Share Based Payments - Problems: Problem 1 [PDF]

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SHARE BASED PAYMENTS – Problems PROBLEM 1: Irish Company granted 10,000 share options to each of its five directors on January 1, 2016. The options vest on January 1, 2020. The fair value of each option on January 1. 2016 is 50 and it is anticipated that all of the share options will vest on January 1, 2020. What amount should be reported as increase in expense and equity for the year ended December 31, 2016? a. 750,000 c. 625,000 b. 500,000 d. 125,000 PROBLEM 2: On January 1, 2016, Oak Company granted share options to certain key employees as additional compensation. The options were for 100,000 ordinary shares of 10 par value at an option price of 15 per share. Market price of this share on January 1, 2016 was 20. The fair value of each share option on January 1, 2016 is 8. The options were exercisable beginning January 1, 2016 and expire on December 31, 2016 . On April 1, 2016, all share options were exercised. What amount of compensation expense should be reported in 2016? a. b. 500,000

c. 200,000800,000 d. 125,000

PROBLEM 3: On January 1, 2016, Greece Company granted an employee an option to buy 20,000 shares for 40 per share, the option exercisable for three years from January 1, 2018. Using the fair value option pricing model, total compensation expense is determined to be 240,000. The employee exercised the option on September 1, 2018, and sold the 20,000 shares on December 1, 2018. The service period is for two years beginning January 1, 2016. What amount should be recognized as compensation expense for 2016? a. 240,000 b. 120,000

c. 160,000 d. 80,000

PROBLEM 4: Esmeralda Company issued fully paid shares to 200 employees on December 31, 2016. Normally, shares issued to employees vest over a two-year period but these shares have been given as a bonus to the employees because of their exceptional performance during the year. The shares have a market value of 500,000 on December 31, 2016 and an average fair value of 600,00 for the year. What amount should be expensed for this share-based payment transaction? a. 600,000 b. 500,000

c. 300,000 d. 250,00

PROBLEM 5-6: Roxanne Company has granted share options to the employees. The total compensation expense to the vesting date of December 31, 2019 has been calculated at 8,000,000. The entity has decided to settle the award early on December 31, 2018. The compensation expense charged since the date of grant on January 1, 2016 was 2 ,000,000 for 2016 and 2,100,000 for 2017. The compensation expense that would have been charged in 2018 was 2,200,000. PROBLEM 5: What is the compensation expense for 2018? a. 2,200,000 b. 8,000,000

c. 3,900,000 d, 2,000,000

PROBLEM 6: What is the compensation expense for 2018 if the share options are not exercised but instead the entity paid 7,500,000 to the employees? a. 2,200,000 b. 3,900,000

c. 3,400,000 d. 7,500,000

PROBLEM 7: Ivy Company, an unlisted entity, decided to issue 1,000 share options to an employee in lieu of many years’ service. However, the fair value of the share options cannot be reliably measured as the entity operates in a highly specialized market where there are no comparable entities. The exercise price is 100 per share and the options were granted on January 1, 2016 when the value of the shares was also estimated at 100 per share. On December 31, 2016, the value of the shares was estimated at 150 per share and the options vested on that date. What value should be placed on the share options issued for the year ended December 31, 2016? a. 100,000 b. 150,000

c. 50,000 d. 25,000

PROBLEM 8: Elizabeth Company granted 100 share appreciation rights to each of the 1,000 employees on January 2016. The entity estimated that 90% of the awards will vest on December 31, 2018. The fair value of each share appreciation rights on December 31, 2016 is 10. What is the accrued liability on December 31, 2016? a. 300,000 b. 900,000

c. 100,000 d. 90,000

PROBLEM 9-11: On January 1, 2016, Kristen Company established a share appreciation rights plan for the executives. The plan entitled them to receive 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 20 on 60,000 share appreciation rights. On December 31 , 2018, 20,000 SARs are exercised by the executives. Market price January 1, 2016

25 per share

December 31, 2016

28 per share

December 31, 2017 December 31, 2018

35 per share 30 per share

PROBLEM 9: What amount of compensation expense should be recognized for 2016? a. 480,000 c. 300,000 b. 120,000 d. 180,000 PROBLEM 10: What amount of compensation expense should be recognized for 2017? a. 900,000 b. 420,000

c. 105,000 d. 225,000

PROBLEM 11: What amount should be recognized as accrued liability for share appreciation rights on December 31, 2018? a. 600,000 b. 300,000

c. 400,000 d. 200,000

PROBLEM 12: On January 1, 2016, Morey Company granted Dean, the president, 20,000 share appreciation rights for past services. These rights are exercisable immediately and expire on January 1, 2018. On exercise, Dean is entitled to receive cash for the excess for the share market price on the grant date. Dean did not exercise any of the rights during 2016. The market price of Morey’s share was 30 on January 1, 2016 and 45 on December 31, 2016. As a result of the share appreciation rights, what amount should be recognized as compensation expense for 2016? a. 0 b. 100,000

c. 300,000 d. 600,000

PROBLEM 13: Wolf Company granted 30,000 share appreciation rights which entitled key employees to receive cash equal to the difference between 20 and the market price of the share on the date each right is exercised. The service period is 2016 through 2018, and the rights are exercisable in 2019. The market price of the share was 25 and 28 on December 31, 2016 and 2017, respectively. What amount should be reported as liability under the share appreciation rights on December 31, 2017? a. 0 c. 160,000 b. 130,000 d. 240,000 PROBLEM 14-15: Sarah Company has granted share options to the employees. The total compensation expense to the vesting date of December 31, 2019 has been calculated at 5,000,000. The entity has decided to settle the award early on December 3, 2018. The compensation expense charge since the date of grant on January 1, 2016 was 1 ,000,000 for 2016 and 1,200,000 for 2017. The compensation expense that would have been charged in 2018 was 1,800,000. PROBLEM 14: What is the compensation expense for 2018? a. 2,400,000 c. 2,600,000 b. 2,800,000 d. 2,500,000 PROBLEM 15: What is the compensation expense for 2018 if the share options are not exercised but instead the entity paid 4,500,000 to the employees? a. 2,000,000

c. 2,500,000

b. 2,900,000

d. 2,300,000 SHARE-BASED PAYMENTS – Theories 1. It is the difference between the fair value of the 3. What is the date on which the fair value of the shares to which the counterparty has the right to equity instrument granted is measured? subscribe and the price the counterparty is a. Measurement date required to pay for those shares. b. Grant date a. Fair Value c. End of reporting period b. Intrinsic Value d. Exercise date c. Market Value d. Book Value 4. It is the contract that gives the holder the right, 2. What is the date on which the entity and another party agree to a sharebased payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement? a. Grant date b. Measurement date c. Exercise date d. End of reporting period

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

5. 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 b. Liability only c. Partly equity and partly liability d. Either equity or liability but not both 6. A cash settled share-based payment transaction increases which of the following? a. A current asset b. A non-current asset c. Equity d. A liability 7. What is the measurement date for a sharebased payment to employees that is classified as a liability? a. The service inception date b. The grant date c. The settlement date d. The end of the reporting period 8. 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 9. 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 expense over a reasonable period not exceeding 10 years 10.The entity has issued a range of share options to employees. What type of share-based payment transaction does this represent? a. Asset settled share-based payment transactions b. Equity settled share-based payment transactions c. Cash settled share-based payment transactions d. Liability settled share-based payment transactions

11.These are transactions in which the entity acquires goods or services by incurring liabilities to the supplier of those goods or services for 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 12.If the share-based payment transactions provides that the employees have the right to choose the settlement whether in cash or shares, the entity is deemed to have issued a. A compound financial instrument b. An equity instrument c. A liability instrument d. Either an equity instrument or a liability instrument but not both 13.An entity has entered into a contract with another entity which will supply a range of services. The payment for those services will be in cash and based upon the price of the entity’s ordinary shares on completion of the contract. What type of share based payment transaction does this represent? a. Asset settled share-based payment transactions b. Liability settled share-based payment transactions c. Cash settled share-based payment transactions d. Equity settled share-based payment transactions 14.Which of the following statements in relation to the cash settled share-based payment transactions 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 and II 15.Which of the following statements in relation to share options granted to employees in exchange for their services is true?

I.

II.

The services received shall be measured at the fair value of the employees’ services. Fair Value shall be measured at the date the options vest.

a. b. c. d.

I only II only Both I and II Neither I and II