Francesca Company 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 P100 per share and the options were granted at the beginning of current
year, when the value of the shares was also estimated at P100 per share.
At the end of the current financial year, the value of the shares was estimated at P150 per share
and the options vested on that date.
What value should be placed on the share options issued for the current year
a. 100,000
b. 150,000
c. 50,000
d. 25,000

SOLUTION:
1,000 X 50 50,000

PROBLEM 24-16 (AICPA ADAPTED)

On January 1, 2020, Oak Company granted share options to certain key employees as additional
compensation.
The options were for 100,000 ordinary shares of P10 par value at an option price of P15 per
share.
Market price of this share on January 1, 2020 was P20. The fair value of each share option on
January 1, 2020 is P8.
The options were exercisable beginning January 1, 2020 and expire on December 31, 2022. On
December 31, 2020, when the share was trading at P21, all share options were exercised.
What amount of compensation expense should be reported in 2020 in connection with the share
options?
a. 800,000
b. 500,000
c. 200,000
d. 125,000

SOLUTION:

Fair Value of Share Options (100,000 x 8) 800,000