INTERMEDIATE ACCOUNTING 2 /RGP, CPA.

SHARE-BASED PAYMENTS

MULTIPLE CHOICE THEORIES:

1. Which of the following transactions involving the issuance of shares is within the scope of “share-based” payment under
PFRS 2?
I. Employee share option plans
II. Issuance of stock rights in conformity with their pre-emptive rights
III. Share appreciation rights

a. I and II d. I, II and III

b. II and III e. Answer not given
c. I and III

2. Which of the following is true regarding the requirements of PFRS 2?

a. Private companies are exempt
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 under PFRS 2

3. When a share-based payment transaction is with a non-employee, the goods or services received are measured at
a. Fair value of the goods or services received
b. Fair value of the equity instrument granted
c. Choice (a), however, if it is not available then choice (b)
d. Choice (b), however, if it is not available then choice (a)

4. On February 1, 2021, RGP CORP. offered its key employees options to enable them to acquire JDR shares for P80. The shares
are selling at P120. On February 5, 2021, the key employees counter-offered an exercise price of P70 which was accepted by
the board on February 6, 2021. The share options were approved by the shareholders on a general meeting on April 1, 2021.
The employees received the share options on May 1, 2021 and are to be exercised on or before December 31, 2021.

At which date should be fair value of the share options value for purposes of PFRS 2?
a. February 1, 2021 d. April 1, 2021
b. February 5, 2021 e. May 1, 2021
c. February 6, 2021

5. In what circumstances is compensation expense immediately recognized under a share option plan?
a. In all circumstances
b. In no circumstances is compensation expense immediately recognized
c. In circumstances when the options are granted for prior service and the options are immediately exercisable
d. In circumstances when the options are exercisable within two years for services rendered over the next two years

6. Which of the following, if not attained, will trigger the discontinuance of recognizing further compensation expense?
I. Service condition
II. Market performance condition
III. Non-market performance condition

a. I and II d. I, II, and III

b. II and III e. Answer not given
c. I and III

7. S1: the fair value of the employee share options determined at grant date is basically to be expensed over the vesting
period.
S2: after vesting, the entity will eventually transfer within equity the total amount of share premium recognized for the
vested share options regardless whether it is actually exercised or not.

a. True, false c. False, false

b. False, true d. True, true

8. Which of the following statements is true if there is an acceleration of vesting?

I. The entity shall recognize immediately the compensation expense that otherwise would have been recognized for
services received over the remainder of the vesting period.
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INTERMEDIATE ACCOUNTING 2 /RGP, CPA.
 II. Any payment made to the employees on the cancelation or settlement of the grant shall be accounted for as repurchase
of equity interest and any payment in excess of the fair value of share options shall be recognized as expense.

a. I only c. Both I and II

b. II only d. Neither I nor II

9. Which of the following is an incorrect statement regarding the use of intrinsic value method?
I. Any subsequent change in intrinsic value is recognized in profit or loss.
II. After the vesting date, salaries expense is based on the change in fair value at each year-end rather than by intrinsic
value (difference between the fair value and subscription price)

a. I only c. Both I and II

b. II only d. Neither I nor II

10. The liability arising from share appreciation rights are

a. Measured at fair value on initial recognition only
b. Measured at fair value on initial recognition only and at the end of subsequent period
c. Measured at fair value on initial recognition only and at the end of subsequent period and on settlement date
d. Any of these as a matter of accounting policy choice

11. A cash-settled share-based payment transaction will increase which of the following?
a. A current asset c. A noncurrent asset
b. A liability d. An equity

12. If the entity has the choice of settlement in a “cash and share alternative,” the entity shall account for the instrument initially
as
a. Equity only c. Partly equity and partly liability
b. Liability only d. Either equity or liability but not both

PROBLEM 1

On January 1, 2020, DANIEL CORP. grants 100 share options to each of its 300 employees. The share options entitle the
employees to purchase DANIEL CORP.’s shares at a fixes price of P120 per share. DANIEL CORP.’s share has a par value of P100
per share and a fair value on grant date at P125 per share. The share options have a fair value of P15 per share.

REQUIRED: Compute the salaries expense (compensation expense) for 2020 assuming:
(a) Share options vest immediately
(b) Share options vest in 3 years and no employee left during the vesting period

PROBLEM 2

On January 1, 2021, KATHRYN CORP. grants share options to each of its 100 employees. The share options will vest at the end of
2023, provided that the employees remain in the entity’s employ and provided that the volume of sales of a particular product
increase by at least an average of 5% per year.

The share options will vest as follows:

a.) If the volume of sales of the product increases by an average of between 5% and 10% per year, each employee will
receive 100 share options.
b.) If the volume of sales increases by an average of between 10% and 15% each year, each employee will receive 200 share
options.
c.) If the volume of sales increases by an average of 15% or more, each employee will receive 300 share options.

On grant date, KATHRYN estimates that the share options have a fair value of P15 per option. KATHRYN also estimates that the
volume of sales of the product will increase by an average of between 10% and 15% per year, and therefor expects that for each
employee who remains until the end of 2023, 200 share options will vest. The entity also estimates, on the basis of a weighted
average probability that 20 employees will leave before the end of 2023.

By the end of 2021, seven employees have left and the entity still expects that a total of 20 employees will leave by the end of
2023. Product sales have increased by 12% and the entity expects this rate to continue over the next 2 years.

By the end of 2022, additional 5 employees have left. The entity now expects only 3 more employees will leave during 2023.
Product sales have increased by 18%. The entity now expects that sales will average 15% or more over the three-year period, and
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INTERMEDIATE ACCOUNTING 2 /RGP, CPA.
hence expects each sales employee to receive 300 share options at the end of 2023. By the end of 2023, additional 2 employees
have left. The entity’s sales have increased by an average of 16% over the three years.

REQUIRED: Compute for the compensation expense in 2021, 2022, and 2023.

PROBLEM 3

On January 1, 2020, ENRIQUE CORP. granted share options to 10 of its key employees entitling then to acquire P100 par value
shares of the company at P110 per share conditional upon the employees’ remaining in the company’s employ during the
vesting period. The 10,000 share options shall vest at the end of 2020 if the company’s revenues reach P90 million; or at the end
of 2021 if the company’s revenues reach P100 million; or at the end of 2022 if the revenues reach P110 million.

The market value of the option on the date of grant is P30. The company has a steady pattern of 25% increase in revenues every
year over the last 5 years and expects the same pattern during the vesting period. The company also expects that no employees
shall leave the company during the vesting period.

Revenues actually earned and recorded by the company during 2020 through 2022 follow:

2020 P 80,000,000
2021 90,000,000
2022 110,000,000

REQUIRED: Compute for the compensation expense in 2020, 2021, and 2022.

PROBLEM 4

On January 1, 2021, HOPE ELIZABETH INC. grants 100 share options to its 300 employees. Each grant is conditional upon the
employee remaining in service over the next three years.

HOPE ELIZABETH INC. estimates that the fair value of each option is P15. On the basis of a weighted average probability, HOPE
ELIZABETH INC. estimates that 60 employees will leave during the three-year period and therefore forfeit their rights to the share
options.

During 2021, 24 employees left the company. Also on December 31, 2021, HOPE ELIZABETH INC. share price has dropped and
HOPE ELIZABETH INC. reprices its share options. HOPE ELIZABETH INC. estimates that additional 42 employees will leave during
2012 and 2013.

HOPE ELIZABETH INC. estimates that at December 31, 2021, the fair value of each original share options granted is P5 and that
the fair value of each repriced option is P8. The repriced option vest at the end of 2013.

During 2022, 21 employees left and HOPE ELIZABETH INC. estimates that additional 18 employees will leave during 2023. During
2023, 17 employees left.

REQUIRED: Compute for the compensation expense in 2021, 2022, and 2023.

PROBLEM 5

On January 1, 2020, NADINE CORP. grants 100 share options to each of its 10 sales executives with the condition that the
employee remains in the entity’s employ for three years. On grant date, the fair value of the share option is P15 per share.

During 2020, NADINE CORP. recognized salaries expense of P5,000 in relation to the share options granted.

REQUIRED: Prepare the necessary journal entries on 2021 under the following assumptions:
(a) NADINE CORP. decided to settle the share options early on December 31, 2021. No employees have left the company’s
employ during 2020 and 2021.
(b) NADINE CORP. decided to settle the share options early on December 31, 2021. In exchange with the agreement to
settle the share options early, NADINE CORP. paid the employees P14 per share option. The share options have fair
value of P16 per share option on December 31, 2021. No employees have left the company’s employ during 2020 and
2021.
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INTERMEDIATE ACCOUNTING 2 /RGP, CPA.
 (c) NADINE CORP. decided to settle the share options early on December 31, 2021. In exchange with the agreement to
settle the share options early, NADINE CORP. paid the employees P14 per share option. The share options have fair
value of P13 per share option on December 31, 2021. No employees have left the company’s employ during 2020 and
2021.

PROBLEM 6

On January 1, 2018, JAMES REYD COMPANY grants 200 share options to 10 employees. The share options will vest at the end of
2019 provided the employees remained employed until then. The options are exercisable within 3 years after vesting. On January
1, 2018, the exercise price is P30 and the fair value of JAMES REYD COMPANY’s shares is also P30.

At grant date, JAMES REYD COMPANY concludes that it cannot estimate reliably the fair value of the options granted. 2
employees left during 2018 and JAMES REYD COMPANY estimated that the number of options that will vest in 2019 is 70%. Two
employees left during 2019.

The following information pertains to the share price of JAMES REYD COMPANY and the number of options exercised after
vesting period:

Year Share price at No. of options

Year-end Exercised
2018 P 40 0
2019 45 0
2020 50 600
2021 55 300

REQUIRED: Compute for the compensation expense in 2018, 2019, 2020, and 2021.

PROBLEM 7

On January 1, 2020, DONNIE CORP. granted 100 share appreciation rights to each of the 500 employees on condition that the
employees remain in its employ for the next three years. No employees left the entity during the three-year vesting period. The
employees exercised their share appreciation rights as follows:

December 31, 2022 100 employees

December 31, 2023 250 employees
December 31, 2024 150 employees

The fair value and intrinsic value of the share appreciation rights are as follows:

Year Fair value Intrinsic value

December 31, 2020 P 15
December 31, 2021 18
December 31, 2022 20 P 15
December 31, 2023 21 20
December 31, 2024 25

The intrinsic value of the share appreciation rights on the date of exercise is the amount paid out to the employees.

REQUIRED: Determine the compensation expense for each year from 2020 to 2024 as a result of the share appreciation rights.

PROBLEM 8

On January 1, 2021, BELLE CORP. offered the chief executive officer share appreciation rights with the following terms:

Predetermined price on January 1, 2021 P100 per share

Number of shares 10,000 shares
Service period 3 years
Exercise date December 31, 2023

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INTERMEDIATE ACCOUNTING 2 /RGP, CPA.
The share appreciation rights are exercised on December 31, 2023. The quoted price per share is as follows:

January 1, 2021 P 100

December 31, 2021 118
December 31, 2022 112
December 31, 2023 124

REQUIRED: Determine the compensation expense for each year from 2021 to 2024 as a result of the share appreciation rights.

PROBLEM 9

On January 1, 2021, JUSWA CORP. granted to an employee the right to choose either of the following:
a.) 1,000 JUSWA CORP.’s shares (i.e. a right to a cash payment equal to the value of 1,000 shares)
b.) 1,200 shares

The grant is conditional upon completion of 3 years of service. If the employee chooses the share alternative, the shares must be
held for 3 years after vesting date.

JUSWA CORP.’s shares have a par value of P10 per share. Market prices per share are shown below:

January 1, 2021 P 60
December 31, 2021 72
December 31, 2022 78
December 31, 2023 8

After taking into account the effects of the post-vesting transfer restrictions, JUSWA CORP. estimates that the grant date fair
value of the share alternative is P56 per share.

REQUIRED: (1) What is the compensation expense in December 31, 2021, 2022 and 2023? (2) Prepare the necessary journal entry
on the settlement date assuming the employee chooses to receive equity instrument rather than cash and assuming the
employee chooses to receive cash rather than equity instrument.

-END-

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INTERMEDIATE ACCOUNTING 2 /RGP, CPA.