SHARE-BASED PAYMENTS

Kiwi Car Direct Limited is a New Zealand company which purchases car parts from the United States. It has a balance date of 31 March.

In March 2017 Kiwi Car Direct Limited negotiated the purchase of car parts from its longstanding supplier in the US, Eagle Auto Parts Limited. In this case, Kiwi Car Direct Limited negotiated to settle the purchase of the transaction with 35,000 shares in Kiwi Car Direct Limited. The car parts were received on the 31 March 2017 and are considered to have a total fair value of $260,000. The fair value of Kiwi Car Direct Limiteds shares on the 31 March 2017 was $7.50 per share.

Furthermore, on the 1 April 2017, Kiwi Car Direct Limited granted 10,000 share options to its CEO. All services had been performed by the CEO at that date. The entity reliably estimated the fair value of each option at $6.50.

Required:

(a) Provide the journal entry to record the purchase of the car parts by Kiwi Car Direct Limited on the 31 March 2017.

(b) Calculate the remuneration expense which will be reported in the financial statements of Kiwi Car Direct Limited for the year to 31 March 2018 for services received from the CEO

as consideration for the share options granted.

(c) Discuss the extent to which you consider that the share options granted to the CEO of Kiwi Car Direct Limited are likely to align his/her interests with those of shareholders.