Problem 1

At the beginning of 2018, Mark Sanderson Co grants 30,000 share options with a fair value of
P40 per share to a senior executive, conditional upon the completion of three years’ service. By
the end of 2019, the share price has dropped to P25 per share. At that date, the entity adds a
cash alternative to the grant, whereby the executive can choose whether to receive 30,000
shares or cash equal to the value of 30,000 shares on vesting date. The share price is P23 on
vesting date.

How much is the compensation expense that should be recognized for 2020?

a. P400,000 c. P360,000
b. P460,000 d. P340,000
SOLUTION:

2018 2019 2020

Total shares options 30,000 30,000 30,000
Multiply by: Fair value 40 40 40
Total value of the compensation 1,200,000 1,200,000 1,200,000
Multiply by: Ratio 1/3 2/3 3/3
Cumulative Compensation 400,000 800,000 1,200,000
Less: Cumulative salaries in previous years 400,000 800,000
Compensation expense 400,000 400,000 400,000
Less: Increase in fair value 60,000
Compensation expense 340,000
Problem 1

At the beginning of 2018, Mark Sanderson Co grants 30,000 share options with a fair value of
P40 per share to a senior executive, conditional upon the completion of three years’ service. By
the end of 2019, the share price has dropped to P25 per share. At that date, the entity adds a
cash alternative to the grant, whereby the executive can choose whether to receive 30,000
shares or cash equal to the value of 30,000 shares on vesting date. The share price is P23 on
vesting date.

How much is the compensation expense that should be recognized for 2020?

a. P400,000 c. P360,000
Answer is D. P340,000
b. P460,000 d. P340,000