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SOL. MAN. Chapter 12 Share Based Payments (PART 1)
2021
Intermediate Accounting 2 (Don Honorio Ventura Technological State University)
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Chapter 12
Share-based Payments (Part 1)
PROBLEM 1: TRUE OR FALSE
1. TRUE
2. TRUE
3. TRUE
4. TRUE
5. FALSE
6. FALSE
7. FALSE
8. TRUE
9. TRUE
10. TRUE
PROBLEM 2: MULTIPLE CHOICE – THEORY
1. C
2. D
3. C
4. B
5. D
6. B
7. C
8. A
9. B
10. D
11. C
12. C
13. C
14. B
15. C – The addition of an exercise price (when
supposedly the share options are exercisable for free)
is not beneficial to the employee. Fogs Co. should
ignore the repricing and continues to account for the
grant under the original terms.
PROBLEM 3: EXERCISES
1. Solution:
May
No entry
22,
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20x1
June
21,
20x1
Inventories (1,000 x 3,000)
Subscribed share capital
3,000,
000
(10,000 x 200)
Share premium
(squeeze)
July
5,
20x1
Subscribed share capital
Share capital
2,000,
000
1,000,
000
2,000,
000
2,000,
000
2. Solution:
Jan
No entry
. 1,
20
x1
De
c.
31,
20
x1
De
c.
31,
20
x2
De
c.
31,
20
x3
Salaries expense – share options
[(100 x 1,000) x 80% x 30 x 1/3]
Share premium – sh. options outs.
800,0
00
Salaries expense – share options
740,0
00
[(100 – 15 – 3 -5) x 1,000 x 30 x 2/3] –
800K
Share premium – sh. options outs.
Salaries expense – share options
[(100 – 15 – 3 -0) x 1,000 x 30 x 3/3] –
800K – 740K
920,0
00
Share premium – sh. options outs.
800,0
00
740,0
00
920,0
00
3. Solution:
January 1, 20x1:
No entry
December 31, 20x1:
Salaries expense [1,000 x (200 – 8) x 25 x 1/3)]
1,600,000
Share premium – options outstanding
1,600,000
December 31, 20x2:
Salaries expense [1,000 x (200 – 8) x 25 x 2/3)] – 1.6M
Share premium – options outstanding
1,600,000
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1,600,000
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December 31, 20x3:
Salaries expense
1,550,000
[1,000 x (200 – 6 – 1 - 3) x 25 x 3/3)] – 1.6M – 1.6M
Share premium – options outstanding
1,550,000
PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL
1. C
January 1, 20x1:
Salaries expense (5 x 1,000 x 60)
300,000
Share premium – options outstanding
300,000
NOTE: There are no vesting conditions.
2. C
December 31, 20x1
Salaries expense [(10 -1 -1) x 500 x 60 x ½]
Share premium – options outstanding
120,000
120,000
December 31, 20x2
Salaries expense [(10 -1) x 500 x 60 x 2/2] – 120K
150,000
Share premium – options outstanding
150,000
3. A
December 31, 20x1:
Salaries expense (3.2M x 90% x 1/3)
Share premium – options outstanding
December 31, 20x2:
Salaries expense (3.2M x 96% x 2/3) – 960K
Share premium – options outstanding

960,000
960,000
1,088,000
1,088,000
Cumulative share premium, Dec. 31, 20x2: (960,000 +
1,088,000) = 2,048,000
December 31, 20x3:
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Salaries expense
[(3.2M x 100% x 3/3) – .96M – 1.088M]
Share premium – options outstanding
1,152,000
1,152,000
4. B
20x1: (100 – 6 – 3) x 1,000 x 12 x 1/3 = 364,000
20x2: (100 – 8) x 1,000 x 12 x 2/3 – 364,000 = 372,000
20x3: (100 – 6 – 1 – 2) x 1,000 x 12 x 3/3 – 364K – 372K =
356,000
5. D - The share options vested in 20x2 because the
average profit in 20x1 and 20x2 increased by more
than 15% [(18% + 14%) ÷ 2 = 16%]. Consequently,
no salaries expense is recognized in 20x3.
 20x1: 1,000 x (100 – 5 – 6) x 45 x ½ = 2,002,500
 20x2: 1,000 x (100 – 5 – 3) x 45 x 2/2 – 2,002,500 =
2,137,500
 20x3: 0
6. A
20x1: (100 – 8 – 10) x 1,400 sh. (a) x 45 x 1/3 = 1,722,000
20x2: [(100 – 15) x 1,200 sh. (b) x 45 x 2/3] – 1.722M =
1,338,000
20x3: [(100 – 8 – 5 – 2) x 1,000 sh. (c) x 45 x 3/3] –
1.722M – 1.338M = 765,000
(a)
(21% actual sales increase in 20x1 + 21% expected in
20x2 + 21% expected in 20x3) ÷ 3 = 21% (vesting
condition iii)
(b)
(21% in 20x1 + 18% in 20x2 + 18% expected in 20x3)
÷ 3 = 19% (vesting condition ii)
(c)
(21% in 20x1 + 18% in 20x2 + 6% in 20x3) ÷ 3 = 15%
(vesting condition i)
7. D (1,000 x 82 x 45) = 3,690,000
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8. A
20x1: (100 x 92%) x 1,000 x 24 x 1/3 = 736,000
20x2: [(100 – 10) x 1,000 x 24 x 2/3] – 736,000 = 704,000
20x3: [(100 – 5 – 3 – 1) x 1,000 x 24 x 3/3] – 736K – 704K
= 744,000
9. B
20x1: (100 – 6 – 3) x 1,000 x 12 x 1/3 = 364,000
20x2: [(100 – 6 - 1) x 1,000 x 12] – 364,000 = 752,000
10.
D
20x1: (100 – 17 - 3) x 1,000 x 24 x 1/3 = 640,000
20x2:
 from original value: [(100 – 17 - 3) x 1,000 x 24 x 2/3]
– 640,000 = 640,000
 from incremental fair value: [(100 – 17 - 3) x 1,000 x
(36 – 22) x 1/2] = 560,000
Total salaries expense in 20x2: (640,000 + 560,000) =
1,200,000
20x3:
 from original value: [(100 – 17 – 1 - 1) x 1,000 x 24 x
3/3] – 640,000 – 640,000 = 664,000
 from incremental fair value: [(100 – 17 – 1 - 1) x 1,000
x (36 – 22) x 2/2] - 560,000 = 574,000
Total salaries expense in 20x3: (664,000 + 574,000) =
1,238,000
Cumulative share premium, Dec. 31, 20x3: (640,000
+ 1,200,000 + 1,238,000) = 3,078,000
Reconciliation:
Employees who remained until vesting date (100
- 17 - 1 - 1)
No. of share options per employee
No. of share options that actually vested
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81
1,000
81,000
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Fair value on Jan. 1, 20x1
Incremental fair value from repricing
2
4
1
4
38
3,078,
000
Total fair value
Total salaries expense/share premium
11.
C
20x1: (100 – 30 – 0) x 1,000 x 9 x 1/5 = 126,000;
20x2: [(100 – 30 – 40) x 1,000 x 9] x 2/3 – 126,000 =
54,000;
20x3: [(100 – 30 – 40 - 0) x 1,000 x 9] x 3/3 – 126,000 54,000 = 90,000
12.
B
Date
1.1.x1
12.31.x1
12.31.x2
12.31.x3
[100 x 1,000 x ₱9 x 1/5)]
[(100 - 40) x 1,000 x ₱9 x 2/5)] –
180,000
Reversal of previously recognized
amounts
Salaries
expense
180,000
36,000
(216,000)
13.
C
20x1: (100 – 5) x 1,000 x 9 x 1/5 = 171,000;
20x2: [(100 – 1) x 1,000 x 9 x 2/5] – 171,000 = 185,400;
[(100 – 1) x 1,000 x 10 x 1/4] = 247,500;
Total salaries expense for 20x2: (185,400 + 247,500)
= 432,900
14.
D – 1,000 sh. opt. x (20 employees – 2 – 8) x ₱12 x
2/3* = 80,000
* The extension of the vesting period is ignored because
it is not beneficial to the employee. November Rain Co.
accounts for the grant under the original conditions.
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15.
C
Date
1.1.x1
12.31.
x1
12.31.
x2
12.31.
x3
[10 x 1,000 x ₱30 x 1/3)]
[(10 – 2) x 1,000 x ₱30)] –
100,000
Salari
es
expen
se
100,0
00
140,0
00
Cumulative
salaries
expenses
100,000
240,000
-
-
The salaries expenses that would have been recognized in
20x2 and 20x3 are simply recognized immediately on Dec. 31,
20x2.
PROBLEM 5: FOR CLASSROOM DISCUSSION
1. Solution:
May.
21,
20x1
July 5,
20x1
No entry
Equipment (cash selling price)
Subscribed capital (10,000 x
2,000,
000
₱100)
Share premium
July
21,
20x1
Subscribed capital
Share capital
1,000,
000
1,000,
000
1,000,
000
1,000,
000
2. Solution:
May.
21,
20x1
July 5,
20x1
No entry
Equipment (10,000 x ₱192)
Subscribed capital (10,000 x
1,920,
000
₱100)
Share premium
July
21,
20x1
Subscribed capital
Share capital
1,000,
000
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1,000,
000
920,00
0
1,000,
000
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3. Solution:
Jan.
Salaries expense (1,000 x 10 x ₱50)
1,
Share premium - sh. options
20x
outstanding
1
500,0
00
500,0
00
4. Solution:
Jan
. 1,
20x
1
De
c.
31,
20x
1
De
c.
31,
20x
2
De
c.
31,
20x
3
Memo entry
Salaries expense – share options
(10 – 3) x 1,000 x 21 x 1/3
Share premium – sh. options
outstanding
Salaries expense – share options
[(10 – 2 – 1 - 1) x 1,000 x 21 x 2/3] –
49,000
Share premium – sh. options
outstanding
Salaries expense – share options
[(10 - 2 - 1 - 0) x 1,000 x 21 x 3/3] 49K - 35K
Share premium – sh. options
outstanding
49,00
0
49,00
0
35,00
0
35,00
0
63,00
0
63,00
0
5. Solution:
Jan
. 1,
20
x1
De
c.
31,
20
x1
De
c.
31,
20
x2
De
c.
31,
Memo entry
Salaries expense – share options
(10 – 1 - 2) x 1,000 x 21 x 1/3
Share premium – sh. options
outstanding
Salaries expense – share options
[(10 – 1 – 0 - 2) x 1,000 x 21 x 2/3] –
49,000
Share premium – sh. options
outstanding
Salaries expense – share options
[(10 – 1 – 0 - 1) x 1,000 x 71(a) x 3/3] –
49K – 49K
49,00
0
49,00
0
49,00
0
49,00
0
470,0
00
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20
x3
Share premium – sh. options
outstanding
470,0
00
(a)
[(18% + 19% + 23%) ÷ 3] = 20% average increase.
Therefore, the exercise price decreases to ₱50 and the fair
value per share option increases to ₱70.
6. Solution:
Jan
. 1,
20x
1
De
c.
31,
20x
1
De
c.
31,
20x
2
De
c.
31,
20x
3
Memo entry
Salaries expense – share options
(10 – 1 - 1) x 1,000 x 21 x 1/3
Share premium – sh. options
outstanding
Salaries expense – share options
[(10 – 3) x 1,000 x 21 x 2/3] – 56,000
Share premium – sh. options
outstanding
Salaries expense – share options
[(10 – 1 – 1 - 0) x 1,000 x 21 x 3/3] –
56K – 42K
56,00
0
56,00
0
42,00
0
42,00
0
70,00
0
70,00
0
Share premium – sh. options
outstanding
NOTE: Because the share price target is a market
condition, it makes no difference whether it is achieved.
The salaries expenses as computed are nonetheless
recognized. The reason for this is that the fair value
estimate has already taken into account the possibility
that the share price target will not be achieved.
7. Solution:
Jan
. 1,
20
x1
De
c.
31,
20
x1
De
c.
31,
Memo entry
Salaries expense – share options
(10 – 1 - 2) x 1,000 x 21 x 1/3
Share premium – sh. options
outstanding
Salaries expense – share options
Share premium – sh. options
outstanding
49,00
0
49,00
0
63,00
0(a)
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63,00
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P a g e | 10
20
x2
De
c.
31,
20
x3
(a)
0(a)
Salaries expense – share options
Share premium – sh. options
outstanding
88,00
0(b)
88,00
0(b)
The salaries expense in 20x2 is computed as follows:
Salaries expense on original value of equity instruments
granted:
[(10 – 3) x 1,000 x 21 x 2/3] – 49,000
49,000
Salaries expense on incremental fair value
from repricing:
(10 – 3) x 1,000 x (₱12 - ₱8) x 1/2*
14,000
Salaries expense in 20x2
63,000
* 20x2 and 20x3
(b)
The salaries expense in 20x3 is computed as follows:
Salaries expense on original value of equity instruments
granted:
[(10 – 1 – 1 - 0) x 1,000 x 21 x 3/3] – 49,000 –
70,000
49,000
Salaries expense on incremental fair value
from repricing:
[(10 – 1 – 1 - 0) x 1,000 x (₱12 - ₱8) x 2/2] –
18,000
14,000
Salaries expense in 20x3
88,000
8. Solution:
Jan
. 1,
20x
1
De
c.
31,
20x
1
De
c.
31,
20x
2
Memo entry
Salaries expense – share options
(10 – 1 - 2) x 1,000 x 21 x 1/3
Share premium – sh. options
outstanding
Salaries expense – share options
[(10 – 3) x 1,000 x 21 x 2/3] – 49,000
Share premium – sh. options
outstanding
49,00
0
49,00
0
49,00
0
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49,00
0
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De
c.
31,
20x
3
Salaries expense – share options
[(10 – 1 – 1 - 0) x 1,000 x 21 x 3/3] –
49K – 49K
70,00
0
70,00
0
Share premium – sh. options
outstanding
NOTE: The modification is ignored because adding an
exercise price, when originally there was none (i.e., free),
is not beneficial to the employee (this is also
evidenced by the decrease in the fair value per share
option). The grant is accounted for under the original
conditions.
9. Solution:
Jan
. 1,
20
x1
De
c.
31,
20
x1
De
c.
31,
20
x2
10.
Memo entry
Salaries expense – share options
(10 – 0) x 1,000 x 21 x 1/3
Share premium – sh. options
outstanding
Salaries expense – share options
[(10 – 1) x 1,000 x 21] – 70,000
Share premium – sh. options
outstanding
70,00
0
70,00
0
119,0
00
119,0
00
Solution:
Jan
. 1,
20x
1
De
c.
31,
20x
1
De
c.
31,
20x
2
Salaries expense – share options
[10 x 1,000 x 70% x (41 – 20) x 1/3]
Share premium – sh. options
outstanding
Salaries expense – share options
De
c.
31,
20x
3
[(10 – 2 – 0 – 2) x 1,000 x (42 – 20) x 3/3] –
49K – 35K
Memo entry
[(10 – 2 – 0 – 1) x 1,000 x (38 – 20) x
2/3] – 49K
Share premium – sh. options
outstanding
Salaries expense – share options
49,00
0
49,00
0
35,00
0
48,00
0
Share premium – sh. options
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35,00
0
48,00
0
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P a g e | 12
outstanding
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