The Following Information Relates to Questions
on 1 July 2013

question 9

Multiple Choice

The following information relates to questions
On 1 July 2013 Watson Pty Ltd granted 100 share appreciation rights (SARS) to each of its 50 employees, conditional on the employee not leaving the company in the next three years. The company estimates the fair value of the SARS at the end of each year in which a liability exists as shown in the table below. The intrinsic values of the SARS at the date of exercise at 30 June 2016, 2017 and 2018 are also shown. All SARS held by employees at 30 June 2016 vest.
$\begin{array}{|l|l|l|}\hline \text { Year ended } & \text { Fair value } & \text { Intrinsic value } \\\hline 30 \text { June } 2014 & \$ 14.40 &\\\hline \text { 30 June } 2015 & \$ 15.50 & \\\hline \text { 30 June } 2016 & \$ 18.20 & \$ 15.00 \\\hline 30 \text { June } 2017 & \$ 21.40 & \$ 20.00 \\\hline 30 \text { June } 2018 & & \$ 25.00 \\\hline\end{array}$
By 30 June 2016 nine employees have left and 15 employees have exercised their SARS.
-The liability recorded at 30 June 2015 is:

• A) $19 680
• B) $21 653
• C) $41 333
• D) $47 320

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Definitions:

Step-Down Method

A cost allocation method used in accounting to assign service department costs to production departments in a sequential manner based on benefits received.

Administration Department

A sector of a business or organization responsible for administrating policies, procedures, and administrative support.

Information Technology

The application of computers, storage systems, networking components, and other tangible devices, frameworks, and methodologies to generate, manipulate, preserve, protect, and share every type of digital data.

Prenatal Care

Medical and healthcare provided to a pregnant woman before birth to ensure the health of both mother and baby.