Going through the Accounting for Share Based Payments (ESOS & ESOP) – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.
Accounting for Share Based Payments (ESOS & ESOP) – Corporate and Management Accounting MCQs
Question 1.
………… means the option given to the whole-time directors, officers or employees of a company, which gives such directors, officers or employees the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a pre-determined price.
(A) Employee Stock Purchase
(B) General Employee Benefits
(C) Employee Stock Option
(D) Retirement Benefits
Answer:
(C) Employee Stock Option
Question 2.
Which of the following section of the Companies Act, 2013 allows a company to offer shares to employees under a scheme of employee’s stock option?
(A) Section 61
(B) Section 65
(C) Section 62
(D) Section 68
Answer:
(C) Section 62
Question 3.
As per Section 62(2) of the Companies Act, 2013, a company can offer shares to employees under a scheme of employees stock option by passing -…………
(A) Board Resolution
(B) Special Resolution
(C) Ordinary Resolution
(D) Extraordinary Resolution
Answer:
(B) Special Resolution
Question 4.
A listed company can offer various benefits to employees such as ESOS or ESPS by complying provisions of the -…………
(1) Companies Act, 2013
(2) SEBI (Share Based Employee Benefits) Regulations, 2014
(3) Companies (Share Capital & Debentures) Rules, 2014
Select the correct answer from the options given below.
(A) (1) only
(B) (1) and (2) only
(C) (2) and (3) only
(D) (1), (2) and (3)
Answer:
(B) (1) and (2) only
Question 5.
Which of the following persons is covered under the provisions relating to share based payment regulation made by the SEBI?
(A) Permanent employee
(B) Whole time director
(C) Employee of a subsidiary
(D) All of the above
Answer:
(D) All of the above
Question 6.
As per Rule 12 of the Companies (Share Capital & Debentures) Rules, 2014, ’employee’ includes –
(I) A permanent employee of the company who has been working outside India
(II) Independent director
(III) An employee who is a promoter
(IV) Whole time director
(V) Director who holds more than 10% of the outstanding equity shares of the start-up company
Select the correct answer from the options given below.
(A) (III), (II) & (IV)
(B) (I), (II), (IV) & (V)
(C) (V), (IV) & (I)
(D) (I) and (IV)
Answer:
(D) (I) and (IV)
Question 7.
Which of the following person can be treated as ‘employee’ and hence eligible for employees share based payment benefits?
(A) Relative of the director who holds more than 10% of the outstanding equity shares of the company
(B) Temporary employee of the company who has been working in India
(C) Employee of Associate Company
(D) None of the above
Answer:
(D) None of the above
Question 8.
SEBI (Share Based Employee Benefits) Regulations, 2014 applies to: -…………
(1) Employee Stock Option Schemes
(2) Employee Stock Purchase Schemes
(3) Stock Appreciation Rights Schemes
(4) General Employee Benefits Schemes
(5) Retirement Benefit Schemes
Select the correct answer from the options given below.
(A) (2) and (1)
(B) (3) and (4)
(C) (4) and (5)
(D) All of the above are correct
Answer:
(D) All of the above are correct
Question 9.
Under the ………. employees are given an option to purchase shares on the spot at a discount price.
(A) Employees Stock Purchase Scheme
(B) Employee Stock Option Scheme
(C) Stock Appreciation Rights Scheme
(D) Preferential Allotment Scheme
Answer:
(A) Employees Stock Purchase Scheme
Question 10.
Under ESPS employees are given an option to purchase shares on the spot at a -……………
(A) Discounted price
(B) Special price
(C) Discount price
(D) Floor price
Answer:
(C) Discount price
Question 11.
Under ESOS employees are given an option to purchase shares at:
(A) On the spot
(B) Later date ie. after vesting period
(C) Relevant date
(D) Later date i..e. after end of accounting year
Answer:
(B) Later date ie. after vesting period
Question 12.
Shares to be issued under ESOS –
(A) Can be issued as a part of a public issue.
(B) Has no vesting periods
(C) Has to be approved separately by the company in general meeting by passing special resolution
(D) All of the above
Answer:
(C) Has to be approved separately by the company in general meeting by passing special resolution
Question 13.
………….. means the price, if any, payable by the employee for exercising the option or SAR granted to him.
(A) Offer price
(B) Exercise price
(C) Market Price
(D) Fair price
Answer:
(B) Exercise price
Question 14.
………. means the process by which the company issues options, SARs, shares, or any other benefits under any of the schemes.
(A) Grant
(B) Option
(C) Exercise
(D) Appreciation
Answer:
(A) Grant
Question 15.
A company may implement share based employees benefit schemes:
(A) Directly
(B) Trust Route
(C) Either (A) or (B)
(D) Neither (A) nor (B)
Answer:
(C) Either (A) or (B)
Question 16.
Which of the following statement is true?
(A) A company may implement share based employees benefit schemes by setting-up revocable trust.
(B) A company cannot implement several schemes as permitted under the SEBI (Share Based Employee Benefits) Regulations, 2014 through a single trust.
(C) Nominee director cannot participate in employees share based benefits schemes.
(D) The company cannot vary the terms of the employees share based benefits schemes.
Answer:
(D) The company cannot vary the terms of the employees share based benefits schemes.
Question 17.
There shall be a minimum vesting period of …………. in case of ESOS.
(A) 3 months
(B) 1 year
(C) 6 months
(D) 3 years
Answer:
(B) 1 year
Question 18.
Shares issued under an ESPS shall be locked-in for a minimum period of …………. from the date of allotment.
(A) 3 months
(B) 1 year
(C) 6 months
(D) 3 years
Answer:
(B) 1 year
Question 19.
Where the right to obtain Shares or Stock Options expires unexercised, the balance standing to the credit of Employee Stock Option Outstanding A/c should be transferred to:
(A) Profit & Loss A/c
(B) General Reserve A/c
(C) Share Based Payment Reserve A/c
(D) Securities Premium A/c
Answer:
(B) General Reserve A/c
Question 20.
Employees Stock Option Outstanding A/c is transitional in nature and is ultimately transferred to:
(A) Share Capital A/c
(B) Securities Premium A/c
(C) General Reserve A/c
(D) Any of the above
Answer:
(D) Any of the above
Question 21.
………. is the excess of the market price of the share under ESOS over the exercise price of the option
(A) Intrinsic Value
(B) Fair Value
(C) Net Asset Value
(D) Vesting Value
Answer:
(D) Vesting Value
Question 22.
On 1.4.2019, a company offered 300 shares to each of its 1,200 employees at ₹ 75 per share. The employees are given a month to accept the shares. The shares issued under the plan shall be subject to lock-in to transfer for 3 years from the grant date ie. 30.4.2019. Market price of shares on the grant date is ₹ 90 per share. Due to post-vesting restrictions, fair value of shares issued under the plan is estimated at ₹ 84 per share. Up to 30.4.2019, 50% of employees accepted the offer and paid ₹ 75 per share. Face value of share is ₹ 10. Expenses to be recognized in year 2019-2020 = ?
(A) ₹ 5,40,000
(B) ₹ 32,40,000
(C) ₹ 16,20,000
(D) ₹ 10,800
Answer:
(C) ₹ 16,20,000
Market price of share on the grant date is not considered as Fair Value is specifically given.
Fair value of an option = × 84 – ×75 = × 9
Number of employees accepting the offer = 1,200 employees × 50% = 600 employees Number of shares issued = 600 employees ₹ 300 shares = 1,80,000 shares
Fair value of ESOS = 1,80,000 shares × ₹ 9 = × 16,20,000
Expenses recognized in 2019-2020 = × 16,20,000 Alternatively,
(84 – 75) × 1,200 employees × 300 shares × 50% = 16,20,000
However, in 2nd year 300 options lapse; hence remaining options are 700.
Fair value of 700 Options = 700 × 120 = 84,000.
Cumulative balance in Employees Stock Option Outstanding A/c up to 2nd year
= 48,000 + 48,000 = 96,000
Hence, excess expenses to be reversed by transfer to General Reserve A/c
= 96,000 – 84,000 = 12,000.
Question 23.
₹ Ltd. has its share capital divided into equity shares of ₹ 10 each. On 1.1.2020 it granted 20,000 employees stock option at ₹ 50 per share, when the market price was ₹ 120 per share. The options were to be exercised between 15.3.2020 & 31.3.2020. The employees exercised their options for 16,000 shares only and the remaining options lapsed. The company closes its books on 31st March every year. Which of the following is correct?
(A) No entry is passed when Stock Options are granted to employees. Hence, no entry will be passed on 1.1.2020.
(B) The difference ₹ 120 – ₹ 50 = ₹ 70 per share is employee compensation expense and will be charged to Profit & Loss A/c for the number of options exercised ie. 16,000 shares by ₹ 11,20,000.
(C) Securities Premium A/c will be credited by ₹ 17,60,000
(D) All of the above
Answer:
(D) All of the above
Question 24.
A company has its share capital divided into shares of ₹ 10 each. On 1.1.2016, it granted 5,000 employees stock option at ₹ 50, when the market price was ₹ 140. The options were to be exercised between 1.3.2017 to 31.3.2017. The employees exercised their options for 4,800 shares only; remaining options lapsed. How much amount will be transferred from Employees Compensation Expenses A/c to Profit & Loss A/c?
(A) ₹ 4,32,000
(B) ₹ 4,36,000 .
(C) ₹ 4,28,000
(D) ₹ 4,44,000
Answer:
(A) ₹ 4,32,000
Question 25.
On 1.4.2019, GP Ltd. offered 100 shares to each of its 500 employees at ₹ 50 per share. Employees are given a year to accept the offer. Shares issued under the plan shall be subject to lock-in on transfer for 3 years from the grant date. Market price of shares on the grant date is ₹ 60 per share. Due to post-vesting restrictions on transfer, the fair value of shares issued under the plan is estimated at ₹ 56 per share. On 31.3.2020, 400 employees accepted the offer and paid ₹ 50 per share, (a) Expenses to be recognized = ?&(?) Securities Premium A/c will be credited by = ?
(A) ₹ 3,40,000; ₹ 20,40,000
(B) ₹ 2,40,000; ₹ 18,40,000
(C) ₹ 2,40,000; ₹ 22,40,000
(D) ₹ 3,40,000; ₹ 18,40,000
Answer:
(B) ₹ 2,40,000; ₹ 18,40,000
Question 26.
A company has its share capital divided into shares of ₹ 10 each. On 1.4.2018, it granted 5,000 shares as employee’s stock options at ₹ 40 per share, when the market price was ₹ 130 per share. The options were to be exercised between 16.12.2018 and 15.3.2019. The employees exercised their options for 4,500 shares only; the remaining options lapsed. Which of the following is correct?
(A) Bank A/c will be debited by ₹ 5,85,000 (4,500 shares ₹ 130)
(B) Equity Share Capital A/c will be credited by ₹ 5,00,000 (5,000 shares × ₹ 10)
(C) Securities Premium A/c will be credited by ₹ 5,40,000 (4,500 shares × ₹ 120)
(D) All of the above
Answer:
(C) Securities Premium A/c will be credited by ₹ 5,40,000 (4,500 shares × ₹ 120)
Question 27.
On 1.1.2016, Tulip Ltd. offered 100 shares of ₹ 10 each to each of its 500 employees at ₹ 30 per share. The employees were given time up to 31.3.2016 to accept the offer. The shares issued under ESOP shall be subject to lock-in-period of 2 years from the grant date. Other details provided are as under:
(i) Market price of shares on the grant date is ₹ 50 per share.
(ii) Fair market value of shares is estimated at ₹ 40 per share.
(iii) On 31.3.2016,400 employees accept-ed offer and paid ₹ 30 per share.
Employees Compensation Expenses A/c will be debited by –
(A) ₹ 4,00,000
(B) ₹ 8,00,000
(C) ₹ 12,00,000
(D) ₹ 2,00,000
Answer:
(A) ₹ 4,00,000
Question 28.
S Ltd. grants 1,000 options to its employees on 1.4.2010 at ₹ 60. The vesting period is 2.5 years. The maximum exercise period is 1 year. Market price on that date is ₹ 90. All the options were exercised on 31.7.2014. F face value of equity share is ₹10 per share. Expenses to be recognized in year 2010-2011,2011-2012 & 2012-2013 = ?
(A) ₹ 14,000; ₹ 10,000; ₹ 6,000
(B) ₹ 10,000; ₹ 10,000; ₹ 10,000
(C) ₹ 12,000; ₹ 12,000; ₹ 6,000
(D) ₹ 15,000; ₹ 10,000; ₹ 4,000
Answer:
(C) ₹ 12,000; ₹ 12,000; ₹ 6,000
Question 29.
Reliance Ltd. grants 1,000 employees stock options on 1.4.2012 at ₹ 40, when market price is ₹ 160. The vesting period is 2.5 years and maximum exercise period is 1 year. 300 unvested options lapse on 31.3.2014. 600 options are exercised on 30.6.2015. 100 vested options lapse at the end of the exercise period. Expenses to be recognized in years 2012-2013, 2013-2014 & 2014-2015 = ?
(A) ₹ 24,000; ₹ 24,000; ₹ 12,000
(B) ₹ 40,000; ₹ 40,000; ₹ 20,000
(C) ₹ 45,000; ₹ 45,000; ₹ 22,500
(D) ₹ 48,000; ₹ 48,000; ₹ 24,000
Answer:
(D) ₹ 48,000; ₹ 48,000; ₹ 24,000
Question 30.
Take the data of above question and state how much amount will be transferred to General Reserve A/c for 300 unvested options lapsed on 31.3.2014?
(A) ₹ 12,000
(B) ₹ 24,000
(C) ₹ 10,000
(D) ₹ 20,000
Answers:
(A) ₹ 12,000