CLASSROOM EXERCISES ON SHARE-BASED PAYMENT

Prepare the journal entries for the following:

Problem 1 - Share option with FV and vesting period.

On Jan. 1, 2019, Native Co. granted 20,000 share options to each of its five directors. The options vest
on Jan. 1, 2022 and expire on Dec. 31, 2022. Each option entitles the holder to purchase one, P20 par
ordinary share for P40. The fair value of the options on grant date was P12. January 1, 2022, 80% of the
options were exercised, and the rest of the options expired.

Problem 2 – Share option with Service condition

On Jan. 1, 2020, Dream Corp. adopted a share option plan which grants each of the 30 employees the
right to purchase 10,000, P10 par ordinary shares for P15 per share. The options were exercisable on
Dec. 31, 2022 provided that the employee remains with Dream. The fair value of the shares on that day
was P15, and the fair value of the options was P6. The company estimated that only 75% of the
employees will be entitled to the options after three years.

Dream’s share at the end of 2020, 2021 and 2022 were P21, P25 and P28, respectively. At the end of
2020, 3 employees left the company and it estimates that another 8 will leave the company by the end of
2022. At the end of 2021, 4 employees left the company and Dream estimated that only 2 will leave next
year. By the end of 2022, 3 employees entitled to the grant left and all of the options were exercised.

Problem 3 – Share option with no FV available

On Jan. 1, 2020, Heidke, Inc. granted 90,000 share options to its employees. The share options will vest
at the end of three years provided that the employees remain in service until then. The option price is
P40 and the par value per share is P20. At the date of the grant, the entity concluded that the fair value
of the share options cannot be measured reliably. The share options can be exercised within one year
after vesting.

The share prices are P45 on Dec. 31, 2020; P60 on Dec. 31, 2021; P58 on Dec. 31, 2022 and P65 on
Dec. 31, 2023. All of the options were exercised on Dec. 31, 2023.

Problem 4 – Share appreciation rights

On Jan. 2, 2020, Gramps Co. offered its top management share appreciation rights with the following
terms:
Predetermined price P50
Number of shares 50,000
Service period 3 years
Exercise date Dec. 31, 2022

The share appreciation is to be paid upon exercise. The share appreciation right is to be exercised on
Dec. 31, 2022. Gramps’s share prices are as follows:
Jan. 2, 2020 P50
Dec. 31, 2020 P74
Dec. 31, 2021 P110
Dec. 31, 2022 P120

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Problem 5 – Share option with cash alternative
On Jan. 1, 2020, Mezrich Co. granted to an employee the right to choose either:

a. 15,000 P20 par ordinary shares

b. Cash payment equal to the market value of 12,500 shares

The grant is conditional upon the completion of three years of service. The fair value of the share at grant
date is P76.50. The share prices for the three-year vesting period are P81 on Dec. 31, 2020; P90 on
Dec. 31, 2021 and P97.50 on Dec. 31, 2022. The company has estimated that the fair value of the share
or equity alternative is P72.

Assume the following situations:

1. The employee chose the share alternative.
2. The employee chose the cash alternative.

August 2020

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