1.

On January 1, 2020, ABC Company established a share appreciation rights plan for the
executives. The plan entitled them to received cash at any time during the next four years for
the difference between the market price of the ordinary share and a pre-established price of
P20 on 60,000 share appreciation rights or SARs. On December 31, 2022, 20,000 SARs are
exercised by executives. Market prices are as follows:
January 1, 2020, P25 per share
December 31, 2020, P28 per share
December 31, 2021, P35 per share
December 31, 2022, P30 per share
What amount of compensation expense should be recognized for 2021? 420,000

2. The “Salaries and Other Employee Benefits Expense” line item of ABC found on its financial
performance report has shown the same regular expenses for quite a while. With the share-
based compensation option, the accountant decides to create a new account for it and includes
such account in the aforementioned line item. The board of directors (BOD) have approved
during their year-end board meeting to grant share options to its identified 20 key employees.
The number of options is conditional upon company’s profitability for five years to include the
year of grant. Every one of the 20 employees will receive 10,000 share options if the average net
profit ranges from P15M but not over P20M; 12,000 share options when the average net profit
is over P20M but less that P25M; and 15,000 share options when average profit is more than
P25M. On the date of grant, the fair value of the option is P70. The fair value of the shares of
stocks during that year was P150 compared to its P100 par. The company expects that no
employee will leave ABC within the vesting period as the option benefit is very enticing for the
recipient as they become stockholders of ABC when they exercise the said options, when they
are entitled to. As of the end of year 1 the following information are available:
Year 1 – Net Income P15.45M and ABC had estimated that the same amount of net income will
be earned for the remaining 4 years – No employee had actually left and anticipated no one to
leave before options vest.
Year 2 – Net Income P17.09M and ABC had estimated that the same amount of net income will
be earned for the remaining 3 years – 1 employee had left and anticipated one to leave before
options vest.
Year 3 – Net Income P21.25M and ABC had estimated that P25M net income will be earned for
the remaining 2 years before options will vest. Additionally, 2 employee had left and ABC
expects 3 more employees will resign within the 2-year remaining period.
By the end of year 2, how much is balance of share premium-share option account?

3. At the beginning of year 1, an entity grants to a senior executive 30,000 share

options. The grant is conditional upon the executive remaining in the entity’s employ
until the end of year 3. The share options can be exercised if the entity’s share price
increases from P20 at the beginning of year 1 to above P30 at the end of year 3. If
the share price is above P30 at the end of year 3, the share options can be exercised
at any time during the next five years. The entity estimates the fair value of the share
options on grant date to be P5 per option. The estimate takes into account the
 following market condition:
• The possibility that the share price will exceed P230 at the end of year 3, the share
options become exercisable.
• The possibility that the share price will not exceed P30 at the end of year 3, the
share options will be forfeited.
The following actual events occurred in years 1 to 3:
Year 1
• The share price has increased to P24.
• The entity’s estimate of the fair value of the options is P4 at the end of year 1. This
takes into account whether the market condition will be satisfied by the end of year
3.
Year 2
• The share price has decreased to P22. However, the entity remains optimistic that
the share price target will be met by the end of year 3.
• The estimated fair value of the share options is P3. Again, this estimate takes into
account the market condition noted above.
Year 3
• The share price only reaches P28 by the end of year 3.
• The estimated fair value of the share options is zero, as the market condition has
not been satisfied.
Based on the preceding information, determine the share option outstanding at the
end of year 2 100,000

4. The “Salaries and Other Employee Benefits Expense” line item of ABC found on its
financial performance report has shown the same regular expenses for quite a while.
With the share-based compensation option, the accountant decides to create a new
account for it and includes such account in the aforementioned line item. The board
of directors (BOD) have approved during their year-end board meeting to grant
share options to its identified 20 key employees. The number of options is
conditional upon company’s profitability for five years to include the year of grant.
Every one of the 20 employees will receive 10,000 share options if the average net
profit ranges from P15M but not over P20M; 12,000 share options when the average
net profit is over P20M but less that P25M; and 15,000 share options when average
profit is more than P25M. On the date of grant, the fair value of the option is P70.
The fair value of the shares of stocks during that year was P150 compared to its P100
par. The company expects that no employee will leave ABC within the vesting period
as the option benefit is very enticing for the recipient as they become stockholders
of ABC when they exercise the said options, when they are entitled to. As of the end
of year 1 the following information are available:
 Year 1 – Net Income P15.45M and ABC had estimated that the same amount of net
income will be earned for the remaining 4 years – No employee had actually left and
anticipated no one to leave before options vest.
Year 2 – Net Income P17.09M and ABC had estimated that the same amount of net
income will be earned for the remaining 3 years – 1 employee had left and
anticipated one to leave before options vest.
Year 3 – Net Income P21.25M and ABC had estimated that P25M net income will be
earned for the remaining 2 years before options will vest. Additionally, 2 employee
had left and ABC expects 3 more employees will resign within the 2-year remaining
period.
Determine the compensation expense for year 3.

5. The “Salaries and Other Employee Benefits Expense” line item of ABC found on its
financial performance report has shown the same regular expenses for quite a while.
With the share-based compensation option, the accountant decides to create a new
account for it and includes such account in the aforementioned line item. The board
of directors (BOD) have approved during their year-end board meeting to grant
share options to its identified 20 key employees. The number of options is
conditional upon company’s profitability for five years to include the year of grant.
Every one of the 20 employees will receive 10,000 share options if the average net
profit ranges from P15M but not over P20M; 12,000 share options when the average
net profit is over P20M but less that P25M; and 15,000 share options when average
profit is more than P25M. On the date of grant, the fair value of the option is P70.
The fair value of the shares of stocks during that year was P150 compared to its P100
par. The company expects that no employee will leave ABC within the vesting period
as the option benefit is very enticing for the recipient as they become stockholders
of ABC if they exercise the said options, when they are entitled to. As of the end of
year 3 the following information are available:
Year 1 – Net Income P15.45M and ABC had estimated that the same amount of net
income will be earned for the remaining 4 years – No employee had actually left and
anticipated no one to leave before options vest.
Year 2 – Net Income P17.09M and ABC had estimated that the same amount of net
income will be earned for the remaining 3 years – 1 employee had left and
anticipated one to leave before options vest.
Year 3 – Net Income P21.25M and ABC had estimated that P25M net income will be
earned for the remaining 2 years before options will vest. Additionally, 2 employee
had left and ABC expects 3 more employees will resign within the 2-year remaining
period.
Determine the compensation expense for year 1. 2,800,000THE EN
6. At the beginning of year 1, an entity grants to a senior executive 30,000 share
options. The grant is conditional upon the executive remaining in the entity’s employ
until the end of year 3. The share options can be exercised if the entity’s share price
increases from P20 at the beginning of year 1 to above P30 at the end of year 3. If
the share price is above P30 at the end of year 3, the share options can be exercised
at any time during the next five years. The entity estimates the fair value of the share
options on grant date to be P5 per option. The estimate takes into account the
following market condition:
• The possibility that the share price will exceed P230 at the end of year 3, the share
options become exercisable.
• The possibility that the share price will not exceed P30 at the end of year 3, the
share options will be forfeited.
The following actual events occurred in years 1 to 3:
Year 1
• The share price has increased to P24.
• The entity’s estimate of the fair value of the options is P4 at the end of year 1. This
takes into account whether the market condition will be satisfied by the end of year
3.
Year 2
• The share price has decreased to P22. However, the entity remains optimistic that
the share price target will be met by the end of year 3.
• The estimated fair value of the share options is P3. Again, this estimate takes into
account the market condition noted above.
Year 3
• The share price only reaches P28 by the end of year 3.
• The estimated fair value of the share options is zero, as the market condition has
not been satisfied.
Based on the preceding information, determine the compensation expense, year 3
50,000E

7. On January 1, 2018, ABC Company granted to an employee the right to choose

either shares or cash payment. The choices are as follows:
Share alternative – equal to 25,000 shares with par value of P30.
Cash alternative – cash payment equal to the market value of 20,000 shares.
The grant is conditional upon the completion of three years of service. On grant
date, on January 1, 2018, the share price is P51. The share prices for the three-year
vesting period are P54 on December 31, 2018, P66 on December 31, 2019 and P65
on December 31, 2020. After taking into account the effect of vesting restrictions,
 ABC Company has estimated that the fair value of the share alternative is P48. What
is the compensation expense for 2020? 420,000

8. On January 1, 2020, ABC Company granted its chief executive officer(CEO) 80,000
share appreciation rights for past services. The rights are exercisable immediately
and expire on December 31, 2021. Upon exercise, the CEO is entitled to receive cash
for the excess of the share market price on exercise date over the market price on
grant date. The CEO did not exercise any of the rights in 2020. The CEO exercised the
rights on December 31, 2021 when the market price was P115. The market price of
the share was P100 on January 1, 2020 and P120 on December 31, 2020. What
amount should be recognized as gain on reversal of share appreciation rights in
2021? 400,000

9. On January 1, 2019, ABC 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 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 P108. On the year 2020,
how much is the net increase in net assets? 350,000

10. On January 1, 2020, Venus Company purchased an equipment with a cash price of
P2,000,000. The supplier can choose how the purchase is to be settled. The choices
are 20,000 shares with par value of P50 in one year’s time, or a cash payment equal
to the market value of 15,000 phantom shares on December 31, 2020. At grant date
on January 1, 2020, the market price of each share is P80 and on the date of
settlement on December 31, 2020, the market price of each share is P100. What
amount of interest expense should be recognized on December 31, 2020 if the
supplier has chosen the cash alternative?300,000

11. ABC has reported net income (after 30% corporate income tax) of P5,950,000 for the
year ended 2020 before adjustment. During the same year, share options are granted
to its employees to purchase 50,000 ordinary shares of P100 par value at P105 a
share. The fair value of each share option is P40. The employees are not required to
complete specified service periods. The employees have been in the company’s
service for 5 years. ABC’s accounting staff recorded this transaction with a debit to
compensation expense and a credit to share options outstanding amounting to
 P400,000. On January 1, 2020, ABC’s share capital has a balance of P18,000,000, share
premium of P4,500,000 and retained earnings of P9,500,000. After considering the
adjustment, how much is the adjusted net income of ABC for the year ended 2020?

12. Computational. The “Salaries and Other Employee Benefits Expense” line item of ABC
found on its financial performance report consist to the following employee-related
expense:
Salaries and wages – regular, P5,000,000
Sales commission, P1,200,000
SSS – ABC’s Contribution, P1,000,000
Philhealth – ABC’s Contribution, P400,000
HDMF - – ABC’s Contribution, P350,000
Additional information shows that 2 years ago, ABC had granted share options to its
20 employees. The number of options is conditional upon company’s profitability for
five years to include the year of grant. Every one of the 20 employees will receive
1,000 share options if the average net profit ranges from P13M but not over P14M;
1,500 share options when the average net profit is over P14M but less that P15M;
and 2,000 share options when average profit is more than P15M. On the date of
grant, the fair value of the option is P50. The fair value of the shares of stocks during
that year was P120 compared to its P100 par. The company had expected 1
employee to leave ABC each year within the vesting period. As of the end of year 3
the following information are available:
Year 1 – Net Income P13.45M and ABC had estimated that the same amount of net
income will be earned for the remaining 4 years – No employee had actually left and
anticipated no one to leave before options vest.
Year 2 – Net Income P14.09M and ABC had estimated that the same amount of net
income will be earned for the remaining 3 years – 1 employee had left and
anticipated one to leave before options vest.
Year 3 – Net Income P14.25M and ABC had estimated that the same amount of net
income will be earned for the remaining 2 years – additional 2 employees had left.
Additionally, ABC expects 2 employees will resign during the 2-year remaining
period.
The company’s accountant, not being cognizant about the share-based
compensation rules during the time of grant had failed to book the transaction.
Determine the total employee-related expense for the current year.

13. On January 1, 2020, ABC Company granted its chief executive officer(CEO) 80,000
share appreciation rights for past services. The rights are exercisable immediately
 and expire on December 31, 2021. Upon exercise, the CEO is entitled to receive cash
for the excess of the share market price on exercise date over the market price on
grant date. The CEO did not exercise any of the rights in 2020. The CEO exercised the
rights on December 31, 2021 when the market price was P115. The market price of
the share was P100 on January 1, 2020 and P120 on December 31, 2020. Determine
the fair value of the liability by the end of 2020. 1,600,000

14. On January 1, 2020, ABC Company granted to employees a share-based payment

with cash and share alternative’. The provisions include the right to a cash payment
equal to the value of P10,000 phantom shares or 15,000 ordinary shares with a par
value of P40. The grant is conditional upon the completion of three years’ service. If
the employees choose the share alternative, the shares must be held for three years
after the vesting date. At grant date, the share price is P60. At the end of 2020, 2021,
and 2022 the share prices are P63, P66, and P72, respectively. After taking into
account the effect of vesting restrictions, the entity estimated that the fair value of
the share alternative on grant date is P45. On January 1, 2023, the employees
selected the share alternative. What is the compensation expense for 2022? 305,000

15. ABC has reported net income (after 30% corporate income tax) of P5,950,000 for the
year ended 2020 before adjustment. During the same year, share options are granted
to its employees to purchase 50,000 ordinary shares of P100 par value at P105 a
share. The fair value of each share option is P40. The employees are not required to
complete specified service periods. The employees have been in the company’s
service for 5 years. ABC’s accounting staff recorded this transaction with a debit to
compensation expense and a credit to share options outstanding amounting to
P400,000. On January 1, 2020, ABC’s share capital has a balance of P18,000,000, share
premium of P4,500,000 and retained earnings of P9,500,000. After considering the
adjustment, how much is the Shareholders’ Equity of ABC as of the year ended 2020?

16. ABC has reported accumulated revenue of P9,070,500 and P3,170,825 operating
expenses in aggregate. For the current period, the enacted tax rate is 30% for
corporate income tax. The operating expenses include an amount that represents
salaries and employee benefits of P930,000. An examination revealed that beginning
of current year, ABC has granted its 4 employees 5,000 share options, each of which
is entitled to purchase 5,000 shares, P30 par at P40 each. The fair value of each share
option granted on the date of grant is P20. The 4 employees can exercise the said
rights subject to a 4-year service period beginning this year. It is anticipated that 1 of
 the grantees will resign from the organization within the vesting period. ABC’s
accounting staff has able to book the option by means of a memorandum entry
worded as follows: “ABC Corporation has declared 5,000 share options to each of its
4 key employees which entitle them to acquire 5,000, P30 shares at P40 exercise
price, provided however that they remain at company’s employment 4 years from
today.” Currently, ABC’s share capital has a balance of P18,000,000, share premium of
P4,500,000 and retained earnings of P9,500,000. Determine the retained earnings by
the end of the current year assuming ABC will going to payout 25% of the current
earnings to its shareholders of record December 31, 2020.

17. ABC has reported accumulated revenue of P8,000,000 and P3,270,000 operating
expenses in aggregate. For the current period, the enacted tax rate is 30% for
corporate income tax. The operating expenses include an amount that represents
salaries and employee benefits of P1,230,000. An examination revealed that
beginning of last year, ABC had granted its 2 employees share options, each of which
is entitled to purchase 10,000 shares, P20 par at P25 each. The total fair value of the
share options granted to the employees on the date of grant is P200,000. Employee
A’s grant can be exercised immediately while that for Employee B is subject to a 2-
year service period before vesting. ABC’s accounting staff had not able to book the
option-related expense from the date of grant. Compute the net income for the
current year net of 30% tax.

18. On January 1, 2018, ABC Company granted share options to its employees. The total
compensation expense to the vesting date on December 31, 2021 had been
calculated at P6,000,000. The entity decided to settle the award early on December
31, 2020. The compensation expense charged since the date of grant was P1,500,000
for 2018 and P1,300,000 for 2019. The compensation expense that would have been
charged for 2020 is P1,200,000. What amount should be recognized as
compensation expense for 2020, assuming the share options are not exercised but
instead, the entity paid the employees P5,000,000 on December 31, 2020? 2,200,000

19.  On January 1, 2018, ABC Company granted to an employee the right to choose
either shares or cash payment. The choices are as follows:
Share alternative – equal to 25,000 shares with par value of P30.
Cash alternative – cash payment equal to the market value of 20,000 shares.
The grant is conditional upon the completion of three years of service. On grant
date, on January 1, 2018, the share price is P51. The share prices for the three-year
vesting period are P54 on December 31, 2018, P66 on December 31, 2019 and P65
 on December 31, 2020. After taking into account the effect of vesting restrictions,
ABC Company has estimated that the fair value of the share alternative is P48. What
is the resulting share premium upon employee choice to exercise the share
alternative on December 31, 2020? 730,000

20. On January 1, 2020, ABC Company offered share appreciation rights with the
following terms:
Predetermined price, P100 per share
Number of shares, 50,000 shares
Service period, 3 years
Exercise date, January 1, 2023
The quoted prices per share are 100, 124, 151, and 151 on January 1, 2020,
December 31, 2020, December 31, 2021, and December 31, 2022, respectively. What
amount should be reported as compensation expense for 2022 as a result of the
share appreciation rights? 850,000

21. On January 1, the company granted 100,000 stock appreciation rights to key
employees. In order to be able to exercise the rights, the employees must remain
with the company for 3 years. At the end of three years, the employees are given a
cash award equal to the excess of the fair value at that time of 100,000 shares of
stocks above the threshold price of P30. The stock price is P40 at the end of the first
year, P36 at the end of the second year. As at the end of year 2, how much is the
liability of the company relative to the appreciation rights? 400,000

22. On January 1, 2018, ABC granted 30 share options to each of the 1,000 employees.
Each grant is conditional upon the employee remaining in service for five years. The
fair value of the share option on the date of grant is P50. On December 31, 2018, 30
employees left the entity and 170 employees are expected to leave by the end of the
vesting period. On December 31, 2019, 30 employees left the entity and 140
employees are expected to leave by the end of the vesting period. On January 1,
2020, the entity repriced the share options by lowering the exercise price. As a result,
the fair value of the share option increased by P10. The modification did not change
the vesting period. On December 31, 2020, 50 employees actually left the entity. ABC
anticipated 90 employees to leave by the end of the vesting period. Compensation
expense for 2020. 320,000