Problem 5

On December 31, 2020, MoveOnNa Co. issued share appreciation rights to 20 of its employees.
The rights will vest at the end of 3 years provided the employees remain with the company and
provided further that the average revenue growth over the same period is at 10%. The
following are the approved terms of the said rights.
● If the average revenue is 10 to 15%, each employee will receive 10,000 share appreciation rights.

● If the average revenue is 16 to 20%, each employee will receive 20,000 appreciation rights.
● If the average growth more than 20%, each employee will receive 30,000 rights.
On the grant date, each share appreciation right is determined to have a fair value of P6, MoveOnNa
expects an average growth rate of 12.5% during the 3 year vesting period and that 4 employees will
ultimately resign before the vesting period ends.
The following information are available from the company’s records:
Actual revenue Estimated Fair
Market
growth rate for the Resignations Value of the share
Year year appreciation rights
2021 10% 4 6.00
2022 15% 4 6.75
2023 25% 5 7.00
Requirements:
1. How much is the compensation expense in relation to the share appreciation rights to be
recognized in 2021?
a. P320,000 b. P660,000 c. P720,000 d. P960,000
2. How much is the compensation expense in relation to the share appreciation rights to be
recognized in 2022?
a. P1,080,000 b. P960,000 c. P720,000 d. P400,000
3. How much is the compensation expense in relation to the share appreciation rights to be
recognized in 2023?
a. P2,100,000 b. P1,820,000 c. P1,710,000 d. P1,380,000
4. What is the liability for the share appreciation rights to be recognized as of December 31,
2023?
a. P1,440,000 b. P2,100,000 c. P2,160,000 d. P3,150,000
SOLUTION:
1. How much is the compensation expense in relation to the share
appreciation rights to be recognized in 2021?
a. P320,000 c. P720,000 Answer is A. P320,000
b. P660,000 d. P960,000
Estimated number of SAR : (20-4)*10,000 160,000
Estimated FMV of SAR at year-end P6
Estimated value of services over 3 years P960,000
Divide by: Vesting period 3 years
Salaries expense, 2021 P320,000
SOLUTION:
2. How much is the compensation expense in relation to the share
appreciation rights to be recognized in 2022?
a. P1,080,000 c. P720,000 Answer is D. P400,000
b. P960,000 d. P400,000
Estimated number of SAR : (20-4)*10,000 160,000
Estimated FMV of SAR at year-end P6.75
Estimated value of services over 3 years P1,080,000
Multiply by: 2/3 2/3
Accumulated salaries expense as of 2022 P720,000
Less: Prior years salaries expense (P320,000)
Salaries expense, 2022 P400,000
SOLUTION:
3. How much is the compensation expense in relation to the share
appreciation rights to be recognized in 2023?
a. P2,100,000 c. P1,710,000 Answer is D. P1,380,000
b. P1,820,000 d. P1,380,000
Estimated number of SAR : 15*20,000 300,000
Fair value of options on grant date P7
Estimated value of services over 3 years P2,100,000
Multiply by: 3/3 3/3
Accumulated salaries expense as of 2023 P2,100,000
Less: Prior years salaries expense (P720,000)
Salaries expense, 2023 P1,380,000
SOLUTION:
4. What is the liability for the share appreciation rights to be recognized as
of December 31, 2023?
a. P1,440,000 c. P2,160,000 Answer is B. P2,100,000
b. P2,100,000 d. P3,150,000
Estimated number of SAR : 15*20,000 300,000
Fair value of options on grant date P7
Estimated value of services over 3 years P2,100,000
Multiply by: 3/3 3/3
Accumulated salaries expense as of 2023 P2,100,000
Less: Prior years salaries expense (P720,000)
Salaries expense, 2023 P1,380,000