Pre-Test 11

Answer this test wisely and show your solution. (10 Points)

1. Ignominy Company has granted share options to its employees. The total compensation expense
to the vesting date of December 31, 2020 has been calculated at P6,000,000. The entity has
decided to settle the award early on December 31, 2019. The compensation expense charged
since the date of grant on January 1, 2017 was P1,500,000 for 2017 and P1,300,000 for 2018. The
compensation expense that would have been charged for 2019 is P1,200,000.

Question 1: What is the compensation expense for 2019?

A. P3,200,000
B. P2,000,000
C. P1,200,000
D. None

Question 2: What is the compensation expense for 2019, assuming the share options are not exercised but
instead, the entity paid the employees P5,000,000 on December 31, 2019?
A. P5,000,000
B. P2,200,000
C. P3,200,000
D. None

2. On January 1, 2019, Ignoble Company granted 100 share options each to 500 employees,
conditional upon the employee's remaining in the entity's employ during the vesting period. The
share options vest at the end of a three-year period. On grant date, each share option has a fair
value of P30. The par value per share is P100 and the option price is P120.

On December 31, 2020, 30 employees have left and it is expected that on the basis of a weighted average
probability, a further 30 employees will leave before the end of the three-year period. On December 31,
2021, only 20 employees actually left and all of the share options are exercised on such date.

What is the compensation expense that should be recognized for 2021?

A. P500,000
B. P880,000
C. P380,000
D. P470,000

3. On January 1, 2019, Judicious Company granted 60,000 share options to employees. The share
options will vest at the end of three years provided the employees remain in service until then.
The option price is P60 and the par value per share is P50. At the date of grant, the entity
concluded that the fair value of the share options cannot be measured reliably.
The share options have a life of 4 years. The share prices are P62 on December 31, 2019, P66 on
December 31, 2020, P75 on December 31, 2021 and P85 on December 31, 2022. All share options were
exercised on December 31, 2022.

What is the compensation expense for 2022?

A. P900,000
B. P600,000
C. P660,000
D. None

4. On January 1, 2019, Junket Company offered its top management share appreciation right with
the following terms:
Predetermined price P100 per share
Number of shares 50,000 shares
Service period 3 years
Exercise date January 1, 2022

The quoted prices per share are P100, P124, P151 and P151 on January 1, 2019, December 31, 2019,
December 31, 2020 and December 31, 2021, respectively. What amount should be charged to
compensation expense for 2021 as a result of the share appreciation right?
A. P2,550,000
B. P1,300,000
C. P850,000
D. None

5. On January 1, 2019, Kinfolk Company granted its president 50,000 share appreciation rights for
past services. These rights are exercisable immediately and expire on December 31, 2020. On
exercise date, the president is entitled to receive cash for the excess of the share market price over
the share market price on the grant date. The president did not exercise any of the rights during
2019. The market price of the share was P100 on January 1, 2019 and P115 on December 31,
2019. The grantee exercised the rights on December 31, 2020 when the market price was P110.
As a result of the share appreciation rights, what amount should be recognized as gain on reversal
of share appreciation rights in 2020?
A. P750,000
B. P500,000
C. P250,000
D. None