SHARE-BASED

PAYMENTS WITH
CASH
ALTERNATIVES
 SHARE-BASED PAYMENTS WITH
CASH ALTERNATIVES
An incentive plan the settlement of which may be in cash (SAR) or
in equity instrument (e.g. shares of stocks) (Options)
Who has the choice?

The Employee The Company

Treated as a compound instrument Is there a present obligation to
SAR - Liability component AND settle in cash?
Option - Equity component Yes – SAR (cash-settled SBP) OR
No – Option (equity-settled SBP)

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 SHARE-BASED PAYMENTS WITH
CASH ALTERNATIVES
Illustrative Problem: On January 1, 2019, S grants its COO the right to choose
either 5,000 ordinary shares or to receive cash payment equal to 4,000 shares.
These are to vest after rendition of two years of service. Par value of the
company’s share of stock is P40. The COO exercised his rights on September 30,
2021. The fair value information follow:

Compound Instrument: 01.01.19 P60

Share of Stock: 01.01.19 P65
12.31.19 68
12.31.20 72
09.30.21 75

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 SHARE-BASED PAYMENTS WITH
CASH ALTERNATIVES
Requirements:
1. What is the balance of SAR payable as of December 31, 2019 and 2020?
2. What is the balance of the ordinary share option outstanding as of December
31, 2019 and 2020?
3. What is the total salaries expense related to the share-based payments in 2019
and 2020?
4. Entry to record the exercise assuming the employee opted settlement in cash in
September 30, 2021.
5. Entry to record the exercise assuming the employee opted to receive shares in
September 30, 2021.

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 SHARE-BASED PAYMENTS WITH
CASH ALTERNATIVES
An incentive plan the settlement of which may be in cash (SAR) or
in equity instrument (e.g. shares of stocks) (Options)
Who has the choice?

5
 SHARE-BASED PAYMENTS WITH
CASH ALTERNATIVES
Illustrative Problem: On January 1, 2019, S grants its COO the right to choose
either 5,000 ordinary shares or to receive cash payment equal to 4,000 shares.
These are to vest after rendition of two years of service. Par value of the
company’s share of stock is P40. The COO exercised his rights on September 30,
2021. The fair value information follow:

Compound Instrument: 01.01.19 P60

Share of Stock: 01.01.19 P65
12.31.19 68
12.31.20 72
09.30.21 75

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 SHARE-BASED PAYMENTS WITH
CASH ALTERNATIVES
An incentive plan the settlement of which may be in cash (SAR) or
in equity instrument (e.g. shares of stocks) (Options)

✓
Who has the choice?

The Employee
Treated as a compound instrument
SAR - Liability component AND
Option - Equity component
✘
The Company
Is there a present obligation to
settle in cash?
Yes – SAR (cash-settled SBP) OR
No – Option (equity-settled SBP)

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 SHARE-BASED PAYMENTS WITH
CASH ALTERNATIVES Not vested immediately
NO ENTRY
Illustrative Problem: On January 1, 2019, S grants its COO the right to choose
either 5,000 ordinary shares or to receive cash payment equal to 4,000 shares.
These are to vest after rendition of two years of service. Par value of the
company’s share of stock is P40. The COO exercised his rights on September 30,
2021. The fair value information follow:

Compound Instrument: 01.01.19 P60

Share of Stock: 01.01.19 P65
12.31.19 68
12.31.20 72
09.30.21 75

8
 SHARE-BASED PAYMENTS WITH CASH ALTERNATIVES:
SOLUTION:
ILLUSTRATION (EMPLOYEE’S CHOICE)
Dec. 31, 2019: Recognize the liability component (SAR)
@FMV as of Dec. 31, 2019
Est. FMV of SARS, 12/31/2019 (4,000*P68) P272,000
Divide by: Vesting period 2 years
Salaries expense. 2019 136,000

Recognize the equity component (Option)

@RESIDUAL AMOUNT as at GRANT DATE Jan. 1, 2019
Est. FMV of Compound Instr. 1/1/2019 (5,000*P60) P300,000
Less: FMV of SARS, 1/1/2019 (4,000*P65) (260,000)
Residual amount/Equity component/Options P40,000
Salaries expense. 2019 (P40,000/2years) P20,000

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 SHARE-BASED PAYMENTS WITH CASH ALTERNATIVES:
ILLUSTRATION (EMPLOYEE’S CHOICE)
SOLUTION:
Dec. 31, 2019: Recognize the liability component (SAR)
Entry:
Salaries expense 136,000
SAR Payable 136,000

Recognize the equity component (Option)

Entry:
Salaries expense 20,000
Ordinary share options outstanding 20,000

TOTAL SALARIES EXPENSE, 2019 P156,000

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 SHARE-BASED PAYMENTS WITH CASH ALTERNATIVES:
ILLUSTRATION (EMPLOYEE’S CHOICE)

Requirements:
1. What is the balance of SAR payableP136,000
as of December 31, 2019 and 2020?
2. What is the balance of the ordinary share option outstanding as of December
31, 2019 and 2020? P20,000
3. What is the total salaries expense related to the share-based payments in 2019
and 2020? P156,000
4. Entry to record the exercise assuming the employee opted settlement in cash in
September 30, 2021.
5. Entry to record the exercise assuming the employee opted to receive shares in
September 30, 2021.

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 SHARE-BASED PAYMENTS WITH CASH ALTERNATIVES:
SOLUTION:
ILLUSTRATION (EMPLOYEE’S CHOICE)
Dec. 31, 2020: Recognize the liability component (SAR)
@FMV as of Dec. 31, 2020
Est. FMV of SARS, 12/31/2020 (4,000*P72) P288,000
Less: Prior year’s salaries expense (136,000)
Salaries expense. 2020 152,000

Recognize the equity component (Option)

@RESIDUAL AMOUNT as at GRANT DATE Jan. 1, 2019
Est. FMV of Compound Instr. 1/1/2019 (5,000*P60) P300,000
Less: FMV of SARS, 1/1/2019 (4,000*P65) (260,000)
Residual amount/Equity component/Options P40,000
Salaries expense. 2020 (P40,000/2years) P20,000

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 SHARE-BASED PAYMENTS WITH CASH ALTERNATIVES:
ILLUSTRATION (EMPLOYEE’S CHOICE)
SOLUTION:
Dec. 31, 2020: Recognize the liability component (SAR)
Entry:
Salaries expense 152,000
SAR Payable 152,000

Recognize the equity component (Option)

Entry:
Salaries expense 20,000
Ordinary share options outstanding 20,000

TOTAL SALARIES EXPENSE, 2019 P172,000

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 SHARE-BASED PAYMENTS WITH CASH ALTERNATIVES:
ILLUSTRATION (EMPLOYEE’S CHOICE)

Requirements:
1. What is the balance of SAR payableP136,000 ; P288,000
as of December 31, 2019 and 2020?
2. What is the balance of the ordinary share option outstanding as of December
31, 2019 and 2020? P20,000 ; P40,000
3. What is the total salaries expense related to the share-based payments in 2019
and 2020? P156,000 ; P172,000
4. Entry to record the exercise assuming the employee opted settlement in cash in
September 30, 2021.
5. Entry to record the exercise assuming the employee opted to receive shares in
September 30, 2021.

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 SHARE-BASED PAYMENTS WITH CASH ALTERNATIVES:
ILLUSTRATION (EMPLOYEE’S CHOICE)
SOLUTION:
Sept. 30, 2021: Upon exercise, assuming cash settlement was chosen
when the prevailing FMV is at P75
Entry:
SAR Payable 288,000
Salaries Expense 12,000
Cash (4,000*P75) 300,000

Derecognize the equity component (Option)

Entry:
Ordinary share options outstanding 40,000
APIC – unexercised options 40,000

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 SHARE-BASED PAYMENTS WITH CASH ALTERNATIVES:
ILLUSTRATION (EMPLOYEE’S CHOICE)
SOLUTION:
Sept. 30, 2021: Upon exercise, assuming cash settlement was NOT chosen
when the prevailing FMV is at P75
Entry: Remeasure SAR payable at FMV (4,000*P75) = P300,000
Salaries expense (P300K-P288) 12,000
SAR Payable 12,000

Derecognize the debt and equity components

Entry:
SAR payable 300,000
Ordinary share options outstanding 40,000
Ordinary shares (5,000*P40) 200,000
Share premium 140,000

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 SHARE-BASED PAYMENTS WITH
CASH ALTERNATIVES
An incentive plan the settlement of which may be in cash (SAR) or

✘ ✓
in equity instrument (e.g. shares of stocks) (Options)
Who has the choice?

The Employee The Company

Treated as a compound instrument Is there a present obligation to
SAR - Liability component AND settle in cash?
Option - Equity component Yes – SAR (cash-settled SBP) OR
No – Option (equity-settled SBP)

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 SHARE-BASED PAYMENTS WITH CASH ALTERNATIVES:
ILLUSTRATION (COMPANY’S CHOICE)
Is there a present obligation to settle in cash?
• If the entity has a practice or a stated policy of paying in cash, or
• When the entity is legally prohibited from issuing shares.
Recognize as usual SAR (Cash-settled SBP)
Recognize as usual OPTIONS (Equity-settled SBP)
Note that once it is recognized as SAR, there will be no chance it
will be settled in shares. Whereas, if it was initially recognized as
OPTIONS, there might be a chance where the company ultimately
settles in cash.
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 SHARE-BASED PAYMENTS WITH CASH ALTERNATIVES:
ILLUSTRATION (COMPANY’S CHOICE)

FROM ORIGINALLY BEING AN OPTION TO BEING SETTLED IN CASH

SITUATION 1:
If Options Outstanding balance is Higher than cash paid, just
derecognize Options Outstanding equal to the cash paid. Let the
remaining balance of the Options Outstanding remain

SITUATION 2:
If Options Outstanding is Lower than cash paid, then the difference is
recognized as salaries expense

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