Share Based Compensation Share Based Compensation: Accounting (Mapua University) Accounting (Mapua University) [PDF]

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Share Based Compensation Accounting (Mapua University)

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Activity 1 (Adapted). At this point, let us to determine the extent of your understanding on the share-based payment transactions of the entity. Encircle the letter that corresponds to your answer. 1.) These are transactions in which the entity receives goods or services as consideration for equity instruments of the entity, including shares and share options. a. Equity settled share-based payment transactions b. Cash settled share-based payment transactions c. Equity payment transactions d. Cash payment transactions 2.) It is a contract that gives the holder the right, but not the obligation, to subscribe to the entity’s shares at a fixed or determinable price for a specified period of time. a. Share option b. Share warrant c. Share appreciation right d. Share split 3.) What is the date on which the fair value of the equity instrument granted is measured? a. Measurement date b. Grant date c. Exercise date d. End of the reporting period 4.) It is the difference between the fair value of the shares to which the counterparty has the right to subscribe and the price the counterparty is required to pay for those shares. a. Fair value b. Intrinsic value c. Market value d. Book value 5.) For equity settled share-based payment transactions, the entity shall measure the goods or services received and the corresponding increase in equity I Directly, at the fair value of the goods or services received. II Indirectly, by reference to the fair value of the equity instruments granted, if the fair value of the goods or services received cannot be estimated reliably. a. I only b. II only c. Both I and II d. Neither I nor II 6.) These are transactions in which the entity acquires goods or services by incurring liabilities to the supplier of those goods or services fro amounts that are based on the price of the entity’s shares and other equity instruments. a. Equity transactions b. Cash payment transactions c. Purchase transactions d. Cash settled share-based payment transactions 7.) For cash settled share-based payment transactions, an entity shall measure the goods or services received and the liability incurred at a. Fair value of the goods and services received b. Fair value of the liability c. Either the fair value of the goods and services received or the fair value of the liability d. Neither the fair value of the goods and services received nor the fair value of the

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liability 8.) For transactions with employees and others providing similar services, the fair value of the equity instrument granted is measured on a. Exercise date b. Grant date c. End of reporting period d. Beginning of the year of grant 9.) Compensation cost for a share-based payment to employee that is classified as a liability is measured at a. The change in fair value of the instrument for each reporting period. b. The total fair value at grant date c. The present value of cash payments due over the life of the grant d. The actual cash outlay for the period 10.) If the share options do not vest until the employee completes a specified service period, the compensation is a. Not recognized as expense b. Recognized as expense immediately c. Recognized as expense over the service or vesting period d. Recognized as expense over a reasonable period not exceeding 10 years 11.) How should an entity recognize the change in the fair value of the liability in respect of a cash settled share-based payment transaction? a. Should not recognize in the financial statements but disclose in the notes b. Should recognize in the statement of changes in equity c. Should recognize in other comprehensive income d. Should recognize in profit or loss 12.) In what circumstances is compensation expense immediately recognized under a share option plan? a. In all circumstances b. In circumstances when the options are exercisable within two years for services rendered over the next two years c. In circumstances when the options are granted for prior service and the options are immediately exercisable d. In no circumstances is compensation expense immediately recognized 13.) For cash settled share based payment transactions, until the liability is settled, the entity is required to re measure the fair value of the liability at each reporting date and at the date of settlement and any changes in fair value are a. Included in profit or loss b. Included in retained earnings c. Treated as component of other comprehensive income d. Not recognized 14.) Which of the following statements in relation to a cash settled share-based payment transaction is true? I The fair value of the liability shall be remeasured at the end of each reporting period. II The fair value of the liability shall be remeasured at the date of settlement. a. I only b. II only c. Both I and II d. Neither I nor II 15.) Which of the following statements in relation to share options granted to employees in exchange for their services is true?

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I The services received shall be measured at the fair value of the employees’ services. II Fair value shall be measured at the date the options vest. a. I only b. II only c. Both I and II d. Neither I nor II

Problem 1 (Adapted) On January 1, 2017, Gliezel company issued options to key employees to purchase 20,000 ordinary shares of P100 par value at P125 per share. On such date, the market value of ordinary share is P150 per share. The fair value of each share option is P30. These options are exercisable starting January 1, 2019 and expire one year after. Options covering 17,500 shares are exercised on January 15, 2019 and the remaining options expired. a. Compute compensation expense for the year 2017, 2018 and 2019. 2017 20 000*30= 600 000/2= 300 000 2018 20 000*30= 600 000/2= 300 000 b. Prepare journal entries to record the compensation each year as well as the exercise and expiration of the share options. 2017 Salaries- share options (30*20 000/2) 300 000 Share options Outstanding 300 000 2018 Salaries- share options (30*20 000/2) 300 000 Share options Outstanding 300 000 2019 01|15 cash (17 500*125) 2 187 500 share options Outstanding (17 500*30) 525 000 ordinary share capital (17 500*100) 1 750 000 share premium 962 500 12|31 Share options outstanding (20 000-17 500* 30) 750 000 Share premium- unexercised 750 000 Problem 2 (Adapted) Annie company has granted share options to the employees with a fair value of P9,000,000. The options vest in three years. On January 1, 2017, which is the date of grant, the estimated number of employees who will leave the entity during the vesting period is 5%. On January 1, 2018, the estimate of employees leaving the entity before vesting date is revised to 6% and finally on December 31, 2019, only 5% of the employees actually left the entity. Prepare journal entries to record the compensation expense per year. 2017 Compensation exp (9 000 000*95%/3) 2 850 000 2018 Cumulative Comp. (9 000 000*94%/3*2) 5 640 000 2017 Comp exp. (2 850 000) Comp. exp. for 2018 2 790 000 2019 Comp. exp. (9 000 000*95%) 8 550 000 2016 comp exp. (2 850 000) 2017 comp exp. (2 790 000) Comp. exp for 2019 2 910 000 JOURNAL ENTRIES

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2017

2018

Salaries- share options Share options Outstanding

2 850 000

Salaries- share options Share options Outstanding

2 790 000

2 850 000

2 790 000

2019

Salaries- share options 2 910 000 Share options Outstanding 2 910 000 Problem 3 (Adapted) On January 1, 2018, Glee company offered key employees share appreciation rights for 10,000 shares at a predetermined price of P50 per share for three years service period beginning Jan. 1, 2018 and expiring December 31, 2020. The share appreciation is to be paid upon exercise. The share appreciation rights were exercised on December 31, 2020. The share prices on different dates are as follows: Jan. 1, 2018, P50, Dec. 31, 2018, P56, Dec. 31, 2019, P68 and Dec. 31, 2020, P71. a. Compute the salaries expense for each of the three years. 2018 Salaries Exp. (56-50 *10 000/3) 20 000 Salaries Payable 20 000 2019 Salaries Exp. (68-50 *10 000/3*2-20 000) 100 000 Salaries Payable 100 000 2020 Salaries Exp. (71-50 *10 000-20 000-100 000) 90 000 Salaries Payable 90 000 b. Prepare the entry upon settlement of the liability on December 31, 2020. Salaries Payable 210 000 Cash 210 000 c. On December 31, 2019, what amount of liability will be presented in the statement of financial position? 120 000= 100 000+20 000 Problem 4 (Adapted) On January 1, 2018, Miles company offered the chief executive officer share appreciation rights. The predetermined price of the 20,000 shares is P100. The term includes a vesting period of 3 years and expiration date is on December 31, 2020. The share appreciation rights will be paid upon exercise. The share appreciation rights were exercised on December 31, 2020. Share prices on specific dates are as follows: January 1, 2018, P100, Dec. 31, 2018, P95, Dec. 31, 2019, P112 and P125 on Dec. 31, 2020. a. Prepare journal entries on Dec. 31, 2018, December 31, 2019 and December 31, 2020. 2018 no entry 2019 Salaries Exp. (112-100 *10 000/3*2) 80 000 Salaries Payable 80 000 2020 Salaries Exp. (125-100 *10 000-80 000) 170 000 Salaries Payable 170 000 Salaries Payable 250 000 Cash 250 000

b. What amount of liability will be presented in the statement of financial position for the year ended December 31, 2018?

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0 zero

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