Chapter 18

Shareholders* Equity

(30) What was the average price (rounded to the nearest peso) of the additional
shares issued by Exodus in 2022? 19 Share-Based Payments
a. P5 per share
b. P26 per share
c. P39 per share Learning Outcomes
■ d.. cannot be determined from the given information
After reading this chapter, you shoiild be able to:
U. Mirage & Co., a well-established law firm, provided 500 hours of its time to Vision (a) understand the concept of share-based payment;
Corporation in exchange for 1,000 shares of Vision's P5 par ordinary shares. (b) account for share-based pajmient transactions;
Mirage's usual billing rate is P700 per hour, and Vision's shares have a book value (c) develop proficiency and accuracy in^swering theoretical questions and
of P250 per share. solving problems relating to share-based payment.
(31) By what amount will Vision's share premium increase for this transaction?
a. P345,000 Share-Based Payment
b. P295,000
c. P350,000 > One in which the entity received or acquires goods and services for equity
I d. P300,000 instruments of the entity or incurs a liability for amounts that are based on
the prices of the entity's shares or other equity instruments of the entity.
^S
- r" V. On June 1,2022, Stronghold Co. distributed to its ordinary shareholders 200,000 > The accounting approach for a share-based payment depends on whether
outstanding ordinary shares of its investment in Saga Ltd, an unrelated party. The the transaction is settled by the issuance of:
book value on Stronghold's books of Saga's PI par ordinary shares was P2 per
■»
5^ share. Immediately after the declaration, the market price of Saga's shares was • equity instruments;
5 LC P2.50 per share.
• cash; or ■ -
" c::^
:j ^
^ (32) In its statement ofprofit or lossfor the year ended June 30,2022, what amount • equity and cash.
should Stronghold report as gain before income taxes on disposal ofthe shares?
: ULj
a. PO > Generally, all share-based payment transactions should be recognized in
I ^ b. P100,000 - the financial statements at fair value, with an asset or expense recognized
c. P400,000 when goods or services are received.
d. P500,000
> In accordance with PFRS 2 Share-Based Payments, the following rules
should be followed:
• r ,
• Equity-settled share-based pa3nnent for goods or services (other
than from employees and other providing similar services) - the
equity-settled share-based payment should be measured by
reference to the fair value of goods and services received.
• Equity-settled share-based pa3mient to employees - the transaction
should be measured by reference to the fair value of the equity
instruments granted at the date of grant
• Cash settled share-based payment - the fair value should be..
determined at each reporting date.
• Share-based payment can be settled in cash or in equity - the equity
component should be measured at the grant date only, but the cash
component is measured at each reporting date.

472
 (

Chapter 19 Chapter 19
-Share-Based Pajmients Share-Based.Payments

Recognition and Measurement options that vest in three years'time on the condition that they remain in
the entity's eniploy for that period,these steps will be taken:
> The entity recognizes the goods or services received or acquired in a share-
based payment transaction when ownership of the goods passes, or when • The fair value of the options will be determined at the date on
the services have been rendered. which they were granted.
> The corresponding entry in the accounting records will be either a liability • This fair value will be charged to the statement of comprehensive
(for cash-settled share-based payment) or an increase in the equity (for income equally over, the three-year vesting period with
, equity-settled share-based payment)ofthe entity. adjustments made at each accounting date to reflect the best
estimate ofthe number ofoptions that eventually will vest
Illustration. A constructipn contract was awarded to BUILD IT UP
^ General Contractor, Inc. for the completion of a building owned by FDAG • Shareholders' equity will be increased by an amount equal to the
Group. The contract price is P20,000,000. The pa5anent mode is as follows: statement of comprehensive income charge. The charge,in the
statement of comprehensive income reflects the number of
50% Payable in cash options that are vested, not the number of options granted or the
50% By issuing PDAC shares(par value ofP5)at market value number of options that are exercised. If employees decide not to
The building was completed when the fair value ofthe shares was P20. The exercise their options because the share price is lower than the
journal entry in the books ofPDAC Group is as follows: exercise price, then no adjustment is made to the statement of
comprehensive income.
Building 20,000,000
Cash 10,000,000 Illustration (Vesting Service Condition). On Januaiy 1, 2021, Legacy
Share Capital(20M x 50%)/P20 x PS 2,500,000 grants 40 share options to each ofits 200 employees. Each grant is subject
Share Premium 7,500,000 to the condition that the employees must work for another two years.
Legacy estimates that80% ofthe employees will fulfill the condition to stay
for two years. During 2021, 20 employees left, and Legacy still estimated
Vesting Condition that 20% of the origincil employees will leave over the two-year period.
^ A condition that determines whether the entity receives the services that During 2022,another 30 employees left before the maturity date. The fair
value ofeach option is estimated to be P20 at the grant date.
entitle the counterparty to receive cash,other assets or equity instruments
ofthe entity, under a share-based arrangement The computation ofcompensation expense for 2021 and 2022 is as follows:
^ Ifshares are issued that vestimmediately,there is a presumption thatthese No.ofemployees that will be entitied(200 x 80%) 160
are a consideration of past employee services. In this case,there should be No.of options granted per employee 40
immediate recognition ofthe expense for the employee services,as they are Total options granted 6,400
deemed to have been received in full on the date on which the shares or Fair value of each option at grant date 20
share options are granted. ^ Fair value ofstock options expected to vest F 128,000
> Alternatively,if the share options do not vest for a period oftime,then it is Vesting Period 2
Compensation expense - 2021 P 64,000
considered that the equity instruments relate to services, which are to be
provided over this period which is called the vesting period. No.of employees that will be entitled(200 - 20 - 30) 150
No.of options granted per employee 40
Total options granted 6,000
Equily-Settled Share-Based Pa3nnents 20
Fair value of each option at grant date
^ Equity-settled transactions with employees and directors would normally Fair value ofstock options expected to vest P 120,000
be expensed on the basis of their fair value (should be based on market Compensation expense - 2021 64,000
prices wherever possible) at the grant date. Compensation expense - 2022 P 56,000

> PFRS 2's objective for equity-based transactions with employees is to The journal entry in the books of Legacy is as follows:
determine and recognize compensation costs over the period in which the
services are rendered. For example,ifan entity grants to employees share 2021

Dec. 31 Compensation expense 64,000

Share Premium -Share Options 64,000

474 475
Chapter 19 Chapter 19
Share-Based Pa3rment:i5 Share-Based Payroents

2022 Vesting date/Performance condition December 31, 2021 - 10%

Dec.31 Compensation expense 56,000 increase in earnings
Share Premium -Share Options 56,000 December 31, 2022 - 8%
average increase per year
Market and non-market performance conditions may be included in the • over two years
share-based transaction (i.e. specific increase in the entity's credit rating]. Fair value of options at grant date P25
These market conditions are included in the estimations of fair value on Ordinary shares P35 par, option price at P50
the grant date. per share
• Market Performance Condition - Compensation expense is Data relevant to the earnings and employee turnover:
recorded, irrespective of whether that market condition is
satisfied, but considering all other vesting conditions, such as Additiohpl
service condition. Increase in Emplovee Expected
Date Earnings Resignation Resignation
• Non-Market Performance Condition - Compensation expense
December 31,2021 9% 15 10
is recorded based on the number of options that are expected
December 31,2022 •10% 8 -

to vest and the achievement ofthe non-market condition.

As of December 31,2021, Mirrodjln experts tiiat the vesting conditions will

Illustration (Market Performance Condition). The following be met during 2022.
information are available for the share options that Saga Company granted
to its senior executives on January 1,2021: The computation ofcompensation expense for 2021 and 2022 is as follows:
No. ofshare options 500 No.of employees that will be entitled(100 - 15 -10) 75
Service condition None No. of options granted per employee 20
Exercise date December 31,2021 Total options granted " 1,500
Vesting condition Increase in credit rating of Saga Fair value ofeach option at grant date 25
from BB to BB+ in 2021 Fair value Of options exiaected to vest P 37,500
Fair value of options at grant date PlOO Vesting Period , 2
Compensation expense - 2021 P 18,750
The credit rating condition is a market condition and is considered in the
valuation on the grant date. Since no further vesting conditions are No.of employees that will be entitled (100 -15- 8) 77
included,the share based-transaction is recognized at the grant date. No.Of options granted per employee 20
Total options granted 1,540
The journal entiy in the books of Legacy is as follows:
Fair value of each option at grant date 25
2021 Fairvalue of options expected to vest P 38,500
Jan.1 Compensation expense 50,000 Compensation expense - 2021 18,750
Share Premium - Share Options 50,000 Compensation expense - 2022 P 19.750
(500shares x PlOO pershare)
The journal entry in the bpoks of Mirrodip is as follows:
Illustration (Non-Market Performance Condition). The following
2021
information are available for the share options that Mirrodin Enterprise
Dec.31 Compensation expense 18,750
granted to its managerial employees on januaiy 1,2021: Share Premiuni-Share Options 18,750
No.ofshare options granted 20 2022
No.of entitled managerial employees 100 Dec.31 Compensation expense 19,750
Service condition Employees will remain in the Share Premium -Share Options 19,750
•employment over . the
vesting period The related expense and liability are still recognized on December 31,2021
as there is an estimate as of this- date that the performance conditions will
be met in 2022. However,ifthe performance conditions were hot actually

476 477
Chapter.19
Share-Based Pa3rmeiits Chapter 19
Share-Based Payments
inet in 2022 after the recognition ofexpense and liability in 2021,the same
shall be reversed in 2022 and will be treated as a change in accounting Grant date January 1,2021
estimate. No.of entitled employees 200
Vesting period 2 years
Assuming all the options were exercised on January 1,2023;the accounting Vesting condition Increase of the independent
entry is as follows: value of the 20 shares of
Kaldheim above P50
2023
Employee benefits To be paid in cash
Jan. 1 Cash (1,540 xPSOJ 77,000
Share Premium -Share Options 38,500 Details on the employee entitlement are as follows:
Ordinary Shares(1,540 x P35) 53,900
Share Premium - Ordinary Shares 61,600 • As ofDecember 31,2021,90% will be in service on the vesting date
• Actual number of employees as of December 31, 2022 - 180
Assuming only half of the entitled employees exercised the options on employees
Januaiy 1,2023,the accounting entry is as follows:
Independent stock valuations are as follows:
2023

Jan.l Cash(770xP50) 38,500 • December 31,2021 P58

Share Premium -Share Options 38,500 • December 31,2022 . P63
Ordinary Shares(770x P35) 26,950
Share Premium - Or'dinary Shares 30,800 The accounting entries are as follows:
Share Premium - Unexercised Options 19,250 2021

Dec.31 Compensation expense 14,400

Cash-Settled Share-Based Payments Share Appreciation Rights Payable 14,400
(200x 90%x20xP8)/2years
^ Cash-settled share-based payment transactions occur where goods or
services are paid for at amounts that are based on the price of the entitj^s 2022

shares or other equity instruments. Dec. 31 Compensation expense 32,400

Share Appreciation Rights Payable 32,400
> Share appreciation rights entitle employees to cash payments equal to the (180 X 20X P13)-14,400
increase in the share price of a given number of the entity's shares over a
given period. . Assuming all the share appreciation rights were exercised on January 1,
2023,the accounting entry is as follows:
> following guidelines are considered:
2023

• A cash-settled transaction creates a liability based on the fair value Jan. 1 Share Appreciation Rights Payable 46,800
ofthe instrument at the reporting date. Cash 46,800

The fair value ofthe liability is remeasured at each reporting until it If share appreciation rights are not exercised after the vesting date, the
IS finally settled. expense and liability shall be continuously remeasured at each reporting
period at fair value.
• The cumulative expense recognized at the reporting date is the fair
^ ue on the reporting date times the amount of the vesting period
that has lapsed. Share Based Transaction with Cash Alternatives

• Any change in the fair value between the vesting date and the > Grantees of this share option are given a choice to receive additional
settlement date is recognized immediately. benefits either in the form ofcash or in the form of equity instruments.

Illustration. Kaldheim Company grants a cash-settled share-based > It is presumed that a compound financial instrument has been granted;
payment transaction with the following details: thus,the total value ofthe compound hnancial instrumentis bifurcated into
its debt component and equity component Using the residual approach^
the fair value ofthe debt component is deducted from the total fair value of
478
479
Chapter 19 Chapter 19
Share-Based Payments Share-Based Pasnnents

2023
the compound financial instrument the excess being assigned as the value
ofthe equity component Jan. 1 Share Appreciation Rights Payable 48,000
Share Premium -Share Options 1,000
> The value ofthe equity component at the date of grant is not subsequently Cash 48,000
adjusted during the vesting period. Meanwhile,the debt is measured at its Share Premium - Unexercised Options 1,000
fair value and is adjusted at each reporting date until the date ofsettlement
If the president chooses the equity alternative, the accounting entiy is as
Illustration. The details of Zendicar Company share-based payment follows:
transaction are as follows: .
2023
Grant date January 1,2021 Jan. 1 Share Appreciation Rights Payable 48,000
Recipient " President Share Premium -Share Options 1,000
Service condition 2 years Ordinary Shares(900shares xP35) 31,500
Options at the discretion of the 900 shares or cash equivalent Share Premium - Ordinary Shares 17,500
president to the value, of 800 shares
on the vesting date.
Required Disclosures
Fair value of share alternative at the P50
grant date > PFRS 2 requires extensive disclosure requirements under three main
Par value per share P3S headings:
Fair value ofthe shares Dec.3i,2020-P55
Dec.31,2021-PS8 1. Information that enables users offinancial statements to understand
Dec.31,2022-P60 the nature and extent of the share-based payment transactions that
existed during the period; , ^
The bifurcation between the debt and equity components is computed as
follows: , 2. Information that allows users to understand how the fair value ofthe
goods or services received or the fair value ofthe equity instruments
Fair value ofthe equity alternative(900 x P50) 45,000 that have been granted during the period was determined; and
Fair value ofthe debt alternative(800 x P55) 44,000
Fair value ofthe equity component 1,000 3. Information that allows users of financial statements to understand
the effect of expenses that have arisen from share-based payment
The accounting entries are as follows: transactions on the entity's'statement of comprehensive income in
the periods
2QZ1
Dec.31 Compensation expense 23,700
Share Appreciation Rights Payable 23,200
Share Premium - Share Options 500
(800shares xP58)/2years= P23,200
1,000/2years =P500

2022.
Dec.31 Compensation expense 25,300
Share Appreciation Rights Payable 24,800
Share Premium -Share Options 500
(800shares X P60)- P23,200
1,000/2years = P500

Assuming that the president exercised his rights on January 1,2023.

If the president chooses the cash settlement, the accounting entry is as
follows:

480 481
Chapter 19 Chapter 19
Share-Based Payments Share-Based Pa3nnents

TRUE OR FALSE QUESTIONS FINANCIAL ACCOUNTING THEORY QUESTIONS

If the entity purchases its own shares from employees at the fair value of those 1. For transactions with employees and other providing similar services, the fair
shares, this transaction would be dealt with as a purchase of treasury shares value ofthe equity instrument granted is measured on
and would notfall within the scope ofPFRS 2 unless the price paid was in excess a. exercise date.
of the fair value, in which case that excess would be considered to be b. grant date.
remuneration. c. end ofthe reporting period.
I ■ .
d. beginning ofthe year of grant
2. If the share options do not vest for a period of time, then it is considered that
the equity instruments relate to services, which are to be provided over this 2. Non-market based performance conditions include vesting basied on achieving
period which is called the vesting condition. ^ all ofthe following except
a. achieving a specific growth in revenue.
Under the revised PFRS 2, all features of a share-based payment arrangement b. achieving a specific growth in net profit
other than service conditions and performance conditions will be considered to c. achieving a specific increase in earnings per share.
be non-vesting conditions. d. achieving a specified target share price in the market

4. If a grant of equity instruments(under a share-based arrangement]is canceled 3. Share options granted by a corporation are recorded as-expense based on the
or settled by Ae entity or the counterparty,the entity recognizes immediately number of options that
the amount of expense that would otherwise have been recognized over the a. are initially granted. . . i '' '
remainder ofthe vesting period b. 'are vested. ' ,
c. are eventually exercised.
. I
5. The feir value Ofshare appreciation rights(SAR)settled in cash is estimated at d. are expected to be exercised.
the date of grant and expensed over the service period for which the
compensation is provided. For cash settled share-based payment transactions (e.g., share appreciation
rights),an entity shall measure the goods and services received and the liability
6. The expense for. cash-settled transactions—for example, share appreciation incurred at the
rights -is basically the cash paid by the employee.. a. fair value ofthe goods and services received.
b. fair value ofthe liability
7. fr-the employee has the right to choose the settlement method, the entity is c. either the fair value of the goods or services received or the fair value of
eemed to have issued^^ compound financial instrument (i.e., it has issued an the.liability.
■ instrument with a debt element—the cash component—and an equity d. neither the fair value ofthe goods or services received nor the fair-value of
element—where the employee has the right to receive equity instruments). the liability.
8. experience indicates that a material number ofshare options will be Which of the following transactions involving the issuance of shares does not
u come within the definition of a "share-based" pajonent under PFRS 2?-
should be adjusted tovest,thethat
reflect fair value estimate ofthe options on the grant date
expectation. a. Employee share purchase plans.
i b. Employee share option plans.
9. Compensation expense is recorded at the end of each vesting year only if the c. Share-based pa3ment relating to an acquisition ofa subsidiary.
market condition is satisfied. d. Share appreciation rights.
r - , .

10. Ifthe performance condition is market-based,the fair value ofthe options used Which ofthe following is true regarding the requirements ofPFRS 2?
to measure compensation expense is determined at the date the options will a. Private companies are exempt
vest b. Small companies are exempt
c. Subsidiaries using their parent entity's shares as consideration for goods
and services are exempt
d. There are no exemptions from PFRS 2.

482 483
 Chapter 19 Chapter 19
Share-Based Payments Share-Based Payments

7. Dominaria, a public limited company, has granted share options to its 11. Compensation cost for a share-based payment to employees that is classified as
employees prior to the date from which PFRS 2 became applicable. The a liability is'measured as ' '
company decided after the issuance of PFRS 2 to reprice the options. The a. The change in fair value ofthe instrument for each reporting period.
original exercise price of P220 was repriced at P215 per option. PFRS 2 would b. The total fair value at grant date.
require the company to c. The present value of cash pa3mients due over the life ofthe grant.
a. apply the Standard to the share options from the original grant date and d. The actual cash outlay for the period. '
. ignore the repricing.
b. apply the Standard to the share options from the original grant date,taking 12. What is the measurement date fdr a share-based pa3mient to employees that is
into account the repriced award. classified as a liability?
c. apply the Standard to the repriced award only. a. The service inception date
d. ignore the Standard for the whole award. b. The grant date , > .
c. The settlement date ,.
8. Ixalan Corporation issues shares as consideration for the purchase ofinventory. d. The end ofthe reporting period
The shares were issued on January 1,2020.The inventory is eventually sold on
December 31, 2021. The value of the inventory on January 1, 2020, was P3 13. A feature that proyideis for an automatic grant of additipnal share options
million'.This value was unchanged up to the date ofsale.The sale proceeds were whenever the option holder exercises previously granted options using the
P5 million. The shares issued have a market value of P3.2 million. Which ofthe entity's shares,rather than cash,to satisfy the exercise price..
following statements correctly describes the accounting.treatment of this a. Reload feature
share-based payment transaction? b. Reload option
.a. Equity is increased by P3 million,inventory is'increased by P3 million; the c. Shareoption
inventoiy value is expensed on sale on December 31> 2021. d. Puttable feature . . •
b. Equity is increased by P3.2 million,inventory is increased by P3.2 million;
the inventory value is expensed on sale on December 31,2021. 14. The period during which all the specified vesting cOnditfohs of a-share-based
c. Equity is increased by P3 million,inventory is increased by P3 million; the payment arrangement are to be satisfied. •
inventory value is expensed over the two years to December 31,2021. a. Ves'ting period
d. ^uity is increased by P3.2 million,inventory is increased by P3.2 million; b. Monthly period
the inventoiy value is expensed over the two years to December 31,2021. c. Reporting period ^
d. Pa)mient period •
9. On 1^6 1, 2020, an entity offered its employees share options subject to the
awar ratified in a general meeting of the shareholders. The award was 15. Which ofthe followingis a required disclosure for share bptions under PFRS 2?
approved by a meeting on September 5,2020. The entity's yearrend is June 30. a. Outstanding^tthe beginning ofthe year
1 he employees were to receive the share options on June 30, 2022. At which b. Grapted during the year
c. Forfeited during the year
PFI^^2'^ value of the share options be valued for the purposes of d. All ofthese are required disclosure for share options under PFRS 2,
a. June 1,2020
b. June 30,2.020
c. September 5,2020
d. June 30,2022

10. In what circumstances is compensation expense immediately recognized?

a. In all circumstances. .
b. In circumstances when the options are exercisable within two years for
services rendered over the next two years. ^
c. In circumstances when options are granted for prior service, and the
options are immediately exercisable.
d. In no circumstances is compensation expense immediatelyrecognized.

484 f8S
 Chapter 19
Chapter 19
Share-Based Payments
Share-Based Payments

(3) What are the amounts ofcompensation expensefor the years 2019,2020 and
PRACTICAL FINANCIAL ACCOUNTING
2021,respectively?
a. P750,000;P350,000;P550,000
A. On January 1, 2018, the shareholders of Ethan Company, a calendar-year b. P750,000;P350,000;P350,000 '
corporation,approved a plan and granted the company's three executives options c. P750,000;P550,000;P350,000 -
to purchase a total of 3,000 shares of the company's PI00 par value ordinary d. P750,000;P350,000;P325,000
shares. The option may be exercised for one-year effective January 1, 2021.
Based on an option pricing model,the fair value ofthe option is P60. The option (4) Assume thatin addition to the officer with 8,000 options who leftthe company
price per share is PI20. at the beginning of 2020, another officer with 3,000 options left the
organization during 2021. Whatare the amounts ofcompensation expensefor
On February 14, 2020, one of the executives who was granted an option to the years 2019,2020 and 2021, respectively? '
purchase 800 shares, decided to resign from the organization. On January 21, a. P750,000;P750,000;P325;00Q
2021,the remaining executives exercised their options. b. P7S0,000;P350,b00;P325,000 ' /
c. P750,000;P35d,000;P550,000 :
(1) How much is the compensation expense in the year 2020? d. P750,0bp;P350,0.0b;P0 . V
a. P60,000
b. P44,000
c. PIZOOO D. The AlG Company granted 100 share optiohs to each of its 200 employees on
d. PO January 1,2019. The option plan allows the employees to purchase a share ofthe
entity's PlOO par value ordinary at P180 per share. Based on the pricing model
B. On July 1,2021,Tools Company granted share options to key employees for the used by the company,the fair value ofeach option on January 1,2019 is P30. The
pure ase of20,000 ordinary shares at P25 each share. The options are intended , option plan requires the employees receiving the options to be in the employ of
the company for the next three years. Options are exercisable from January 1 to
° for the next two years. The options are exercisable December 31,2022.
^ in one-year period beginning July 1, 2023 by grantees still in the employ of
e The market price of Tools' prdinary share was P33 at the date of
At January 1, 2019,it was estimated that 20% ofthe employees will leave during
SwnSIC* vafue approach
value ofisthe options
applied cannot bethe
to determine reliably determined;
fair value thus, the
ofthe options. No the next three years. Actual and revised estimate of employees leaving the
Share options were terminated during the year company during 2019,2020 and 2021 are as follows:•
2019: 8 employees left;'additional IQ employees in 2020 and 2021.
(2) 2020: 12 employees left; additional 7 employees in 2021.
^e^emb^r31^;^02J^
a^ PO
to compensation expensefor the year ended 2021: 8 employees left. " '

b. P40,000 During 2022, 140 employees exercised their'options while .the remaining
c. P80,000 employees allowed their options to lapse.
d. P160,000
l5) How much is the compensation expensefdr each ofthe years 2019, 2020 and
2021,respectively?
C.
shareholders of LeMann Company approved a plan a. P172,000;P172,000;P172,000
b. P182,000;P346,000;P518,000
sharec nf P1 °^c®rs ofthe company non-transferable options to buy 30,000 c. P182,000;P164,000;P17d,000
modpl iicoH K ordinary share capital at P230 per share. The option pricing d. P192,000;P168,000;P1S6,000
2 2019irP7c; indicates thatthe fair value ofeach option on January m

rAmnonir f vu provides that the officers must be employed by the

(6) How much is reported in equity pertaining to the options outstanding as of,
2022 ^ three years and that the options will expire at the end of December 31,2020? t
a. P180,000.
b. P182,000
R 2020,one of the officers who had been granted options for
' , the option
under f thecomjjany.
plan at JanuaryOfficers
1,2022.withThe
20,000 options
remaining exercised
options their rights
lapsed.
c. P346,000
d. P516,000

487
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 Chapter 19 C]iapterl9
Share-Based Payments Share-Based Payments

(7) What is the amount credited to share premium account upon exercise ofthe The fair value and intrinsic value ofthe share appreciation rights are as foUows:
options in 2022?
a. PC Fair value Intrinsic value
b. PI,120,000 December'31,2019 15
c. Pl,400,000 December 31,2020 18
d. P1,54Q,000 December 31,2021 20 15
December 31,2022 21 20
December 31,2023 25
E. On Januaiy 1,2019,an entity granted 15,000 share options to its employees. The
share options will vest at the end of three,years provided the employees remain (10) How much is the compensatidn expense in each oftheyears 2020 and 20217
ih.the service.
a. P100,000 and P140,000
b. P140,000 and P140,000
The option price is P60 and the entity's share price on the date of grant is also c. P100,000 and P100,0P0
P60. The par value ofeach share is P50. Atthe date ofgrant,the entity concluded d. P140,000 and P100,000 .
that the fair value of the share options c^not be reliably determined. The
options can be exercised within three years from the vesting diate. (11) What is the LiabilityforShare Appreciation Rights account balance at the end
All share options vested at the end of three years and no employees left during of2021?^ .
a. P100,000
the three-year vesting period. The share prices and the number ofshare options b. P126,000
exercised at year end are as follows: ' c. P240,000
Sharg pripg Options exercised d. P320,000 ■
2019 63
2020 66
2021 G. For the past several years,the stewardship ofthe Chief Operating Officer(COO)of
75
2022 . ABC Company is responsible for its successful, operations. In the last year's
88 5,000
2023 100
operations,however,Aere was a slight decline in ABC's revenue figures.
7,500
2024 90 2,500 in order to motivate the COO to obtain greater positive operations for the
company,the board of directors approved a share appreciation plan to take effect
^pectivefy?
a. . P45,000 and PI65,000
expensefor theyear$ 2020 and 2021, on January 1,2019. The COO wasissued share appreciation rights escercisable for
one year beginning Janua^ 1,.2021 provided that the officer is still in the employ
b. P15,000 and P45,000 .ofthe company at the date of exercise. The share appreciation right provides for
c. PI65,000 and P130,000 a cash pa3mient equal to the excess of the ABC share price over P50. The
r d. PI5,000 and PI65,000 equivalent number of Shares for share appreciation rights will be based on the
level of sales ofthe company at the date of exercise as follows:
cv How much is the compensation expensefor theyear 2022"^
a. ,P165,000 J J Level ofsales Equivalent shares granted
h. P130,000 PlOO million to P200 million 10,000
Ci P30,000 Over P200 million 12,000
d. PO
Actual sales achieved by ABC Company and the share prices at the end of each
year are as follows:
F.
9nn omni?' on'^^ntitythat
condition granted 100 shareremain
the employees appreciation rights tofor
in its employ each
tiieof its
next Year Sales Share Price
2019 P120 million P77
Pv^irnicf^f*1, u the entity during the three-year vesting period. 2020 P250 million P75
Exercise ofthe share appreciation rights were as follows: V ^
December 31,2021 40 employees
December 31,2022 100 employees
December 31,2023 60 employees

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Chapter 19 Chapter 19
Share-Based Pa3ntieiits Share-Based Payments

(12) How'much is the compensation expense recognized in the accountsfor theyear (16) How much is the compensation expensefor2021 relating the equity alternative
ended-December 31/2019? and cash alternative, respectively?
^(L P135,000 a. P105,000 and P427,500
b. P270,000 b. P35,000andP200,000
c. P385,000 c. P35,000 and P155,000
d. P770,000 d. P35,000 and P142,500

(13) How much.is the compensation expensefor theyear 2020? (17) Assuming thatthesenior officer optedfor the cash alternative, how much is the
a. P900,000 total payment made by the company at time ofexercise?
^ b, P515,000 a. P457,500
c. P300,000 b. P427,500
d. P165,000 c. P390,000
d. P610,000
H. Oh Januaiy 1,2020,an entity granted to a senior officer the right to choose either
• 10,000 P25 par ordinary shares(share alternative) or Ravnica Company, a public limited company, has purchased inventory of
• cash payment equal 7,500 shares of P25 par ordinary shares (cash P100,000. the. company has offered the supplier a choice of settlement
alternative) alternatives. The alternatives are either receiving 1,000 shares of Ravnica six
months after the purchase date (valued at Pi10,000 at the date of purchase) or
The grant is conditional upon the completion of three years of ser^iice. If the receiving a cash payment equal to the fair value of800 shares as of December 31,
senior officer chooses the share alternative, the shares must be held for three 2021 (estimated value P90,000 at the date of purchase)'.
years after vesting date.
(18) Whatshould be the accounting entry at the dale ofpurchase ofthe inventory?
Ori Jariuaiy-1, 2020, the price per ordinary share is PSO. The ordinary share a. Dr. Inventory P90,000, Cr. Liability P90,000.
prtces for the three-year vesting period are: b. Dr.Inventory P100,000, Cr. Liability Pl60,000.
c. Dr. Inventory P100,000, Dr. Intangible asset Cr. Liability PI10,000.
December 31,2020 P52 d. Dr. Inventory Pi00,000, Cr. Liability P90,000, Cr. Equity P10,000.
December 31,2021 PS7
December 31,2022 P6i In tdie tax jurisdiction.of Behemoth,a publicly listed company,a tax deductron is
allowed for the intrinsic value of the share options issued to employees. The
account the effects of post vesting restrictions, the entity has company issued ,options on January 1, 2021, worth P15 million to employees.
stimated that the fair value ofthe share alternative is P48 per share. They vestin three years. The share options'intrinsic value at Decerhber 31,2021,
(14) What are the amounts accountedfor as liability and equity, respectively on was Pi2 million. The tax rate in the jurisdiction is 30%.
f

January 1,2020? n ^ jr (19) Whatis the tax effectofthe above issue ofshare options atDecember31,2021?
a. P480,000 and P105,000
a. P1.5 million benefit to statement ofcomprehensive income.
b. P480,000 and PO
b. P1.2 million benefit to statement ofcompreherisive income.
c. P375,000 and P105,000
c. P1.5 million benefit recognized in equity.
d. P520,000,andP35,000 d. P1.2 million benefit recognized iri equity.
(15) How much is the compensation expense for 2020 relating to the equity (20) What would be the tax effect ifthe intrinsic value at December 31,2021, was
alternative and cash alternative, respectively? P21 million?
a. P105,000 and P390,00 a. : P2.1 million tax benefit to income.
b. P35,000 and P130,000 b. P2.1 millioij recognized in equity.
c.
P35,000 and P108,750 c. P1.5 rnillion tax benejit to income,P0.6 million recognized in equity.
d- PO and PO d. PI.5 million recognized in equity, P0.6 million tax benefit to incorne.

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