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Module 34 Share-Based Compensation Problem

This document contains 5 problems related to accounting for share-based compensation. Problem 1 involves share options granted to employees that vest over 3 years. It asks to calculate compensation expense for 2021-2023 and share premium from exercise in 2023. Problem 2 involves share options granted to employees that vest after 2 years. It asks to calculate compensation expense for 2021-2023 and share premium from exercise in 2023. Problem 3 involves share appreciation rights granted to employees that vest over 3 years. It asks to calculate compensation expense/gains for 2021-2023 and cash payment upon exercise in 2024. Problems 4 and 5 similarly involve grants to employees/officers that vest over periods of

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114 views

Module 34 Share-Based Compensation Problem

This document contains 5 problems related to accounting for share-based compensation. Problem 1 involves share options granted to employees that vest over 3 years. It asks to calculate compensation expense for 2021-2023 and share premium from exercise in 2023. Problem 2 involves share options granted to employees that vest after 2 years. It asks to calculate compensation expense for 2021-2023 and share premium from exercise in 2023. Problem 3 involves share appreciation rights granted to employees that vest over 3 years. It asks to calculate compensation expense/gains for 2021-2023 and cash payment upon exercise in 2024. Problems 4 and 5 similarly involve grants to employees/officers that vest over periods of

Uploaded by

Thalia Uy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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PSBA Integrated Review

Financial Accounting and Reporting – Problem Christian Aris Valix


Share-based compensation

1. On January 1, 2021, an entity granted 200 share options each to 300 employees, conditional upon the
employee’s remaining in the entity’s employ during the vesting period. The options are exercisable
on December 31, 2023. On the date of grant, each option has a fair value of P25. The par value per
share is P50 and the option price is P80 per share. On December 31, 2022, 5% of the employees left
and it is expected that another 5% will leave before the end of the vesting period. On December 31,
2023, only 3% of the employees actually left and all of the share options were exercised on such date.
Compute the compensation expense for the years 2021, 2022 and 2023. Compute the share premium
to be reported as a result of exercise of the share options on December 31, 2023.
2. On January 1, 2021, an entity granted 80,000 share options to its employees. The options will vest at
the end of two years provided the employees remain in service until then. The option price is P75 and
the par value is P60 per share. On the date of grant, the fair value of the share options cannot be
measured reliably. The share options have a life of three years. The market prices of the share were
P80, P95 and P105 on December 31, 2021, 2022 and 2023 respectively. All options were exercised
on December 31, 2023. Compute compensation expense for the years 2021, 2022 and 2023. Compute
the share premium to be reported as a result of the exercise of the share options.
3. On January 1, 2021, an entity granted 20,000 share appreciation rights which entitled key employees
to receive cash equal to the difference between P30 and the market price of the share on the date of
exercise. The service period is from 2021 to 2023 and the rights are exercisable on January 1, 2024.
The market prices of the share were P45, P60 and P48 on December 31, 2021, 2022 and 2023
respectively. All rights were exercised on January 1, 2024. Compute the compensation expense or
any gain on reversal of share appreciation rights for the year 2021, 2022 and 2023. Compute the cash
payment on January 1, 2024.
4. On January 1, 2021, an entity granted to its key officer the right to choose either:

 20,000 shares
 Cash payment equal to the fair value of 18,000 shares
The grant is conditional upon the completion of two years of service. If the officer chooses the share
alternative, the shares must be held for at least three years after the vesting date. The par value of the
share is P20 and on the date of grant, the share price is P45. The share prices were P54 and P66 on
December 31, 2021 and 2022, respectively. After taking into account the effects of post-vesting
restrictions, the entity has estimated that the fair value of the share alternative is P42 per share.
Compute the compensation expense for the year 2021 and 2022. Compute the share premium if the
officer chooses the share alternative. Compute the share premium if the officer chooses the cash
alternative.
5. On January 1, 2021, an entity granted 60,000 share appreciation rights to key officers. The vesting
period is 5 years and the agreement required the entity to pay cash based on the excess of market
price over a predetermined price of P120. The market prices per share were P140 and P155 on
December 31, 2021 and 2022, respectively.
On December 31, 2022, the entity modified the agreement and cancelled the 60,000 share
appreciation rights. Instead the entity granted 60,000 share options provided that the key officers
remain with the entity for the next 3 years. On this date, the fair value of the option is P80. The
options are exercisable at the end of the remaining three-year vesting period. The option price is P100
and the par value is P70 per share. On December 31, 2025, all options were exercised by the key
officers. Compute compensation expense for the years 2021 to 2025.

END

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