Chapter 20. a PROBLEM 20-45 Answers & Solutions Guide Femi De og. ANSWER: A Net reo irnber of average ordnary stares outstanding PROBLEM 20-46 Diluted Eomings Per Share — Mul 'ANDOKS Company reported the folowing on December Common sock Convertible, noncumulative prefered stock 10% converse bonds payable ing. Market price of F20 during 2022, re, convertible into two common stocks, The 10% bands 1,000 common stocks. The net income for 2022 is P6S0,000, What amount should be reported as diluted earnings per share? A P4.19 Co P478 B P427 D. P5.00 PROBLEM 20-46 Answers & Solutions Guide ANSWER: A Basic EPS [6507 - (20T Ps x P5/PS)y 107 OS] = S.00 ORES ST Aout CHAPTER 21,7 Sl -Baet Cates ACCOUNTING FOR SHARE-Base CoMPENsArron -gnare-Based Payment PART 1: Nature and Definition of Share-based Compensation — | nase Compensati > Equly-setted : +The entity Issues shares to its empoyees in cons for their services. + Bample: Share options > Castrsettied liability to its employees for services received and On the value of the entity's shares, * Sxample: Share appreciation rights Gees _—— PART 2: Accounting for Share Options > Sue opto them 19 ns are granted to officers and key employees rfgPurchase shares of the company during a specified ‘Pecfed price provided certain conditions are me ete: ChigagsM2"® option is a contr teas Subsabe to the entitys shares at @fxed or determinable price ives the holder the right, but not the Period of time, ‘ : T = y'° Considered as additional compensation on the part of officers ey employees, “Sess fe shell the entity measure the ‘compensation expense arising “aed payment transactions?Chapter 2: Accanteg or Share Bateg when wil the erty recognize the compensation oes aa ‘Share-based payment transactions? OAL egy + PRS 2 Share-ase Payment recites the Ue oF sma Jntrinsic value method Under tis method, the compensation IS equal to the in ‘value of the share options. sie This method shall be used only if the fair value of the sare ‘option cannot be estimated reliably. Recogntion of Compensation > Share options vest immediately. ‘+The entity shall recognize the compensation as expense in ful wt ¢ in equity on the date of grant. corresponding i > Share options do not vest until the employee completes ‘specified service period, + The entity shall recognize the compensation as expense over te service (or vesting) period. ced ves Note: be setisieh > The vesting period's the period during which all spe« Conditions of share-based payment arrangement are 10 ao >» The service (or vesting) period is from the grant date to the dat ‘hc the share opine can frst be eeroead sare ot] > Inthe absence of vesting period, itis presumed that the vest immediately. 1102 fi ‘ Catron pa of conperston expense Cotte Te og my of share options a, x gare oF yrs oustanding Hey are coil x ‘Sore premio xx ‘ ined as foll “aged rom exercise of share optons Bf hares ESUEd¥ ENC oC pe hare) Sere options outstanding 1 sl rv of shares sms ‘ae premium tote Share options outstanding i share premium account [lutration 21.1: (Share Options with no vesting period) ———— of ant: SSmoy, 202 | « =e x to. x ‘uber of share options granted: By Imber of share entitlement per share option: 1 sh re Pavale per share: = Le 0 n expense be recognized? re ghar the journal entries to record the compensation and exercise of Options, ya. Shape. fot Share Bosey 00,000 share options x P30/share option = 3,000,000 a s*petermined as follows: CRtzceved from exercise of share options 9,000,009 (1007 sh. x P80/sh.) nd Save options outstanding (34x 100%) __3,000,00)_ Total 12,000,000 [Ess Toa per value of shares issued sae ‘(1007 sh. x P75/sh.) 509, ‘Share premium 4.500,000 ‘ustration 21.2: (Share Options with vesting period) Date of grant: Jan ‘numberof stare options granted: umber of share enlement per share option: 1 share ‘ar value per share: a eS rs ‘air vale per share option: yp1/2024 = ‘Share options outstanding "000000 ‘The officers and key employees are entitled to the share options ony a 4,000,000 completing three yea of service. The options can be exercised starting next, ‘Cash satan _y ‘Share options outstanding 3000000 ‘Ordinary share capital 1, 2025 and expire one year after. | Al share options are exercised on December 31, 2024, | Q-1: How much compensation expense shall be reported forthe years 2022, 2023, and 20247 ‘& 0-2: Prepare the journal entries on December 31, 2022, 2023, and 200, eat: 202 2 Noctéancrins to stan XFaee Patoo Pan00 el eampensaon “3000006 09g 18 2 Conpersatonio dae a Hote Frederic 000,006 "3.0,000 te the share options are not exercised and expired, the journal entry will Inrir periods 2 (1.000.000) __(2.000.000)_ ‘Stare options outstandi Compensaion expense Zgonaa] ~~ 1.0u000 — ~ s.ennan Suwepremium yy Note: lastrati ion 21.3 ic Value Method) > Conperstonevenseis determined ung the curiae art | | | Bayan Wntnsle 7 sary 3202 . Of share 0 > The fraction multiplied to the jetermined based Nant options granted: 110,000 on te etlng ened ener aes : Parag Lire entitlement per sare option: 1 stare er sar opon * The fraction apple in 2022 3 because 2022 6 the first Fit ice per share: rens0" ee-year vesting period, overt ‘alue per share option: Not determinable that, 1 year has already passed “480 the, fede Of tet nce of the share on Sar 2822 didaate tocisiaibs ee ane axtctat 2, 1105 p a oe Another ana 3yearae Ts “ Chapt Chapter 21: Accounting fo Share Bq, Mesowiting on Shan te Bade Content — are opens esto December 3, 2024 provided the emp pete There here optoneremal in servceuntl then. No sreeyengan een et SERITAPES Wee 8 cae ip cee counterparty to receive cash of SOME he Serves at ently under a share-based payment aang esa! MStUmens of tee - can be exercised starting January 1, 2025 ang a : The Sar opie tee opbns are exercised on December 31, 2025, the , onauertes: 3 flows: s g : eres.00 7 2% nfom of ysting coon in wich payee Deer 3, 2023, 730.00, Serve for a set period af tine, is required to December 31,2024 POD. et 105.00 performance condition peste © PR'ype of vestng condo tht neces ey .@4: How nud compensation pense sale reported ote yas an bam a sever coon an epee et ‘through 2025? & Q-2 Prepare the journal entes on December 3, 2022, 2023, 2026, ay 2025. + Aperformance target = ~ Felted to the cor Teas ca cnpans eat: | Set comme ete i: lute hae options tach yong ‘ueyatea aguas ectiaied 2s | , = related to the price ofthe entiys rm Pam Pion inthe share Utrceceepea 2s _ a_i a ee nts ae 1250 ae aa e, egnent of Vesting Conditions é Vesing conditions, other than market conton, ae taken into sccour Seca, compute rhe comperston expense each pera: Po ven estimating the number of equ insbumets tater ence 'No. of share options 10,000 SF Yo dees 00 0» The estimate is subsequenty revised in light of new ivoaton, oe eT The changes are accounted for prospectively. . ‘Note: Accounted for pro: [las Accounted for prospectively means compensalan expenses aready Sooaiani on {cond in prior years are not recat, Ing prods (ors0%0, «., Ifthe share options do not vest because the contin, cfr than 2 vsatonepente , Compensaton expense —HLGET ~ 141.666 aw ‘market condition, is not satisfied at the end ofthe vesting period, xa epcepmnantion recognized in prior periods shall be reversed. The A ustment is treated as a change in accountng estimate. ‘ zniva%2 Compton come 41,667 * Journal entry: stdng Share options outstanding XK }- 12/31/2023 Coppeeatin eperse 141,666 Gain on reversal x re ontens cutting > Mae conditions are taken into account when estimating the fr vale : POUR Cin epee 31857 eo Of e eat instruments granted ) a outstanding ‘The estimated fair vaiue is not subsequently revised. Compensation expense 0 ° Share options cutting 5000 90 Gompensation is recognized even if the market condition is not = Bisfied and the grant does not vst, as Jong 2 the employees Shane. cea) som S248 all other contons such a compe the renuret tana * 01 L 1106 Ne ww03 joo se 2,437,500, en astanding set 2,437,500 ‘Acceleration of Vesting > Accaleraton of vesting occurs when an entity cancels or sts sag Sen ema aE ‘+The compensation expense that Would have been recogie fy eo sence recaved ring te remainder ofthe vesting perod ay, | ical Cash-Sattied Share-Bated Pa Based Payment ent Where inours a recognized immediately by the eee an entity in based on the equity shares preciation rights (SARs). difference must be recorded a: Illustration 21.4: (Acceleration of Vesting) ‘specified number of the excess of the market value of the ents ed price. Date of grant: ‘Number of share options granted: ttt ofthe er hare x [The vesting period fs four years. The fair value of the share options onthe doe serecetermined price 000 000. The entity decided to setiete| | | “ir stare appreciation nants Sap > AS that a SAR creates an obligation (rfabilty) onthe pa of he | Set to pay cash in the future on exercise dat. “Stetetcmneratin me ing from SARs is measured using the fa vale of the reporting date and must be remeasured at every ofthe grant is determined to be at PS, rent early on December 31, 2024, Value shall be included in profit or loss. Ske 1109Tg ot ty teal oe ect be SS Tosa ys share over ® predetermined price for g sett, ieee tag aaes = Recoantin of Compensation Sat rare appreciaton rights vest immediately, pe compensation recognize Ime on he dt gy 1 share appreciaton rights do not vest until the ¢ r eMtaplates a specified service period. Mployeg Sr The compensation is recognized over the vacation ots (4 iporactation IAN FSAR] ts ee year save ped, he recaton in share price over themes 9 (0 Sere) peng | ‘The market price of the entity's shares are as follows: 300 ‘The officer exercised the rights on December 31, 2024. '& Q; How much is the compensation expense to be reported in 2022, 223, | and 20247 | ex | 1 step: Determine the fair value ofthe SARS, | az 2003 2004 Marta value of shares at yearend 315.00 330.00 360.00 ess: Predetermined pie 0000) _ 300.00). 0000)_ | Pare of sas 15.00 30.0 a0 ‘Comment: The predetermined price is equal to the market value ofthe she on the date of grant. ‘2 step: Compute forthe compensation each year. a Noo SARs X Fairvaue of SARs Compensation expense Labilty for SARS os 40000 compensation expense 1, pir pity for SARs Se 200.00 vay rte non geod sas x POO/SAR = 1,800,000 1,800,000 dent case: Aesume tat te markt valu of te stares onesie shee P18 (instead of 360), 2022 203 peasies Sim dim ic Fara of SARS 30.00, 18.00 | eer on ae or aah) agente, woo — noon ty eds a {180009 _ noon. Campnssionepense —T5R000 450.000 ~ fanaa nis case the decrease in compensation Is recognized as gan on reversal of anal entry: Lebiity for SARS Gin on reversal of SARs tiled share-based payment (or SARS) to syment (or share options), the folowing be measured based on is fir value on the be recognized in equity * The iabitty for Sars shal be cancelled on the date of modesto. * The difference bets liability for SARS een the carying mount ofthe Kabity 3 the fair value of the share options on the date of modification Pall be recognized in . profit or loss. Liability for SARs > Fair value of share options > Gain on remeasurement uit© Journal entry: Coton, LUablity for SARS xx ‘Share optons outstanding xx {Gain on remeasurement mn Labity for SARS < Fair value of share options» 4 ‘compensation tony "ural ent: LUablity for SARS x ‘Compensation expense x ‘Share options outstanding * PART ai Accounting for Cash and Share Alternative me entty may grant its employees 2 type of share-based con that allows them to choose between: "PMSA; 2 cash alternative + Gas payment whichis equal to the market valu numberof shores subject to certain conditions, oF crn + Share alternative ‘© Equity shares wil be issued to the employees. ‘Accounting for Cash and Share Alternative '> The accounting for cash and share alterative depends on which o te Patties has the choice of settlement: ‘+The entity shall account for the alternative either as Habit or ‘equity, but not both. ‘+The employee has the choice of settlement + The entity shall account for the al financial instrument. 112 ere atenathe ~ If the share options do not vest because the condition, other than a 4 What amount should be recognized as share premium upon market condo, isnot satsied at the end of the vesting pero, te exercise of share options on December 31, 2024 ‘compensation recognized in prior periods shall be reversed. The ‘A 783,000 1,435,500 adjustment i treated asa change in accounting estimate. B 1,305,000 D. 1/957'S00 © Journal en: ‘Share options outstanding 2,100,000 5. Determine the net effect of exercising the share options on total Gain on reversal of compensation 2,100,000, shareholders’ equity on December 31, 2024. A. 783,000 c1/435,500 PROBLEM 21-4 Share Options; Performance Condition = Non-Morket B. 1,305,000 D. 1,957,500 On January 1, 2022, WESTLIFE Company granted share options to each of 100 | yyy 1 employees warking inthe sales department FROBLEM 21-4 Answers & Solutions Guide 1 ANSWER: A The shore options vest at the end of a three-year period provided tat te 2 ANSWER: B ‘employees remain in the entity's employ and provided the volume of ses vay ANSWER: increase by more than 5% per year. The fair value of each share option on conditions: ‘date is PEO. The par value per share is P100 and the option price is P150- howase in sales a 4 beach employee If the sales increase by less than 5%, each employee will receive no share opto" Ee = — ir ve Nore 50, So increase by 5% but not mare than 12%, each employee wi = than 12% 150 If the xe ‘eis in sae - sale ou J Options» ®2Se bY more than 12%, each employee will receive 15? ® ‘tnreace No, of SO On December 31,20 < % & 50 left the company, 22, the sales increased by 4% only and 10 employe 13% ase) :Clan Bs as - [Nos of employees, beginning eee een 1 1 opened : ENO. ry = ng Jerarvae a dte of gat fo iaeomeee > comprar : Come nunpie poh > SSynake epee ; 4. ANSWER: C canrceed (140804 xP) , ~ Add: Share options outstanding (7837 x. ys Total — ae Less: Total par value of shares issued (13,050 sh. x PL0Q/sh,) 740,50 ‘Share premium 3 (150569) 5. ANSWER: D ‘This i simply equal tothe cash received from exercising the share options. PROBLEM 21.5 Share Options; Performance Condition ~ Non-Markey Length of the Vesting Period Vari ‘On January 1, 2022,-Murdock Company grants 100 share options to each fis 500 employees, conditional upon the employees remaining in the entity’ empl vest atthe end of 2022 ifthe entity's earnings Increase by end of 2023 ifthe entity's earnings increase by more tan year over the two-year period; and at the end of 024i the entity's earnings increase by more than an average of 10% per year over he three-year period. Each share option has a far value of P30 on the date of grant. On December 31, eo hve yes wl a byatleast 6m, = “uring irre 220%, 10 employes have et andthe ent’ is increased by 8%, Pa: 1128 ee — Chapin Brat Shae wuch is the compensation Base Ce Gerson for 20237 ote 490,000 ©. 720,000 the compensation expens i oe a71099 8 fo" 20237 f D. 366,000 sat should Be reported as sha 3 December 31, 20237 "® options outstanding on 516,000 c 5 846,000 . much is the compensati 4 fo38,000 c B 453,000 o. should be reported 5 Mit shone aan creed 38 share optons outstanding on Nac peremploes Mande a ‘SOs abe a dee of gat Tl compensation Orpeston to cate ‘x Conpereton scmetston eccgnzein pensation expense Comment: > Fe feason why the fac share options will vest tthe company expects , ae oe that the vesting period is "use the vesting conditi ‘satisfied and the company that the share options will vest in 2024. 2 pected 1129 NSCapt 2: Aecstirg for Share Bay, Conta, 4. ANSWER: C 2. ANSWER: C ANSWER: B compensation = 2022 73000 compensation ~ 2023 mes . 20,000 A Ze c 13333 ted in 203%) 3 6667 5. 20,000 3. Prepare the journal entry to record the exercise of th sh ‘options in 2024, re Seis 2 Te mart re af the company’ stare reached P20 on Dacent 3 2024, 70% of te shar options were exercised in 2025 and the remainder toc, 1. How much isthe compensation expense to be reported in sc A 2e0 c 8. 5,667 D. 13,333 20,000 AL Zero 13,333 3 6667 D. 20,000 A Zero c 13,333 8 6,667 . 20,000 ‘Prepare the journal entry to record the exercise of the share options in 2025, z 5. Prepare the journal entry to record the lapse of the remaining share options, : eSGE Th mate rice of te company's share reached only P19 on Deco 2 Arm Gach the compensation expense tobe reported in 282! a be 3 ame % ow much isthe compensation expense tobe reported in 2087 8 6667 eer é, 1132 prepare the Journal entry to reco 4 4 ptions. ‘Me eHDaon ofthe share -1 Answers & Solutions Guide LM 21-7 Answers & Solutions ¢ ee S haat 10,000 200, 2009 smoencton fo at ear seal pensation recognized in prior period erersation ‘expense ~ 2022 ‘6.657 10,000 2.00, Tota compensation to date on ss: Compensation recognized in prior period 7 ‘ampensation ‘expense ~ 2023 the 2° year ofthe vesting, 3. ANSWER Gh 107 Sh. x PI2/sh,) 120,000 Shae options outstanding (20T x 100%) 20,000 Srinary share capital (107 sh. x P10/sh,) 100,000 Stare premium 40,000 i900 10,000 2.00 20,000 ~ 20,000 By De 38 {tel compensatig 3 ~ 20,000 MS Compensation to date 67) (13,333) Pe prog tion recognized in a (6. “ation expense 7— Cape seston Stare, $5,000 | HY fly «ween : a Chon. pat Soa Phe Contesting, Cash (207 x 708) P22 oy soggy Sa 00 gs La ; errors ous as ’ ymount should be reported jaa sara (77720) 4 Wiincome statement for 20239. °* “MPENSton expen, ‘ ‘Share premium yhat amount should Be reported a comp, . soap 2 the income stenanieee fee 20237 ‘sation expense in SO ea 30%) 6,000 ‘amount should be reported stare opto oustanding (2771 30%) ‘eon 2» Weincome statement for 20247, °"PENSaion expenge ‘are previ treat amount should be reported ag 4 fhe income statement for 20257" ** “™PENSation expense in 1. ANSWER: B X: Fair value per share option Total compensation Total compensation to dete Less: Compensation recognized in 4. ANSWER ‘Share options outstanding ‘Share premium ‘based on the option pricing model used by the company. value ofthe share is P00, ‘At the grant date, It was concluded that the falr value of the share options cat be estimated reliably, The options is exercisable within three years after vest. ‘Al share options vested atthe end of three years and no employees lft it the three-year ‘The share prices and the number of share options exercised are set out be Share Share options, Price “exercised at 222 peo eo 2023190 ot dag + Mera ati tn pen pe - crercemount shoud be repens 25 compensati rexpense Sincome: statement for 20267 a “J comer or 7, Wit amount should be ‘ptions on December 9f"Sm™ pon exercis Feported in the ‘income ‘statement. for : ia and COR * Sar oo char apa he pi pn not be estimated, the company shall Atl ive at yearend lass Opon Pico Cenprsaton date st Ganpensatonecogrizedin the rpc Simpson expense 1 ANSWER: 666,667 2 ANSWER: 1,333,333 3 ANSWER: 2,400,000 4 ANSW: 200,01 au tyrone? gt 56 Qutstandi — todste 560,00 Cmpen®2"=aton recognized in the prix periods __(440,000. Pesation expense - 2025 4.200.000 1135Capon 2 erat fos Share, ree ea ae comma Ses 225 at oe ed ee a spread on 5, ANSWER: 4,640,000 40T sh, x PLEO/Sh,) eh ce ov ostonig 10 be canesed 6.40000 (56x 407/100) ce Total 22400 Less: Total par value of shares issued (407 sh. x P100) 4.00 Share premium 6. ANSWER: 480,000 om Morket value at year-end a Less: Option Price Lo UA a dng 0) X: No, of SDs outstandin eae Compensation to date — io. tess! Compensation recognized inthe prior periods in elation tothe 60,000 SOs (5.6¢x 6017/1007) (3,360,000) Compensation expense ~ 2025 ‘380,000 7. ANSWER: 4,340,000 cash received (257 sh. x P160/sh.) 5,600,000 ‘Add: Share options outstanding to be cancelled (B.84M x 357/601) 2 2,240,000 Total 7,840,000 Less: Total par value of shares issued (357 sh. x P100) __(3,500,000)_ Share premium 4,240,000 8. ANSWER: 350,000 gain on reversal of compensation Market value at year-end Less: Option Price (160) Intrinsic value 50 X! No. of SOs outstanding 25,000 Compensation to date 1,250,000 Less: Compensation recognized in the prior periods in relation to the 25,000 SOs (3,840,000 x 251/607) __(1,600,000)_ Gain on reversal of compensation ~ 2026 (350,000) Journal entry: ‘Share options outstanding 350,000 Gain on reversal of compensation 350,000 9. ANSWER: 2,750,000 Cash received (257 sh, x P160/sh,) 4,000,000 ‘Add: Share options outstanding to be cancelled (125M x 257/251) 1,250,000. Total 5,250,000 Less: Toll par value of shares issued (257 sh, P10) (2,500,000) 1136 OE Cie 2: Arata 9 She wn Bese Catering 4 21:9 Share. Options: Modification of vay, (wo Independent stuaton: "TYNE Conditions joyees. The options foe Pe 500 employees. are exercisable, share options feof each share o ater ath a at pe fa val Te option sP30 on te eat of yoy Vtg er 31 of the current year, 40 employees signed on orerverage probabilty, 70 employees are emery; Soe! BNd based on ‘pected to resign by the end of 1. of the subsequent year, the entity modified a ices te Btu peconpny estimated that on the date of price mo Prue the share option is P12. fication, the increase inthe ete ee yes ote resgn by e end oe eae #3 ens ouingthe ast year ofthe vesting period, 45 empioyees resigned, taqared: Determine the compensation expense to be reported duing the vg eo : 1022, Ken Co. granted a total of 10,000 share options to the les team, The share options vest on December 3 theses team must earn at least 3,000 revenue during the vesting period. ‘er value per share option is P15 on re option ‘rant date, based on the option pricing de used by the company, Sioeember 31, 2023, the company increased the sles target to 5,000,000 Suen December31, 2024, te sles team only ered P12000,000 athe share ‘#d not vest based on the modified condition. Retuired: Dete It Determins to be reported during the Sg pence mine the compensation expense to be reps 137Chapter 2; Hccoantong fon Shang PROBLEM 21-9 Answers Solitons Guide™ Rea ‘Situation no. 1 ke ANSWER: 390,000; 637,000; 5900 7 Se Tolar. of noon. i Yow Tee betore ie vesting date 1,185,0¢ nae 0 a Mam Canpenton dt asedon eae ra ae 700000 suayg Compensation to date ~ Year 1 330,000 Less: Compensation recognized in prio periods Compensation expense ~ Year 1 390,000 Cormpensaton to date (based on orginal fl value) - Year 2 eon ‘Ads: Compensation to date (based on modification) — Year 2 {39,500 sh, options x PI2) x 4/2] Total compensation to date Less: Compensation recagnized in prior periods Compensation expense - Year 2 Compensation to date (based on orginal fair value) - Year'3 1,140 Ade: Compensation to date (based on modification) - Year 3 [(98,000 sh, options x P12)x 2/2] 456008 Total compensation to date 1am Less: Compensation recognized in prior periods 102600. Compensation expense - Year 3 se.000 Note: If the modification is favorable or beneficiat to the employees af Increases the fair value ofthe equity instruments granted ( 7 Fe ioe ie exercise price of the share options), the entity mst noo ‘he increase in fair value as additional compensation. re, inctease in fal value is recognized as compensati neni vesting period (or from the date of modification un then the modified equity instruments vest) Ss 1138 jon over He the dale ten 8: ewan tu i, Bas, site f00; 50:00; 50,000 Coenting - ae sei fi ay jac Cte P1500 a ‘oan ental Saige sam Bn sag eel. a ey ag 2 en 2m “sm Nate modification of the sales target was not Fe men fs Accordingly, the modification is inored nd measured based on the original eondion, smOBLEM 21-10 Shore Options Accelerton of ering iWaDk Company has granted ‘share options to ils empeySak The Wal Dpexation expense to the vestng date of Decenbar sare We al ‘eriped at P2,650,000. efi tothe employ wl vest. = the compensation must be has decided to settle the award early on December 31, 2024, The expense charged since the grant date of 1437500 for 2022 and P812,500 for 2023, The compensat fave been charged in 2024 was P1,200,000. 1. What is the compensation expense for 2024? A Zero Ge B. 1,200,000 What is the compensation expense for 2024 if the share options are not exercised but instead the company paid P4,900,000 to the employees? c.1,400,000 A D. 2,450,000 PROBLEM 21-10 Answers & Solution: Guide ne, ANSWER: ¢ Legs oTPENSation to the vesting date US Compensation = 2002 GS Compensation — 2003 ensation — 2024 1139 Semamas eoene 1.00000 rs cong coe aac ota cots win service) 2. ANSWER: B cash paid Less: Share options outstanding, 12/31/2023 (437,500 + 812,500) ‘Compensation expense - 2024 Journal entry ‘Share options outstanding 1,250,000 Compensation expense 1,200,000 Cash 29 January 1, 2025 ‘The share sppreciation rights are exercised on January 1, 2025. 'e compensation expense for 2023? A. 20000 © 4,800,000 3,400,000 D. 10,200,000 K.) 1140 prepare the, journal entry to reco & Jppreciation rights on January 1, 2025, "* ©*€rtise of share ‘amount should be ret 6. What arn cognized as gain on rey versal of share ‘dropped to P12 on run shoul acm con ae 8 ma 4. ANSWER: C Yotet lve of shares at year-end tes: edetermined rice Fara of SARS kof SARs "ulampensstion 13 Congestion to date an Een Zpo0nod 500000 ~ Toor or = _(2c00e00)—_ (5,000 Gimpensation expense 2,900,000 ~ 3,400,000 ‘amuant 2000.00 Appreclaton Rights 2000000 3.400900 hare Appreciation Rights 3400000 enéation expense 4300000 Labi Yor Shere Appreciation Rights 40000 5 Uae ANSWER for Share Apy Preciation Rights 10,200,000 oa see 10,200,000 u4iMarket vate of shares at year-ond Less: Predetermined price compensation date {ess compensation recognized PROBLEM 21-12 Share. On January 1, Chapt 2: crating for Share Bas Cte, ANSWER: B 2, xracion Company gre 100 share ean teach ofthe 250 employees on condition thatthe employees remain inn for the next three years. ‘ely No employees left the company during the vesting period, Intrinsic value of the share appreciation rights are Fairvalue Amount paid out to the employees 15 18 2.50 10.50 7 16.50 2.50 2.50 What is the compensation expense for 20227 ‘What is the compensation expense for 2023? ‘What is the compensation expense for 2024? ‘What amount should be recognized as gain on reversal of stare appreciation rights for 20257 ‘What amount should be recognized as gain on reversal of st ‘appreciation rights for 20267 1142 Cheaper 2; Alc 21-12 Answers & Solutions Guide O° Shane osu Tez: 125,000 2 joes granted of SARs ereapsy/employee rrber of SARS a ses Fr ten ooo onto date cowoeserensation recognized in ws oerads Paro ones 3. ANSWER: 190,500 compensation expense widget competion epesesareuty 25 2 ce of SARS 2400 dion expense ~ 2024 compensation exp 190,500, Vaerpojees «100 SARs/employee) xP1050/%8) ° sign ts Lblty fr SARS to be cancelled (562,500 x 60/250) _(135,000)_ Afusiment fo compensation expense (72,000) 60) (427 50) 85,500 ‘compensation expense as a result of itil erercise of sane® a 94,500) "reversal of SARs — 2025 (2.000) “Pontes as folows: Bat cash paid Lg hlovees x 100 SARs /employee) x P16.50/SAR] 148,500 te ‘aeglty for SARs to be cancelled (513,000 x 90/190) _(243,000)- to compensation expense Oe) 1143 Sa/ER: 45,000 joyees who sell not exercised ther SARs (190 ~ go) Jemployee CS a ts ogo sas 000 x 107/197) reversal of SARS Cae Aijiniment os rest of partial exercise of SARS Goin on reversal of SARS ~ 2026 “computed as follows: fan cash pl oe al cnptoyecsx 100 SARS/emnployee) x P22.SU/SAR} 99 ie Labilty for SARs to be cancelled (225,000 x 100/100) 250 Adjustment PROBLEM 21-13 Cash and Share Alternative ‘On January 1, 2022, Sencha Company granted to a Key employee te foie choose eter ‘+ 60,000 shares. + Cash payment equal to market value of 50,000 phantom shares, ‘The grant is conditional upon the completion of three years of service. If the employee chooses the share alternative, the shares must be held fr two years after the vesting date. 68. ‘Aft taking into account the effects of post-vestin company Is 19 restrictions, t estimated thatthe fair value of the share or equity alternative is P160.50 pers 1. What amount shall be assigned to the equity component? ‘Ze 8,400,000 B. 1,230,000 (607 sh. x P160.50/sh,) ity component 9,630,000 (840,000). (BIT sh x1 4,230,000 |imcunt assigned to the equity component 2. ANSWER: B 3. ANSWER: D 4 ANSWER: C Nastphanom shares She pice a year-end Tid capensation 3,310,000 "AIRE Compensation expense Labi for compensation Share optons outstandinggn ft fh Bey 3,560,000 o24 compensation ye Ly or compensa 3,159,009 ‘Share options outstanding 410,009 9,300,000 1230,000 9,000, 1,530,000 9,300,000 1'330,000 9,300,000 ash Y Share premium (squeeze) 1,230,000 1146 CHAPTER 235 tf ee ex ‘ACCOUNTING FOR INCOME taxes se PMO age Se ae eounting Income vS. Taxable Income al 4 "Tax Lablity | peered Tax Asset Statement ce Lee The net income for the ‘tore period before deducting | Income tax ‘Computed in accordance with BIR tax laws. | (Few te compute Revenues ~ Tatoos | | ne Less: Expenses _Q0)_ | lessdeauatle |_Netincome XX | rauletneme EX | Note: Account ne is also called: ¥ Finan v Pret ‘eens Between Accounting Income and Taxable lncam income are he differences between accounting income and taxable Classified into: 1 Parmanent eiterences Temporary differences