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Chapter 12Share-based Payments (Part 1)Use the following information for the next two questions: ABC Co. acquired equipment from XYZ, Inc. by issuing 1,000 of its ₱10 par value ordinary shares. The equipment is carried in the books of XYZ, Inc. at ₱15,000. ABC Co.’s shares have a fair value ₱ 14 per...

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Chapter 12 Share-based Payments (Part 1) Use the following information for the next two questions: ABC Co. acquired equipment from XYZ, Inc. by issuing 1,000 of its ₱10 par value ordinary shares. The equipment is carried in the books of XYZ, Inc. at ₱15,000. ABC Co.’s shares have a fair value ₱14 per share. 1. The fair value of the equipment is ₱12,000. What is the journal entry to record the acquisition of the equipment? 2. The fair value of the equipment cannot be determined reliably. What is the journal entry to record the acquisition of the equipment? 3. On January 1, 20x1, ABC Co. contracted XYZ & Co., CPAs for an outsourced internal audit engagement. ABC Co. has its own internal audit department which performs similar services to those outsourced with XYZ. But due to lack of human resources and the immediate need of management for the internal audit services, XYZ has been contracted. On January 1, 20x1, XYZ & Co. agreed to receive 1,000 shares of ABC with par value per share of ₱100 in consideration for its services as there is no restriction for equity ownership for CPAs providing internal audit services (unlike for financial audits). The audit field work ended on March 1, 20x1 but the close-out meeting was held on March 10, 20x1. All of the services required under the contract have been substantially rendered as of March 10, 20x1, with the exception of some follow-up procedures required under ISPPIA (International Standards for the Professional Practice of Internal Auditing). The fair values of the shares were ₱500 on January 1, 20x1, ₱600 on March 1, 20x1, and ₱620 on March 10, 20x1 while the fair value of the services remained unchanged at ₱600,000 over the engagement period. Requirement: Provide the journal entries on the following dates: Jan. 1, 20x1, March 1, 20x1 and March 10, 20x1. Use the following information for the next three questions: On January 1, 20x1, ABC Co. grants 1,000 share options to each of its 100 key employees conditional upon each employee remaining in ABC’s employ over the next three years. ABC estimates that the fair value of each share option is ₱15. 4. On the basis of a weighted average probability, ABC Co. estimates on January 1, 20x1 that 20 per cent of employees will leave during the three-year period and therefore forfeit their rights to the share options. Twenty (20) employees actually left the company during the three-year period. Fifteen (15) employees left in 20x1 and the other five (5) left in 20x3.

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Requirement: Provide the journal entries on the following dates: Jan. 1, 20x1, Dec. 31, 20x1, Dec. 31, 20x2, and Dec. 31, 20x3. 5. On the basis of a weighted average probability, ABC Co. estimates on January 1, 20x1 that 20 employees will leave during the three-year period and therefore forfeit their rights to the share options. During 20x1, 2 employees left. The entity revised its estimate of total employee departures over the three-year period from 20 to 15 employees. During 20x2, additional 3 employees left. The entity revised its estimate of total employee departures over the three-year period from 15 to 12 employees. During 20x3, additional 5 employees left. Requirement: Provide the journal entries on the following dates: Jan. 1, 20x1, Dec. 31, 20x1, Dec. 31, 20x2, and Dec. 31, 20x3. 6. On the basis of a weighted average probability, ABC Co. estimates on January 1, 20x1 that 20 employees will leave during the three-year period and therefore forfeit their rights to the share options. No employees have actually left the company during the three-year vesting period. Requirement: Provide the journal entries on the following dates: Jan. 1, 20x1, Dec. 31, 20x1, Dec. 31, 20x2, and Dec. 31, 20x3.

“One of the teachers of the law came and heard them debating. Noticing that Jesus had given them a good answer, he asked him, “Of all the commandments, which is the most important?” “The most important one,” answered Jesus, “is this: ‘Hear, O Israel: The Lord our God, the Lord is one. Love the Lord your God with all your heart and with all your soul and with all your mind and with all your strength.’ The second is this: ‘Love your neighbor as yourself.’ There is no commandment greater than these.” – (Mark 12:28-31) “Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It does not dishonor others, it is not self-seeking, it is not easily angered, it keeps no record of wrongs. Love does not delight in evil but rejoices with the truth. 7 It always protects, always trusts, always hopes, always perseveres.” – (1 Corinthians 13:48)

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SOLUTIONS 1. Solution: Date

Equipment (fair value of asset received) Share capital Share premium

12,000

Equipment (1,000 sh. x ₱14) - FV of shares Share capital Share premium

14,000

10,000 2,000

2. Solution: Date

10,000 4,000

3. Solution: Jan. 1, 20x1

No entry

March 1, 20x1 March 10, 20x1

No entry Professional fees (1,000 x ₱500*) Share capital (1,000 x ₱100) Share premium

500,000 100,000 400,000

Services received from employees and others providing similar services are measured at the fair value of the equity securities granted at grant date (i.e., January 1, 20x1). *

4. Solution: Memo entry

Jan. 1, 20x1 Dec. 31, 20x1

Salaries expense – share options [(100 – 20) x 1,000 x ₱15 x 1/3]

400,000

Share premium – sh. options outstanding Dec. 31, 20x2

Salaries expense – share options

Dec. 31, 20x3

Salaries expense – share options

[(100 – 20) x 1,000 x ₱15 x 2/3] – 400,000

400,000 400,000

Share premium – sh. options outstanding [(100 – 20) x 1,000 x ₱15 x 3/3] – 800,000

400,000 400,000

Share premium – sh. options outstanding

400,000

5. Solution: Memo entry

Jan. 1, 20x1 Dec. 31, 20x1

Salaries expense – share options [(100 – 15) x 1,000 x ₱15 x 1/3]

425,000

Share premium – sh. options outstanding Dec. 31, 20x2

Salaries expense – share options [(100 – 12) x 1,000 x ₱15 x 2/3] – 425,000

Share premium – sh. options outstanding

425,000 455,000

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455,000 Dec. 31, 20x3

Salaries expense – share options [(100 – 10) x 1,000 x ₱15 x 3/3] – 880,000

470,000

Share premium – sh. options outstanding

470,000

6. Solution: Jan. 1, 20x1

Memo entry

Dec. 31, 20x1

Salaries expense – share options

Dec. 31, 20x2

Salaries expense – share options

Dec. 31, 20x3

Salaries expense – share options

[(100 – 20) x 1,000 x ₱15 x 1/3]

400,000

Share premium – sh. options outstanding

400,000 400,000

[(100 – 20) x 1,000 x ₱15 x 1/3] – 400,000

Share premium – sh. options outstanding

400,000 700,000

(100 x 1,000 x ₱15 x 3/3) – 800,000

Share premium – sh. options outstanding

700,000

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1. An entity has granted share options to its employees. The total expense to the vesting date of December 31, 20X6, has been calculated as ₱8 million. The entity has decided to settle the award early, on December 31, 20X5. The expense charged in the income statement since the grant date of January 1, 20X3, had been year to December 31, 20X3, ₱2 million, and year to December 31, 20X4, ₱2.1 million. The expense that would have been charged in the year to December 31, 20X5, was ₱2.2 million. What would be the expense charged in the income statement for the year December 31, 20X5? a. 2.2 million. b. 8 million. c. 3.9 million. d. 2 million. Use the following information for the next two questions: On January 1, 20x1, Golf View Village Co. grants 1,000 share options to each of its 180 employees on condition that the employees remain in Golf View’s employ until the end of 20x3. The exercise price per share option is ₱20. The fair value per share option is ₱80. On December 31, 20x1, Golf View modifies the share option grant by reducing the exercise price to ₱60. This resulted to an increase in the fair value per option before the modification of ₱100 to ₱120 after the modification. 2.

What amount of compensation expense shall be recognized in 20x1? a. 4,800,000 b. 3,600,000 c. 1,800,000 d. 1,200,000

3. What amount of compensation expense shall be recognized in 20x2? a. 4,800,000 b. 6,600,000 c. 7,200,000 d. 9,600,000 Use the following information for the next two questions: On January 1, 20x1, Creek Co. grants 1,000 share options to each of its 180 employees on condition that the employees remain in Creek’s employ until the end of 20x3. The exercise price per share option is ₱20. The fair value per share option is ₱80. On December 31, 20x1, Creek Co. modifies the share option grant by extending the vesting period to the end of 20x4. 4.

What amount of compensation expense shall be recognized in 20x1? a. 4,800,000 b. 3,600,000 c. 1,800,000 d. 1,200,000

5. What amount of compensation expense shall be recognized in 20x2? a. 4,800,000 b. 6,600,000 c. 2,400,000 d. 1,600,000 "The Lord is my light and my salvation, whom shall I fear? The Lord is the stronghold of my life, of whom shall I be afraid?" – (Psalm 27:1) - END SOLUTIONS 1.

C (8M – 2M – 2.1M) = 3.9M

2.

A (1,000 x 180 x 80 x 1/3) = 4,800,000

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B Solution: Original terms: (1,000 x 180 x 80 x 2/3) – 4.8M = 4,800,000; Modification: (120 – 100) x 1,000 x 180 x ½ = 1,800,000 Total compensation expense, 20x2 = 4.8M + 1.8M = 6,600,000 3.

4.

A (1,000 x 180 x 80 x 1/3) = 4,800,000

5.

A (1,000 x 180 x 80 x 2/3) – 4,800,000 = 4,800,000...