Share Options - Quiz (Solutions) Prepared By: Jazel Mae C. Delmonte, CPA Problem 1

SHARE OPTIONS – QUIZ (SOLUTIONS)
Prepared by: Jazel Mae C. Delmonte, CPA
Problem 1
On January 1, 2020, an entity granted 100 share options each to 500 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 a fair value of P30. The par
value per share is P100 and the option price is P120. On December 31, 2021, 30 employees have
left and it is expected that on the basis of a weighted average probability, a further 30 employees will
leave before the end of the three-year period. On December 31, 2022, only 20 employees actually
left and all of the share options are exercised on such date.
Q1 Compensation Expense for 2020:

Number of employees @ grant date 500
Share options per employee x 100
Total options to be distributed 50,000
FV of the options @ grant date x 30
Total Compensation Expense 1,500,000
Compensation for 2020

(1,500,000/3 years) 500,000

# of employees left during 2021 (30)
# of employees exp. to leave after 2021 (30)
Exp. # of employees to remain after 2022 440
Compensation as of 2021
(1,380,000x2/3 years) 880,000
Compensation recognized from
Previous year/s (500,000)
Compensation for 2021 380,000

Exp. # of employees to remain after 2022 450
Compensation as of 2022 1,350,000

Previous year/s (880,000)
Q4 Share Premium credited on exercise date:
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Exercise price (45,000 shares x P120) 5,400,000
Share options outstanding balance 1,350,000
Total 6,750,000
Share capital (45,000 shares x P100) (4,500,000)
Share Premium 2,250,000
Problem 2
An entity granted share options to employees. The total compensation expense to the vesting date
on December 31, 2023 was calculated at P6,000,000. The entity decided to settle the award early on
December 31, 2022. The compensation expense charged since the date of the grant on January 1,
2020 was P1,500,000 for 2020 and P1,300,000 for 2021. The compensation expense that would have
been charged for 2022 is P1,200,000.
Q1 Compensation expense for 2022:

Total Compensation expense 6,000,000
Compensation expense – 2020 ( 1,500,000)
Compensation expense – 2021 ( 1,300,000)
Compensation expense – 2022 3,200,000
Problem 3
On January 1, 2020, an entity granted 60,000 share options to employees. The share options vest at
the end of three years provided the employees remain in service until then. The option price is P60
and the par value is P50. At the date of grant, an entity concluded that the fair value of the share
options cannot be measured reliably. The share options have a life of 4 years which means that
the share options can be exercised within one year after vesting. The share prices are P62 on
December 31,2020, P66 on December 31, 2021, P75 on December 31, 2022 and P85 on December
31, 2023. All share options were exercised on December 31, 2023.
Q1 Compensation expense on January 1, 2020:
Zero. The compensation is not recognized immediately on the date of grant because
there is a vesting condition/vesting period.
Compensation Expense for 2020:

MV on 12/31/20 62
Option price ( 60)
Intrinsic Value 2
Share options 60,000
Total Compensation 120,000
Compensation for 2020

(120,000/3 years) 40,000

MV on 12/31/21 66
Option price ( 60)
Intrinsic Value 6
(360,000x2/3 years) 240,000
Previous year/s ( 40,000)

MV on 12/31/22 75
Option price ( 60)
Intrinsic Value 15
Compensation as of 2022 900,000


MV on 12/31/23 85
Option price ( 60)
Intrinsic Value 25
Total Compensation 1,500,000

Q5 Share Premium credited on exercise date:

Exercise price (60,000 shares x P60) 3,600,000
Share options outstanding balance 1,500,000
Total 5,100,000
Share capital (60,000 shares x P50) (3,000,000)
Share Premium 2,100,000
SHARE OPTIONS – QUIZ (SOLUTIONS)
Prepared by: Jazel Mae C. Delmonte, CPA
Problem 1
On January 1, 2020, an entity offered management share appreciation rights equal to 50,000 shares
with predetermined price of P100. The service period is 3 years and the exercise date is January 1,
2023. The quoted prices per share are P124 on December 31, 2020, P151 on December 31, 2021
and P151 on December 31, 2022.

MV on 12/31/2022 151
Predetermined price (100)
Excess 51
# of shares 50,000
FV of Liability 2,550,000

Previous year/s
(2,550,000 x 2 / 3 years) (1,700,000)
Q2 Gain on reversal of share appreciation rights for 2022:

MV on 12/31/2022 120
Excess 20
# of shares 50,000
FV of Liability 1,000,000

Previous year/s
(2,550,000 x 2 / 3 years) (1,700,000)
Gain on reversal of SAR (700,000)
Problem 2
On January 1, 2020, an entity granted the Chief Executive Officer (CEO) 50,000 share appreciation
rights for past services. The rights are exercisable immediately and expire on December 31, 2021.
On exercise, the CEO is entitled to receive cash for the excess of the share market price on exercise
date over the market price on grant date. The CEO did not exercise any of the rights in 2020. The
market price of the share was P100 on January 1, 2020 and P115 on December 31, 2020. The CEO
exercised the rights on December 31, 2021 when the market price was P110.

MV on 12/31/2020 115
Excess 15
# of shares 50,000
FV of Liability/Compensation 750,000
Note: The rights are exercisable immediately. Therefor, the total fair value of
the liability shall be recognized as compensation immediately.
Q2 Gain on reversal of share appreciation rights for 2021:
MV on 12/31/2021 110
Excess 10
# of shares 50,000
FV of Liability 500,000
Liability as of 2021 500,000

Liability, 1/1/202 ( 750,000)
Gain on reversal of SAR 250,000
Problem 3
On January 1, 2020, Svetlana Company granted to employees a share-based compensation with
cash and share alternative.
The provisions include the right to a cash payment equal to the value of 10,000 phantom shares or
15,000 ordinary shares with a par value of P40.
The grant is conditional upon the completion of three years’ service. If the employees choose the
share alternative, the shares must be held for three years after the vesting date.
At grant date, the share price is P60. At the end of 2020, 2021, and 2022 the share prices are P63,
P66 and P72, respectively.
After taking into account the effect of vesting restrictions, the entity estimated that the fair value of
the share alternative on grant date is P45.
On January 1, 2023, the employees selected the share alternative.
Q1 Equity component of January 1, 2020:

MV of shares (15,000 x 45) 675,000
FV of Liability (10,000 x 60) ( 600,000)
Equity Component 75,000

Compensation – equity
(75,000/3) 25,000
MV on 12/31/2021 66
# of shares 10,000
(660,000x2/3) 440,000
MV on 12/31/2021 72
# of shares 10,000

Compensation – liability 280,000
Compensation – equity 25,000
Total compensation expense – 2022 305,000
Q3 Share premium on January 1, 2023:

Accrued Salaries Payable – 12/31/2022 720,000
Share options outstanding 75,000
Total 795,000
Share capital (15,000 x P40) ( 600,000)
Share premium 195,000
Problem 4
Wolf Company granted of 30,000 share appreciation rights enabling the key employees to receive
cash equal to the difference between P20 and the market price of the share on the date each right
is exercised.
The service is 2020 through 2022, and the rights are exercisable in 2022, and the rights are
exercisable in 2023 and 2024.
The market price of the share was P25 and P28 on December 31, 2020 and 2021, respectively.
Q1 Liability on 12/31/2021:
MV on 12/31/2021 28
Excess 8
# of shares 30,000
(240,000 x 2/3) 160,000
Q2 Expense on 2021:
MV on 12/31/2020 25
Excess 5
# of shares 30,000

(150,000 x 1/3) (50,000)
Compensation exp. On 2021 110,000
Problem 5
Melissa Company granted 100 share appreciation rights to each of the 1,000 employees on January
1, 2020.
The management estimated that 90% of the award will vest on December 31, 2022. The fair value
of each share appreciation right on December 31, 2020 is P10.
Q1 Liability on 12/31/2020:
# of employees 1,000
Shares per employee 100
Total Shares 100,000
vesting rate 90%
est. shares to be distributed 90,000
FV of each right 10
Liability for 2020

(900,000 / 3) 300,000
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SHARE OPTIONS – QUIZ (SOLUTIONS)

Prepared by: Jazel Mae C. Delmonte, CPA

Q1 Compensation Expense for 2020:

Compensation for 2020

Q2 Compensation Expense for 2021:

Q3 Compensation Expense for 2022:

Compensation as of 2022 1,350,000

Q4 Share Premium credited on exercise date:

Q1 Compensation expense for 2022:

Compensation Expense for 2020:

Compensation for 2020

Q2 Compensation Expense for 2021:

Q3 Compensation Expense for 2022:

Compensation as of 2022 900,000

Q4 Compensation Expense for 2023:

Compensation as of 2023 1,500,000

Q5 Share Premium credited on exercise date:

Q1 Compensation expense for 2022:

Compensation as of 2022 2,550,000

Q2 Gain on reversal of share appreciation rights for 2022:

Compensation as of 2022 1,000,000

Q1 Compensation expense for 2020:

Q2 Gain on reversal of share appreciation rights for 2021:

Liability as of 2021 500,000

On January 1, 2023, the employees selected the share alternative.

Q1 Equity component of January 1, 2020:

Q2 Compensation expense for 2022:

Compensation as of 2022 720,000

Q3 Share premium on January 1, 2023:

Compensation as of 2021 160,000

Liability for 2020

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