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STUDENT HANDOUTS
FAR-132 SHARE-BASED PAYMENT CAYETANO
FINANCIAL ACCOUNTING & REPORTING MAY 2021 CPALE REVIEW

DISCUSSION

Numbers 1 – 5:
Chapa Company granted 100 share options to each of its 200 employees on January 1, 2019. The option plan allows the
employees to purchase a share of the entity’s P100 par value ordinary at P180 per share. Based on the pricing model used
by the company, the fair value of each option on January 1, 2019 is P30.

The option plan requires the employees receiving the options to be in the employ of the company for the next three years.
Options are exercisable from January 1 to December 31, 2022. At January 1, 2019, it was estimated that 20% of the
employees will leave during the next three years. Actual and revised estimate of employees leaving the company during 2019,
2020 and 2021 are as follows:

2019: 8 employees left; additional 10 employees in 2020 and 2021.

2020: 12 employees left; additional 7 employees in 2021.
2021: 8 employees left.

During 2022, 140 employees exercised their options while the remaining employees allowed their options to lapse.

1. How much is the compensation expense for each of the years 2019?
A. 182,000 C. 172,000
B. 192,000 D. 1,092,000
2. How much is the compensation expense for each of the years 2020?
A. 164,000 C. 346,000
B. 172,000 D. 168,000
3. How much is the compensation expense for each of the years 2021?
A. 170,000 C. 516,000
B. 172,000 D. 156,000
4. How much is reported in equity pertaining to the options outstanding as of December 31, 2020?
A. 180,000 C. 346,000
B. 182,000 D. 516,000
5. What is the amount credited to share premium account upon exercise of the options in 2022?
A. 1,540,000 C. 1,120,000
B. 1,400,000 D. 1,720,000

Numbers 6 – 9:
On January 1, 2021, an entity granted the employee option to buy 200,000 shares with P20 par for P30 per share. The
employees exercised the options on January 1, 2024. Quoted market prices of shares are as follows:

2021 – P34 2023 – P42 2022 – P39 2024 – P44

The service period is for two years beginning January 1, 2021. The fair value of the share options cannot be measured.
6. What is the compensation expense for 2021?
A. 400,000 C. 200,000
B. 300,000 D. 800,000
7. What is the compensation expense for 2022?
A. 1,800,000 C. 1,400,000
B. 1,000,000 D. 400,000
8. What is the compensation expense for 2023?
A. 200,000 C. 400,000
B. 600,000 D. 0

9. What amount should be credited to share premium upon exercise of the share options on January 1, 2024?
A. 3,800,000 C. 4,800,000
B. 4,400,000 D. 4,000,000
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Numbers 6 – 9:
Babe Time Company issued share appreciation rights (SARs) to 20 of its employees. The SARs will vest at the end of 3 years,
provided the employees remain with the company and provided the average revenue growth over the period will exceed 5%.
If the average grown in revenue is between 5 and 10 percent, each employee will receive 1,000 SARs. If the average growth
in revenue is between 11 and 15 percent, each will receive 2,000 SARs. If the average growth in revenue is more that 15
percent, the employees will each receive 3,000 SARs.
On the grant date, each SAR is determined to have a fair value of P60. Baby Time expects average revenue growth rate of
8% during the 3-year vesting period, and that 8 of its employees will leave before the vesting period ends.

10. Assuming the estimate do not change during Year 1, what amount of compensation expense should be included in Babe
Time’s income statement in Year 1?
A. 480,000 C. 400,000
B. 240,000 D. 160,000
11. At the end of Year 2, revenue growth projection is 11 percent and 16 employees are expected to remain in the entity’s
employ. Also, the fair value of each SAR is P70. What amount of compensation expense should be reported in Babe
Time’s income statement in Year 2?
A. 1,493,333 C. 1,093,333
B. 1,253,333 D. 720,000
12. At the end of Year 3, revenue growth was 18 percent and 18 employees did not leave the company, further, the fair value
of each SAR is P80. What amount of compensation expense should be reported in Babe Time’s incomes statement in
Year 3?
A. 2,826,667 C. 1,386,667
B. 1,493,333 D. 1,706,667

Number 13, 14, 15, 16 and 17:

On January 1, 2020, Cabingan Corporation grants 100 cash share appreciation rights (SARs) to each of its 200 employees,
on condition that the employees remain in its employ for the next three years.
§ During 2020, 14 employees leave. The entity estimates that a further 24 will leave during 2021 and 2022.
§ During 2021, 10 employees leave and the entity estimates that a further 8 will leave during 2022.
§ During 2022, 6 employees leave.
At the end of 2022, 60 employees exercise their SARs, another 40 employees exercise their SARs at the end of 2023 and the
remaining employees exercise their SARs at the end of 2024. The entity estimates the fair value of the SARs the end of each
year which a liability exists as shown below. At the end of 2022, all SARs held by the remaining employees vest. The intrinsic
values of the SARs at the date of exercise (which equal the cash paid out) at the end of 2022, 2023, and 2024 are also shown
below:

Year Fair Value Intrinsic Value

2020 P 30
2021 32
2022 36 P 35
2023 42 40
2024 46
13. What is the compensation expense in 2020?
A. 162,000 C. 97,200
B. 186,000 D. 92,700
14. What is the compensation expense in 2021?
A. 196,400 C. 169,400
B. 188,467 D. 117,840
15. What is the compensation expense in 2022?
A. 247,600 C. 232,560
B. 230,533 D. 230,355
16. What is the compensation expense in 2023?
A. 160,000 C. 157,600
B. 58,000 D. 45,000
17. What is the compensation expense in 2024?
A. 322,000 C. 86,600
B. 28,000 D. 0

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