Problem from Conceptual Framework and Accounting Standards by Valix et al.

, 2018

Part I: Problem Solving (Show your solution in good form)

1. Problem 28-1 page 605

Share options 10,000

Multiplied by: Number of directors 5
Total share options granted 50,000
Multiplied by: Fair value of each option P 50
Total compensation expense P 2,500,000
Divided by: Vesting period 4
Compensation expense for 2018 P 625,000 C

2. Problem 28-2 page 605

Share options granted 100,000

Multiplied by: Fair value of each option P 12
Total compensation expense P 1,200,000
Divided by: Vesting period 3
Compensation expense for 2018 P 400,000 B

3. Problem 28-3 page 606

Share options granted 100,000

Multiplied by: Fair value of each option P8
Compensation expense for 2018 P 800,000 A

4. Problem 28-4 page 606

Total compensation expense P 5,400,000

Divided by: Vesting period 2½
Annual Compensation expense P 2,160,000
Multiplied by: (June - Dec. 2018) ½
Compensation expense for 2018 P 1,080,000 B

5. Problem 28-5 page 607

Market value on Dec. 31, 2018 P 45

Less: Predetermined price on January 1, 2018 30
Excess 15
Multiplied by: SARS granted 20,000
Compensation expense for 2018 P 300,000 C
6. Problem 28-6 page 607

1. Market value on Dec. 31, 2018 P 25

Less: Predetermined price on January 1, 2018 20
Excess 5
Multiplied by: SARS granted 30,000
Total compensation P 150,000
Divided by: Vesting period 3
Compensation expense for 2018 P 50,000 C

2. Market value on Dec. 31, 2018 P 28

Less: Predetermined price on January 1, 2018 20
Excess 8
Multiplied by: SARS granted 30,000
Cumulative compensation P 240,000
Divided by: Vesting period 3
Annual Compensation expense P 80,000
Multiplied by: Total years vested 2
Accrued compensation on Dec. 31, 2019 P 160,000
Less: Accrued compensation on Dec. 31, 2018 50,000
Compensation expense for 2018 P 110,000 C

Part II: Theory (Briefly explain your answer)

7. Problem 28-7 page 608

1. B.In share options, the entity issues equity instruments in consideration for services received.
2. A.The compensation resulting from share options is equal to its fair value on the date of grant.
3. B. Intrinsic value is the excess of the market value of the share over the option price.
4. A.Compensation expense resulting from share options is equal to its fair value on the date of grant.
5. D.When issuing share options to employees, it is relevant to determine if these share options are issued
for remuneration and motivation for the recipients.
6. B. Employee share option plans are measured using the fair value of equity instruments granted at grant
date.
7. A. A share option is an agreement between the employee and employer. An option gives one party the
right (and not an obligation) to purchase shares.
8. C. If the share options vest immediately, the entity shall recognize the compensation expense in full
immediately.
9. C. Generally, compensation expense is allocated to the periods benefited by the employee’s required
service.
10. D. If there’s an acceleration of vesting, any payment is treated as deduction from equity and the excess
over the fair value shall be recognized as an expense.
8. Problem 28-8 page 611

1. C. In share appreciation rights, the entity receives goods or services and incurs an obligation to pay
cash.
2. D. A share appreciation right is actually an obligation on the part of the entity to pay cash or in other
words, SARs create a liability.
3. C. The measurement date for liability instruments is the settlement date.
4. D. The date of exercise is the measurement date for computing compensation.
5. C. The compensation expense on the SARs is recognized similar to employee share option, that is,
allocated over the service period of employees.