporation’s defined benefit plan for the year
2020:
Defined benefit obligation, January 1, 2020 P 15,000,000
Fair value of plan assets, January 1, 2020 14,000,000
Defined benefit obligation, December 31, 2020 17,410,000
Fair value of plan assets, December 31, 2020 14,920,000
Current service cost 800,000
Discount rate 6%
Benefits paid 1,500,000
 Contribution made during the year 1,050,000

What amount of defined benefit cost should be reported in 2020 profit or loss?
a. P530,000
b. P860,000
c. P1,680,000
d. P2,210,000

8. The following information pertains to the corporation’s defined benefit plan for the year
2020:
Defined benefit obligation, January 1, 2020 P 2,200,000
Fair value of plan assets, January 1, 2020 1,400,000
Actual return on plan assets 90,000
Settlement price of additional DBO settled 200,000
Present value of additional DBO settled 250,000
Defined benefit obligation, December 31, 2020 2,070,000
Current service cost 800,000
Discount rate 10%
Benefits paid to retirees 700,000
Contribution made during the year 650,000
Past service cost 300,000

How much is the balance of prepaid or accrued pension as of December 31, 2020?
a. P830,000 defined benefit asset
b. P830,000 defined benefit liability
c. P880,000 defined benefit asset
d. P880,000 defined benefit liability

9. On December 31, 2019, a company reported P1,500,000 defined benefit asset (excess of
fair value of plan assets over the present value of the defined benefit obligation) and
P1,400,000 asset ceiling. On December 31, 2020, the company determined that the
present value of the defined benefit obligation amounted to P4,000,000 while the fair
value of plan assets amounted P5,500,000. Meanwhile, it also determined that the present
value of reduction in future contributions amounted to P1,200,000. Using a 10% discount
rate, what is the amount of re-measurement of defined benefit asset/liability shall be
taken to other comprehensive income in 2020?
a. P200,000
b. P190,000
c. P180,000
d. P20,000

10. The following information is made available in relation to the defined benefit plan of a
company for the year 2020:
Particular January 1 December 31
Fair value of plan asset P 2,600,000 P 3,000,000
Defined benefit obligation 2,000,000 2,100,000
Asset ceiling 200,000 300,000

Other relevant information for 2020 is as follows:

Current service cost P 100,000
Contribution to the plan 350,000
Benefits paid to retirees 150,000
Discount rate 10%

11. What amount of defined benefit cost should be reported in profit or loss for 2020?
a. P250,000
 b. P170,000
c. P90,000
d. P80,000

12. What is the re-measurement loss related to the change in the effect of asset ceiling?
a. P40,000
b. P100,000
c. P160,000
d. P200,000

13. What is the total net re-measurement gain/loss to be reported as a component of other
comprehensive income?
a. P100,000
b. P60,000
c. P160,000
d. P170,000

14. How much is the actual return on plan assets for the year 2020?
a. P60,000
b. P200,000
c. P260,000
d. P320,000

15. How much is the overfunding/underfunding for the year 2020?

a. P100,000 over
b. P100,000 under
c. P300,000 over
d. P300,000 under

16. How much is the balance of prepaid pension (asset) or accrued pension (liability) that
should be presented in the statement of financial position as of December 31, 2020?
a. P300,000
b. P900,000
c. P2,100,000
d. P3,000,000

17. Post-employment benefit plans under which an entity pays fixed contributions into a
separate entity (a fund) and will have no legal or constructive obligation to pay further
contributions if the fund does not hold sufficient assets to pay all employee benefits
relating to employee service in the current or prior periods.
a. Funded employee benefit
b. Contributory employee benefit
c. Defined contribution plan
d. Defined benefit plan

18. Short-term employee benefits do not include

a. Social security contributions
b. Non-monetary benefits such as subsidized goods
c. Profit-sharing and bonuses
d. All of the above are short-term employee benefits

19. The change in the present value of the defined benefit obligation for employee service in
prior periods, resulting from a plan amendment or a curtailment
a. current service cost
b. past service cost
c. actuarial gain or loss
 d. benefit expense

20. Service cost of defined benefit cost comprises (select the exception)
a. Current service cost
b. Past service cost
c. Any gain or loss on settlement
d. Interest on benefit obligation and plan assets

21. The re-measurements of the net defined benefit liability (asset) do not include
a. actuarial gains and losses
b. interest on the beginning effect of asset ceiling
c. return on plan assets, excluding amounts included in the net interest on the net
defined benefit liability (asset)
d. any change in the effect of asset ceiling, excluding amounts included in net interest
on the net defined benefit liability (asset)

22. Which of the following is a valid statement regarding the accounting for non-accumulating
paid absences?
a. An expense is recognized when the employee renders service in the current period
that increases his entitlement to the benefits.
b. No liability is recognized at year-end for any unused entitlement.
c. A liability is recognized at year-end equal to the best estimate of any unused
entitlement that the employee will avail in future periods.
d. No expense is recognized for non-accumulating paid absences.

23. Actuarial gains and losses are

a. recognized in full in the profit or loss
b. recognized in full in other comprehensive income
c. amortized over the remaining service life of the employees and is taken to profit or
loss
d. amortized over the remaining service life of the employees and is taken to other
comprehensive income

24. When an entity’s present value of the defined benefit obligation is less than the fair value
of the asset, the net defined benefit asset shall be
a. equal to the surplus in defined benefit plan
b. equal to the asset ceiling
c. measured at the lower of the surplus in defined benefit plan and the asset ceiling
d. measured at the higher of the surplus in defined benefit plan and the asset ceiling

25. The re-measurements of the net defined liability (asset) recognized in other comprehensive
income
a. shall be reclassified to profit or loss in a subsequent period
b. maybe transferred within equity
c. shall be amortized over the remaining life of employees and taken to profit or loss
d. none of the above is correct

26. Under define benefit plans,

a. Actuarial risk falls on the employer while investment risk falls on the employee
b. Actuarial risk falls on the employee while investment risk falls on the employer
c. Actuarial and investment risks fall on the employer
d. Actuarial and investment risks fall on the employee

27. In a defined benefit plan, the process of funding refers to

a. Determining the defined benefit obligation.
b. Determining the accumulated benefit obligation.
 c. Making the periodic contributions to a funding agency to ensure that funds are
available to meet retirees' claims.
d. Determining the amount that might be reported for pension expense.

28. If the contribution to plan assets exceeds the defined benefit cost,
a. the entity will report a net defined liability
b. the entity will report a net defined asset
c. there is underfunding
d. there is overfunding

29. Which of the following statements is true regarding defined benefit cost?
a. A remeasurement loss will occur if actual return on plan asset exceeds the expected
return.
b. If the remeasured benefit obligation is less than the expected benefit obligation, there
is a loss.
c. The interest on the difference of effect of asset ceiling is taken to profit or loss.
d. None of the above statements is true.

30. IAS 19 requires an entity to recognize

I. an expense when the entity consumes the economic benefit arising from service
provided by an employee in exchange for employee benefits.
II. a liability when an employee has provided service in expense for employee benefits
to be paid in the future.
III. a liability when the entity consumes the economic benefit arising from service
provided by an employee in exchange for employee benefits.
IV. an expense when an employee has provided service in expense for employee
benefits to be paid in the future.
a. I, II, III and IV
b. I and II only
c. I and III only
d. III and IV only

31. IAS 19 does not apply to employee benefits provided

a. under formal plans or other formal agreements between an entity and individual
employees, groups of employees or their representatives.
b. as a result of share appreciation rights.
c. under legislative requirements, or through industry arrangements, whereby entities
are required to contribute to national, state, industry or other multi-employer plans.
d. by those informal practices that give rise to a constructive obligation. Informal
practices give rise to a constructive obligation where the entity has no realistic
alternative but to pay employee benefits. An example of a constructive obligation is
where a change in the entity’s informal practices would cause unacceptable damage
to its relationship with employees.

SHARE OPTIONS AND SHARE APPRECIATION RIGHTS

1. A company rewarded one of its junior vice presidents share options to purchase 100,000
of its P10 par value ordinary shares for P12 per share, when the company’s shares were
selling at P15. Each share option has fair value of P5 on the date of grant. The options
were exercisable immediately and will expire after one year. At the middle of the year,
the vice president exercised the options. On that date, the company’s shares were already
selling at P17 per share. What amount shall be credited to share premium-ordinary
shares when the options were exercised?
a. P500,000
b. P700,000
c. P1,000,000
 d. P1,200,000

2. On January 1, 2019, a company granted 100,000 share options to be divided equally by

its 10 department managers. The share options, which had a fair value of P7 on grant
date may be used to purchase the company’s P15 par value ordinary shares at P20 per
share if the manager is still in company’s employ for the next three years or until the end
of 2021, and provided, the following conditions are met:
• options vest at the end of 2019, if earnings increased by 5%,
• options vest at the end of 2020, if average earnings in 2019 and 2020 increased by 6%,
• options vest at the end of 2021, if average earnings from 2019 to 2021 increased by
6%.

The following information were available in 2019-2021:

Estimate of the increase in
Year Actual increase in earnings
earnings in the following year
2019 4% 8%
2020 7% 8%
2021 8% 10%

One manager resigned from the company in 2019 and another one in 2021. On January
1, 2019, the company’s shares were selling at P26. What is the compensation expense
2019?
a. P210,000
b. P233,333
c. P270,000
d. P315,000

3. What is the compensation expense 2021?

a. P245,000
b. P210,000
c. P186,667
d. P140,000

4. On January 1, 2019, a company granted 100 share options to each of its 200 key
employees. The option plan entitled the employee to buy one share of the company’s
P200 par value ordinary share at P220 per share. Based on the option pricing mode, the
fair value of the option on January 1, 2019 was P32. The plan further provided that the
employees should be in service until December 31, 2021 and can exercise the options
starting January 1, 2022 until December 31, 2023.

In 2019, 12 employees left and the company estimated that another 8 employees will
leave before December 31, 2021. In 2020, 11 employees left and the company estimated
that another 6 employees will leave before December 31, 2021. In 2021, 4 employees
left. In 2022, 140 employees exercised their options and another 10 exercised in 2023.
The remaining options expired. What is the compensation expense in 2021?
a. P179,200
b. P182,400
c. P184,533
d. P188,800

5. What is the net effect to equity when shares were issued to the 140 employees who
exercised the options?
a. P2,800,000
b. P3,080,000
c. P3,528,000
d. P3,976,000
6. On January 1, 2019, a company granted to its executive 8,000 each of options to purchase
the company’s P25 par value ordinary shares. The options will vest in two years and are
exercisable anytime from January 1, 2021 to December 31, 2022. The option price per
share is P30. The fair market values of the ordinary shares on January 1, 2019,
December 31, 2019, and December 31, 2020 is P45, P48, and P50, respectively. On
November 5, 2021, the executive exercised the options. The market value of the shares
on November 5, 2021 is P52. What is the entry to record the exercise of the options on
November 5, 2021?
a. Cash---------------------------------------------240,000
Share premium-options outstanding--------176,000
Ordinary share capital-------------------------------200,000
Share premium-ordinary share---------------------216,000

b. Cash---------------------------------------------240,000
Share premium-options outstanding--------160,000
Ordinary share capital-------------------------------200,000
Share premium-ordinary share---------------------200,000

c. Cash---------------------------------------------240,000
Share premium-options outstanding--------216,000
Ordinary share capital-------------------------------200,000
Share premium-ordinary share---------------------256,000

d. Cash---------------------------------------------240,000
Ordinary share capital-------------------------------200,000
Share premium-ordinary share---------------------240,000

7. A company granted 200 share appreciation rights to each of its 300 employees on January
1, 2020. The rights were due to vest on December 31, 2021. During 2020, the company
estimated that all rights would vest, although only 90% of the rights actually vested. The
share price for January 1, 2020 was P40. It increased to P48, P54 and P60 on December
31, 2020, 2021, and 2022. What additional liability will be recorded on December 31,
2021 as a result of the share appreciation rights?
a. P756,000
b. P516,000
c. P240,000
d. P216,000

8. On January 1, 2019 a company granted 100 share appreciation rights to each of its 200
employees, on the condition that the employees remain in the company at least until
December 31, 2021. The number of employees who left and the estimates of the number
of employees who will leave the company during the vesting period follows:

2019: 5 employees left, 10 employees were expected to leave until December 31, 2021.
2020: 8 employees left, 5 employees expected to leave until December 31, 2021.
2021: No employee left the company

The fair values of the appreciation rights at the end of each year are as follows:
2019 - P24.80 2020 - P30.40 2021 - P32.80
2022 - P36.00 2023 - P42.00

The market values of the ordinary shares are presented for the following dates:
January 1, 2019 - P120.00 December 31, 2019 - P142.00
December 31, 2020 - P148.00 December 31, 2021 - P153.00
December 31, 2022 - P156.00 December 31, 2023 - P162.00
 The company expected that all share appreciation rights will be exercised between
January 1, 2022 to December 31, 2023. How much is the compensation expense in
2021?
a. P244,507
b. P613,360
c. P617,100
d. P277,367

9. On January 1, 2019, a company granted to its four vice presidents the right to choose
either: 750 each of the ordinary shares with par value of P100, or cash payment each
equal to market value 625 shares. The grant was conditional upon the completion of
three years of service. The value of the share alternative on January 1, 2019 was P192
per share. The following table showed the fair value of the company’s ordinary share:
January 1, 2019 – P204 December 31, 2020 - P240
December 31, 2019 - P216 December 31, 2021 - P260

One vice president exercised his right to receive the cash alternative on December 31,
2021, while the others chose to receive the ordinary shares. What amount was credited
to cash when the one vice president exercised the cash alternative?
a. P127,500
b. P146,000
c. P162,500
d. P179,000

10. What amount was credited to share premium-ordinary share when the three vice
presidents exercised the share alternative?
a. P149,500
b. P262,500
c. P312,000
d. P328,500

11. Goods or services received from employees in exchange for equity instruments issued,
the goods and services shall be measured indirectly at
a. the fair value of the goods or services received
b. the fair value of the equity instruments issued
c. the cost of the goods or services received
d. the par value of the equity instruments issued

12. IFRS 2 provides that if the fair value of the share options cannot be estimated reliably,
the entity shall measure the share options at their intrinsic value initially and
subsequently at each reporting date and at the date of final settlement, with any change
in intrinsic value recognized in
a. Other comprehensive income c. Retained earnings
b. Profit or loss d. Share capital

13. Which of the following statements appropriately describes Intrinsic Value?

a. Difference between the fair value of the shares to be subscribed and the strike price.
b. Difference between the fair value of the shares and the par value.
c. It is the lower between fair value and par value of the shares.
d. Cannot be determined.

14. Which of the following statements is true for equity-settled share based compensation?
a. It will decrease share premium.
b. It will increase the retained earnings.
c. It will increase the profit or loss for the period.
d. It does not affect total shareholder’s equity.
15. IFRS 2 provides that for a cash settled share-based compensation, the entity shall
measure the services acquired and the liability incurred at the
a. Book value of the liability c. Fair value of the services
b. Fair value of the liability d. Recent cost of the services

16. For cash settled share-based payment transactions, until the liability is settled, the entity
is required to remeasure the fair value of the liability of each reporting date and at the
date of settlement and any changes in fair value are
a. recognized in profit of loss of the period.
b. included in retained earnings.
c. treated as component of equity.
d. not recognized.

17. Changes in the compensation expense for share-based compensation transactions shall
be accounted
a. retrospectively as a change in accounting policy
b. prospectively as a change in accounting estimate
c. prospectively as a change in accounting policy
d. retrospectively as prior period error adjustment

18. If the share options vest immediately, the related compensation expense is
a. Recognized immediately equal to the fair value of the options.
b. Spread over the vesting period.
c. Credited to a liability account.
d. Cannot be determined

19. If the share options do not vest immediately, the related compensation expense is
a. Recognized immediately equal to the fair value of the options.
b. Spread over the vesting period.
c. Credited to a liability account.
d. Cannot be determined.

20. For options based on market performance features ( market condition ), the
compensation expense:
a. Is recorded, irrespective of whether that market price is satisfied
b. Recorded during the vesting period is reversed when the market condition is not met
c. To be recorded every year is based on the number of employees at the date of grant,
irrespective of the number of employees that the company.
d. Shall be presented as part of the statement of changes in equity and not on the
income statement.

END OF HANDOUT