SHARE – BASED COMPENSATION – SOME EMPLOYEES LEFT

Employees entitled to Share Options

Within the vesting period
Deduct the following to Number of Employees
 Actual employees resigned or left the company during the year
 Employees expected to leave or resign the following year

End of Vesting Period

 Deduct all employees resigned and left within or during the vesting period.

ILLUSTRATION – SOME EMPLOYEES LEFT

On January 1, 2018, an entity granted 1,000 share options each to 600 employees, conditional
upon the employee’s remaining in the entity’s employ during the vesting period.

The share options vest at the end of a three-year period. On grant date, each share option has
fair value of P60.

By December 31, 2018, 60 employees have left and it is expected that that on the basis of
weighted average probability, a further 40 employees will leave during the vesting period.

By December 31, 2019, 50 employees have left and the entity expects that a further 30
employees will leave during 2020.

By December 31, 2020, 40 employees have left and therefore 450 employees shall receive
share options at the end of 2020.

All share options were exercises on March 1, 2021.

2018
Total Number of employees 600
Employees left in 2018 ( 60)
Employees expected to leave ( 40)
------------
Employees entitled to share options 500
Share options per employees 1,000
------------
Total Share Options 500,000
FMV x P60
------------
Total Compensation Expense P 30,000,000
============

Accrual 2018 (P30,000,000 x 1/3) P 10,000,000

============
Salaries – Share options 10,000,000
Share options outstanding 10,000,000
2019
Total Number of employees 600
Employees left in 2018 ( 60)
Employees left in 2019 ( 50)
Employees expected to leave in 2019 ( 30)
---------------
Employees entitled to share options 460
Share option per employee 1,000
----------------
Total Share Options 460,000
FMV x P60
----------------
Total Compensation Expense 27,600,000
=========
Total Compensation expense (2018 and 2019)
27,600,000 x 2/3 P 18,400,000
Compensation recognized in 2017 10,000,000
---------------------
2019 Accrual P 8,400,000
============
Salaries – Share options 8,400,000
Share options Outstanding 8,400,000

2020
Total Number of employees 600
Employees left in 2018 ( 60)
Employees left in 2019 ( 50)
Employees left in 2020 ( 40)
----------
Employees entitled to share options 450
Share option per employee 1,000
-------------------
Total Share Option 450,000
FMV x P60
-------------------
Total Compensation Expense P 27,000,000
===========
Total Compensation Expense (2018,2019 & 2020)
27,000,000 x 3/3 P 27,000,000
Accrual 2018 and 2019 18,400,000
------------------
Accrual 2020 8,600,000
===========
Salaries – Share options 8,600,000
Share option outstanding 8,600,000
Exercises:

1. On January 1, 2018, Mari Company granted 400 share options for 150 employees,
conditional upon the employees remaining in the entity’s employ during the vesting period.

The share options will vest over a three-year period. The fair value of each share option is P25.

By the end of 2018, 40 employees have left and based on a weighted average probability, a
further 20 employees will leave during the vesting period.

By the end of 2019, only 16 employees have left and a further 62 employees will leave during
2020.

By the end of 2020, only 50 employees left the entity.

Required:
Compute the compensation expense for 2018, 2019 and 2020 as a result of the share options.

2. On January 1, 2018, Camil Company granted share options to each of the 100 employees.

The share options will vest at the end of 2020, provided the employees remain the entity’s
employ and provided the sales increase at least by an average of 8% per year.

If the sales increase by an average of at least 8% per year, each employee shall receive 100
share options.

If the sales increase by an average of at least 12% per year, each employee shall receive 200
share options.

If the sales increase by an average of at least 15% per year, each employee shall receive 300
share options.

The fair value of each share option is P30.

No employees have left during the three-year vesting period.

The sales during the vesting period increased 10% in 2018, 12% in 2019 and 20% in 2020.

Required:

Compute compensation expense for 2018, 2019 and 2020 as a result of the share options.

SHARE-BASED COMPENSATION – Share Appreciation Right

Definition
A share appreciation right entitles an employee to receive cash which is equal to the excess of
the fair market value of the entity’s share over a predetermined price for a stated number of
shares.
Measurement of Compensation

The compensation is based on the fair value of the liability at the reporting date and shall be
remeasured at every year-end until it is finally settled.

Any changes in fair market value are included in profit or loss.

The fair value of liability is equal to the excess of the market value of share over a
predetermined price for a given number of shares over a definite vesting period.

Basically, the compensation is a share appreciation right is the cash paid by the entity.

This amount becomes known only on a exercise date, not on the date of grant.

Recognition of Compensation
a. If the share appreciation right vests immediately, the compensation is recognized immediately
on the date of grant.
b. If the share appreciation right does not vest until the employee complete a definite vesting
period, the compensation is recognized over the services or vesting period