PFRS 2: SHARE-BASED PAYMENT

Illustration - no vesting period

On January 1, 2017, share options are granted to employees to purchase

100,000 ordinary shares of P50 par value at P60 per share. On this date, the
fair value of each share option is P20.
The options are exercisable immediately. The employees exercised all their
share options on December 31, 2017.

Entries:
1/1/17 Salaries Expense (100,000 x 20) 2,000,000
Share options outstanding 2,000,000

12/31/17 Cash (100,000 x P60) 6,000,000

Share options outstanding 2,000,000
Share capital (100,000 x P50) 5,000,000
Share premium 3,000,000

Illustration - with vesting period

On January 1, 2017, share options are granted to officers to purchase 100,000

ordinary shares of P50 par value at P60 per share.

The fair value of each share option is P15. The officers are entitled to the
share options only after completing two years of service.
The options can be exercised starting January 1, 2019 and expire one year
after.
All share options are exercised on December 31, 2019.

Entries:
12/31/17 Salaries Expense 750,000
Share options outstanding 750,000

12/31/18 Salaries Expense 750,000

Share options outstanding 750,000

12/31/19 Cash (100,000 x 60) 6,000,000

Share options outstanding 1,500,000
Share capital (100,000 x P50) 5,000,000
Share premium 2,500,000
 2017 2018
# of employees - -
# of S.O. per employee - -
Total S.O. 100,000 100,000
multiply by: FV of S.O. - GD/ IV 15 15
Total Compensation 1,500,000 1,500,000
Multiply by: Year/VP x 1/2 x 2/2
Compensation Exp. To Date 750,000 1,500,000
Compensation Exp. In prior year/s - 750,000
Compensation this year 750,000 750,000
Illustration 1 - Some employees left
Entries:
On January 1, 2017, an entity granted 100 share options each to 500
employees, conditional upon the employees' 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.

By December 31, 2017, 30 employees have left and it is expected that on the
basis of a weight average probability, a further 30 employees will leave during
the vesting period.
By December 31, 2018, 28 employees have left and the entity expects a further
25 employees will leave during 2019.
By December 31, 2019, 22 employees have left and therefore, 420 employees
shall receive the share options at the end of 2019.
Option Price - P50; Par value - P20
2017 2018 2019
# of employees 440 417 420
# of SO per employee 100 100 100
Total SO 44,000 41,700 42,000
FV GD/ IV 30 30 30
Total Compensation 1,320,000 1,251,000 1,260,000
Multiply by: Year/VP x 1/3 x 2/ 3 x 3/3
Compensation to date 440,000 834,000 1,260,000
Less: Compensation prior year/s - 440,000 834,000
Compensation this year 440,000 394,000 426,000

Illustration 2 - with condition and share options vary Entries:

On January 1, 2017, an entity granted SO to each of the 300 employees working

in the sales department. The FV option of each SO on grant date is P20.

Conditions:
1. The SO vest at the end of a three-year period provided that the employees
remain in the entity’s employ and
2. Provided the volume of sales will increase by an average of 10% per year.
2.1   if the sales increase by an average of 10%, each employee will receive
200 share options.
2.2   if the sales increase by an average of 15% per year, each employee will
receive 300 share options.
During 2017, sales increased by 10%;
During 2018, the sales increased by 20% resulting in an average of 15% for the
two years.
By the end 2019, the sales increased by an average of 16%. 20 employees left
the entity.
 2017 2018 2019
# of employees 300 300 280
# of SO per employee 200 300 300
Total SO 60,000 90,000 84,000
FV GD/ IV 20 20 20
Total Compensation 1,200,000 1,800,000 1,680,000
Multiply by: year/VP x 1/3 x 2/3 x 3/3
Compensation to date 400,000 1,200,000 1,680,000
Less: Compensation prior year/s - 400,000 1,200,000
Compensation this year 400,000 800,000 480,000

Illustration 3 - with condition and exercise price varies Entries:

On January 1, 2017, an entity granted to a senior executive 20,000 share
options, conditional upon the executive's remaining in the entities employ until
December 31, 2019.
The par value per share is P50. The exercise price is P100.
However, the exercise price drops to P80 if the entity's earnings increase by at
least an average of 10% per year over three-year period.
On grant date, the entity estimates that the fair value of the share option is P30
if the exercise price is P80.
If the exercise price is P100, the fair value of the share option is P25.
During 2017 and 2018, the earnings increased by 12% and 11% respectively.
However, during 2019, the earnings increased only by 4%.

2017 2018 2019

# of employees - - -
# of SO per employee - - -
Total SO 20,000 20,000 20,000
FV GD/ IV 30 30 25
Total Compensation 600,000 600,000 500,000
Multiply by: Year/VP x 1/3 x 2/3 x 3/3
Compensation to date 200,000 400,000 500,000
Less: Compensation prior year/s - 200,000 400,000
Compensation this year 200,000 200,000 100,000

Illustration 4: Intrinsic Value Method Entries:

On January 1, 2017, an entity granted 10,000 share options to employees.

FV of the SO cannot be estimated reliably.

Par value per ordinary share is P100.
Option price (OP) is P125 and MV of the ordinary share at grant date is also
P125.
 Share Options can be exercised starting January 1, 2020
Market prices:
December 31, 2017-P150
December 31, 2018-P180 IV - 55
December 31, 2019-P200 IV - 75
20
Condition:

1. Vesting period, 2 years (the employees to remain In service until December

31, 2020). All SO vested on Dec. 31, 2018 and no employees left the entity.

2017 2018
# of employees - -
# of SO per employee - -
Total SO 10,000 10,000
FV GD/ IV 25 55
Total Compensation 250,000 550,000
Multiply by: Year/VP x 1/2 x 2/2
Compensation to date 125,000 550,000
Less: Compensation prior year/s - 125,000
Compensation this year 125,000 425,000

Illustration 5: Modification of Condition Entries:

On January 1, 2017, an entity granted 100 share options to each of the 500
employees. The options are exercisable after a three-year vesting period. The
fair value of each share option is P15 on grant date.

On December 31, 2017, 40 employees left the entity and based on weighted
average probability, 70 employees are expected to leave by the end of the
vesting period.

On January 1, 2018, the entity repriced the share options by lowering the
exercise price. The options still vest after three years. The entity estimated that
on the date of repricing, the increase in the fair value of the share option is P6.
During 2018, 35 employees left the entity and a further 30 employees are
expected to leave in 2019.
During 2019, 45 employees actually left the entity.

2017 2018 2019

# of employees 390 395 380
# of SO per employee 100 100 100
Total SO 39,000 39,500 38,000
FV GD/ IV 15 15 15
Total Compensation 585,000 592,500 570,000
Multiply by: Year/VP x 1/3 x 2/3 x 3/3
 Compensation to date - OC 195,000 395,000 570,000
Compensation to date - Modif. - 118,500 228,000
Compensation to date 195,000 513,500 798,000
Less: Compensation prior year/s - 195,000 513,500
Compensation this year 195,000 318,500 284,500

Illustration 6: Share Appreciation Rights

An entity granted a share appreciation right to the general manager on January 1, 2017.
After a four-year service period, the employee is entitled to receive cash equal to the
appreciation in share price over the market value on January 1, 2017.
Thus, the market value on January 1, 2017 is the predetermined price for purposes of
determining the compensation.
The share appreciation right had the following terms:
a. Service period - January 1, 2017 to December 31, 2020
b. Number of shares - 20,000 shares
c. Exercise date - January 1, 2021

The quoted prices of the entity's share are:

January 1, 2017 200
December 31, 2017 210
December 31, 2018 220
December 31, 2019 240
December 31, 2020 250

2017 2018 2019 2020

# of employees - - - -
# of SAR per employee - - - -
Total SAR 20,000 20,000 20,000 20,000
FV of Liability/Excess 10 20 40 50
Total Compensation 200,000 400,000 800,000 1,000,000
Multiply by: Year/VP x 1/4 x 2/4 x 3/4 x 4/4
Compensation to date 50,000 200,000 600,000 1,000,000
Less: Compensation prior year/s - 50,000 200,000 600,000
Compensation this year 50,000 150,000 400,000 400,000

Illustration 7: Share Appreciation Rights

On January 1, 2017, Module Company granted 100 share appreciation rights to each of the
500 employees on condition that the employees remain in the employ of the entity for the
next three years.
 No employees left the entity during the three-year vesting period.
The employees exercised their appreciation rights as follows:

December 31, 2019 100 employees

December 31, 2020 250 employees
December 31, 2021 150 employees

The fair value and intrinsic value of the share appreciation right are:
Fair Value Intrinsic Value

December 31, 2017 15

December 31, 2018 18
December 31, 2019 20 15
December 31, 2020 21 20
December 31, 2021 25

The intrinsic value of the share appreciation right on the date of exercise is the amount paid
out to the employees.

2017 2018 2019 2020

# of employees 500 500 400 150
# of SAR per employee 100 100 100 100
Total SAR 50,000 50,000 40,000 15,000
FV of Liability/Excess 15 18 20 21
Total Compensation 750,000 900,000 800,000 315,000
Multiply by: Year/VP x 1/3 x 2/3 x 3/3
Compensation to date 250,000 600,000 800,000 315,000
Less: Compensation prior year/s - 250,000 600,000 800,000
Compensation this year 250,000 350,000 200,000 - 485,000

SAR Exercised 10,000 25,000

Multiply by: Intrinsic Value 15 20
Compensation for rights paid 150,000 500,000
Less: Accured Salaries Payable
Total Compensation Expense 350,000 15,000

Illustration 8: Cash and Share alternative

On January 1, 2017, an entity granted to an employee the right to choose either:

a. Share alternative - equal to 12,000 shares

b. Cash alternative - cash payment equal to market value of 10,000 phantom shares

The grant is conditional upon the completion of three years of service.

If the employee chooses the share alternative, the shares must be held for three years after
vesting date.

The par value of the share is P25 and at grant date on January 1, 2017, the share price is P51.
The share prices for the three-year vesting period are P54 on December 31, 2017, P60 on
December 31, 2018, and P65 on December 31, 2019.
After taking into account the effects of post-vesting restrictions, the entity has estimated that
the fair value of the share alternative is P48 per share.

FV of CFI (P48 x 12,000) 576,000

Less: FV of C.A. ( 10,000 x P51) 510,000
Equity Component 66,000

2017 2018 2019

# of employees
# of SO per employee
Total SO
FV GD/ IV
Total Compensation 66,000 66,000 66,000
Multiply by: Year/VP x 1/3 x 2/3 x 3/3
Compensation to date - OC 22,000 44,000 66,000
Compensation to date - Modif. - - -
Compensation to date 22,000 44,000 66,000
Less: Compensation prior year/s - 22,000 44,000
Compensation this year 22,000 22,000 22,000

# of employees 1 1 1
# of SAR per employee 10,000 10,000 10,000
Total SAR 10,000 10,000 10,000
FV of Liability/Excess 54 60 65
Total Compensation 540,000 600,000 650,000
Multiply by: Year/VP x 1/3 x 2/3 x 3/3
Compensation to date 180,000 400,000 650,000
Less: Compensation prior year/s - 180,000 400,000
Compensation this year 180,000 220,000 250,000
Illustration 9: Cash and Share alternative

On January 1, 2017, an entity purchased an equipment for the cash price of P5,000,000. The
supplier can choose how the purchase is to be settled.
The choices are 50,000 shares with par value of P50 in one year's time, or cash payment
equal to the market value of 40,000 phantom shares on December 31, 2017.
At grant date on January 1, 2017, the market price of each share is P110.
Market price per share - 12/31/17 P130

FV of CFI 5,000,000
Less: FV of C.A. (40,000 x 110) 4,400,000
Equity Component 600,000

Entries:
Equipment 5,000,000
Accounts Payable 4,400,000
Share options outstanding 600,000

Final Accounting

Cash alternative:

Accounts payable 4,400,000

Interest expense 800,000
SOO 600,000
Cash (40,000 x 130) 5,200,000
Share premium 600,000

Share alternative:

Accounts payable 4,400,000

SOO 600,000
Share capital (50,000 x P50) 2,500,000
Share premium 2,500,000
 2017
Salaries Expense 440,000
Share options outstanding 440,000

2018
Salaries Expense 394,000
Share options outstanding 394,000

2019
Salaries Expense 426,000
Share options outstanding 426,000

Cash (42,000 x 50) 2,100,000

SOO 1,260,000
Share Capital (42,000 x 20) 840,000
Share Premium 2,520,000

SOO 1,260,000
Share Premium 1,260,000

2017
Salaries Expense 400,000
Share options outstanding 400,000

2018
Salaries Expense 800,000
Share options outstanding 800,000

2019
Salaries Expense 480,000
Share options outstanding 480,000
 2017
Salaries expense 200,000
Share options outstanding 200,000

2018
Salaries expense 200,000
Share options outstanding 200,000

2019
Salaries expense 100,000
Share options outstanding 100,000

Cash (20,000 x 100) 2,000,000

SOO 500,000
Share capital (20,000 x P50) 1,000,000
Share premium 1,500,000

2017
Salaries Expense 125,000
Share options outstanding 125,000

2018
Salaries Expense 425,000
Share options outstanding 425,000
 2019
Salaries Expense 200,000
Share options outstanding 200,000

2020
Cash (10,000 x 125) 1,250,000
SOO 750,000
Share capital (10,000 x P100) 1,000,000
Share premium 1,000,000

2017
Salaries expense 195,000
Share options outstanding 195,000

2018
Salaries expense 318,500
Share options outstanding 318,500

2019
Salaries expense 284,500
Share options outstanding 284,500
Entries: 2017
Salaries expense 50,000
Accrued salaries payable 50,000

2018
Salaries expense 150,000
Accrued salaries payable 150,000

2019
Salaries expense 400,000
Accrued salaries payable 400,000

2020
Salaries expense 400,000
Accrued salaries payable 400,000

2021
Accrued salaries payable 1,000,000
Cash 1,000,000

Entries: 2017
Salaries expense 250,000
Accrued salaries payable
 2018
Salaries expense 350,000
Accrued salaries payable

2019
Salaries expense 200,000
Accrued salaries payable

Salaries expense 150,000

Cash

2020
Accrued salaries payable 485,000
Salaries expense

Salaries Expense 500,000

Cash

2021 2021
Salaries expense 60,000
Accrued salaries payable 315,000
Cash

15,000
25
375,000
315,000
60,000
Entries: 2017

Salaries 22,000
SOO 22,000

Salaries 180,000
Accrued S.P. 180,000

2018

Salaries 22,000
SOO 22,000

Salaries 220,000
Accrued S.P. 220,000

2019
Salaries 22,000
SOO 22,000

Salaries 250,000
Accrued S.P. 250,000

Final Accounting

Cash Alternative:

SOO 66,000
Accrued salaries payable 650,000
Cash 650,000
Share premium 66,000
Share alternative:

SOO 66,000
Accrued salaries payable 650,000
Share capital (12,000 x P25) 300,000
Share premium 416,000
250,000
350,000

200,000

150,000

485,000

500,000

375,000