IA3 Share Based Compensation PDF

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DIVINE WORD COLLEGE OF LAOAGSchool of Business and Accountancy Laoag CityPFRS 2: SHARE-BASED COMPENSATIONSHARE-BASED COMPENSATIONThese are additional compensation granted to directors, senior executives and key employees.Equity-settled (ex. Share options) Share-based compensation Cash-settled (ex. S...

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DIVINE WORD COLLEGE OF LAOAG School of Business and Accountancy Laoag City

PFRS 2: SHARE-BASED COMPENSATION SHARE-BASED COMPENSATION These are additional compensation granted to directors, senior executives and key e Equity-settled (ex. Share options) Share-based compensation Cash-settled (ex. Share appreciation rights)

EQUITY-SETTLED (SHARE OPTIONS) Share options – enables the grantees to acquire shares of the entity during a specif fulfillment of certain conditions at a specified price Measurement of Compensation 1. Fair value method (mandated by PFRS 2) Compensation = FV of options at grant date 2. Intrinsic value method (used when no fair value is estimated) Compensation = intrinsic value of options *Intrinsic value = market value of shares less option price Recognition of Compensation 1. With vesting period – with specified service period – expense over the service *vesting period: from grant date to exercise date 2. Vesting immediately – no conditions; expense in full at grant date To record compensation Salaries – share options (expense) xx Share options outstanding To record exercise of options Cash Share options outstanding Ordinary shares Share premium To record the unexercised options Share options outstanding Share premium

xx

- at fair value or intrinsic - closed to share premi

xx xx

- exercise price x no. of - prorated balance - at par value - excess

xx xx

xx xx

Additional notes:  change in intrinsic value is recognized in P/L  increase in intrinsic value after vesting period is an additional compensation Acceleration of vesting: cancels or settles the grant of share options during the vestin a. If shares options are exercised – recognize immediately the balance on expense (total compensation expense less recognized portion) Entry to record the balance on compensation and exercise – same with abov b. If share options are not exercised but cash is paid instead – payment made repurchase of equity interest (deduction from equity) and any excess is expen Entry to record the payment of cash for the settlement of share options Share options outstanding xx - compensation alread Salaries xx - excess Cash xx - cash settlement

Modification of vesting condition a. If modification is beneficial to employees  Decrease in exercise price of share option and increase in fair value of eq  Two compensations are recognized: i. Compensation based on original condition ii. Compensation based on modification – additional compensatio increase in fair value of the equity instrument b. If modification is not beneficial to employees  Increase in exercise price of share option and decrease in fair value of eq  Compensation is still based on original condition as if no modification occ

CASH-SETTLED (SHARE APPRECIATION RIGHT) Share appreciation rights – entitles an employee to receive cash equal to the exce value of shares over a predetermined price for a stated number of shares (recorded Measurement of Compensastion  Compensation = Fair value of liability at reporting date  Fair value of liability = market value of shares less predetermined price  Remeasured every reporting date and any change in FV is recognized in P/L  The market value is known only on the exercise date, not grant date. Recognition of Compensation 1. With vesting period – with specified service period – expense over the service 2. Vesting immediately – no conditions; expense in full at grant date To record compensation Salaries expense xx Accrued salaries payable

xx

To record reversal (if predetermined price > market value of shares) Accrued salaries payable xx Gain on reversal of SAR xx To record settlement of rights Accrued salaries payable Cash

xx xx

Additional notes:  the intrinsic value on the date of exercise is the actual amount of cash paid  the amount paid out to employees is also expensed outright Compensation related to rights not yet exercised (at fair value) Compensation related to rights already yet exercised (at intrinsic value) Total compensation expense for the period

xx xx xx

Modification from cash-settled to equity-settled 1. Liability for cash-settled share-based payment is derecognized. 2. Share options outstanding is recognized using the fair value of options @ date 3. Any difference between 1 and 2 is recognized in P/L (expensed outright). Entry on the date of modification Accrued salaries payable xx Salaries xx Share options outstanding

xx

- old (CA of liability; de - any excess - new (based on fv of o

Cash or Share Alternative o Entity’s choice – account as either liability or equity, but not both o Employee’s choice – recognize a compound financial instrument (liability + e

EXERCISES PROBLEM 1 On January 1, 2018, an entity granted 100 share options each to 500 employees, c the employee’s remaining in the entity’s employ during the vesting period. The shar the end of a three-year period. On grant date, each share options has a fair value value per share is P100 and the option price is P120. On December 31, 2019, 30 emp and it is expected that on the basis of a weighted average probability, a further 3 leave before the end of the three-year period. On December 31, 2020, only 20 em left and all of the share options are exercised on such date. a. What is the compensation expense for 2018? 2019? 2020? b. What amount was credited to share premium when the options wer December 31, 2020? PROBLEM 2 An entity granted share options to employees. The total compensation expense to on December 31, 2021 was calculated at P6,000,000. The entity decided to settle the December 31, 2020. The compensation expense charged since the date of grant on was P1,500,000 for 2018 and P1,300,000 for 2019. The compensation expense that w charged for 2020 is P1,200,000. a. What is the compensation expense for 2020? b. What is the compensation expense for 2020, assuming the share options are n instead, the entity paid the employees P5,000,000 on December 31, 2020? PROBLEM 3 On January 1, 2018, an entity granted 60,000 share options to employees. The share the end of three years provided the employees remain in service until then. The op and the par value is P50. At the date of grant, the entity concluded that the fair va options cannot be measured reliably. The share options have a life of 4 years which share options can be exercised within one year after vesting. The share prices are P 31, 2018, P66 on December 31, 2019, P75 on December 31, 2020 and P85 on Decem share options were exercised on December 31, 2021. a. What is the compensation expense for 2021? b. What amount was credited to share premium upon exercise of the sh December 31, 2021? PROBLEM 4 On January 1, 2018, an entity offered management share appreciation rights equa with a predetermined price of P100. The service period is 3 years and the exercise d 2021. The quotes prices per share are P124 on December 31, 2018, P151 on Decemb P151 on December 31, 2020. a. What amount should be charged to compensation expense for 2020? b. What amount should be recognized as gain on reversal of share appreciatio the market price dropped to P120 on December 31, 2020? PROBLEM 5 On January 1, 2018, an entity granted the chief executive officer (CEO) 50,000 sha rights for past services. The rights are exercisable immediately and expire on Decem exercise, the CEO is entitled to receive cash for the excess of the share market p date over the market price on grant date. The CEO did not exercise any of the ri market price of the share was P100 on January 1, 2018 and P115 on December 31 exercised the rights on December 31, 2019 when the market price was P110. a. What is the compensation expense for 2018? b. What amount should be recognized as gain on reversal of the share appr 2019?...