SAMPLE PROBLEMS

SHARE-BASED PAYMENT
Measurement Date – Transaction with Non-employee
On January 1, 20x1, ABC Co. agreed to issue 10,00 shares with
par value per share of P100 to XYZ, Inc. in exchange for a building
to be constructed by the XYZ for ABC. Construction commenced during
the year and the building was completed prior to year-end. Ownership
over the newly constructed building was transferred to ABC Co. on
December 31, 20x1 but the contract price was settled on January
21,20x2. ABC Co. uses the cost model for its PPE.
The fair value of the newly constructed building were
P1,500,000 on December 31,20x2 and P1,600,000 on January 31, 20x2.
The quoted prices of ABC’s share were P110 On December and P120 on
January 31,20x2

Solution:
January 1,20x1: NO ENTRY
December 31,20x1: Building 1,500,000
Subscribed Capital (10T x P100) 1,000,000
Share Premium 500,000
January 1, 20x: Subscribed Capital 1,000,000
Share Capital 1,000,000

Rationale;
NON-EMPLOYEES
 FV of goods/services received
 FV of equity instruments granted

FV is measured at the measurement date.

 Measurement date is the date when the entity receives the
goods/services.

Entries:
Asset P xx
Subscribed Capital P xx
Share Premium xx
Once Paid:
Subscribed Capital P xx
Share Capital P xx

If FV of Asset Received in not determinable:

January 1,20x1: NO ENTRY
December 31,20x1: Building (10T x 110) 1,100,000
Subscribed Capital (10T x P100) 1,000,000
Share Premium 100,000
January 1, 20x: Subscribed Capital 1,000,000
Share Capital 1,000,00
__________________________________________________________________
SHARES ISSUED FOR SERVICES
On January 1, 20x1, ABC Co. contracted Ms. Sexy Model to be
the endorser of ABC’s new product. ABC shall issue 10,000 shares
with par value per share of P10 in consideration for the services
received. All of the required services on the contract have been
rendered on March 1, 20x1. Information on fair value is shown below.
Fair Values___________
January 1,20x1 March 1, 20x1
Modeling Services P950,000 P 1,000,000
Shares P 90 per share P 98 per share

I. Ms. Model is not an employee

Advertising Expense 1,000,000
Share capital (10T x 10) 100,000
Share premium 900,000
II. Ms. Model is an employee of ABC
Advertising Expense (1OT x 90) 900,000
Share Capital 100,000
Share premium 800,000

Rationale:
EMPLOYEE & OTHER PROVIDING SERVICES
 FV of equity instrument granted
 Intrinsic Value
SAMPLE PROBLEMS

FV is measured at the measurement date.

 Measurement date is the grant date

Intrinsic Value = Share option – Exercise Price

__________________________________________________________________
EMPLOYEE SHARE OPTION PLANS
On January 1, 20x1, Entity A grants 10,000 share options to
its key employees. The share options entitle the employees to
purchase Entity’s A shares at subscription price of P110 per share.
Entity A’s shares have a par value P100 per share and fair value on
grant date of P120 per share. The share options have a fair value
of P15 per share option.

Case 1: Share options vest immediately

Assume the key employment exercised share options only in
July 1, 20x1.
January 1, 20x1: Salaries Expense (10T x 15) 150,000
Share premium – sh. Options Outstanding 150,000
July 1, 20x1: Cash (10T x P110) 1,100,000
Share capital (10T x P100) 1,000,000
Share capital 100,000

Share premium – sh. Options Outstanding 150,000

Share Premium 150,000

Rationale:
VEST IMMEDIATELY
 Employee is entitled to the shares w/o the need to satisfy any
condition
 Salaries expense is recognized in full
 With a corresponding increase in equity at grant date.

Entry to recognize salary expense:

Salaries Expense P xx
Share Premium – Sh. Options outs. P xx
(computation: Outstanding share options x FV of share option)

Entry when option is exercised:

Cash P xx
Share Capital P xx
Share Premium xx
(Cash = Sh. Option Outstanding x subscription price)
Share premium – Sh. Options O. P xx
Share Premium P xx

Case 2: Share Options do not vest immediately

Assume the share options vest in 3 years.
January 1: MEMO ENTRY
Dec. 31,20x1:
Salaries = (10,000 x P15) / 3 years =50,000

Salaries Expense 50,000

Share premium – sh. Options Outstanding 50,000
Dec. 31, 20x2:
Salaries Expense 50,000
Share premium – sh. Options Outstanding 50,000
Dec. 31, 20x3:
Salaries Expense 50,000
Share premium – sh. Options Outstanding 50,000

Rationale:
DO NOT VEST
 Until the employee completes a specified period of service
Entity recognized salaries expense as the employee renders service over
the vesting period.
__________________________________________________________________
VESTING CONDITION
Changes in Service Condition
On January 1, 20x1, Entity A grants 100 share options to each
of its 100 key employees’ conditional upon each employee remaining
SAMPLE PROBLEMS
in Entity A’s employ over the next 3 years. The fair value of each
share option is P15.
On the basis of a weighted average probability, Entity A
estimates on January 1, 20x1 that about 20 employees will leave
during the 3-year period and therefore forfeit their rights to the
share options.
During 20x1, 7 employees left. Entity A revises its estimates
to a total of 25% employee departure over the vesting period.
During 20x2, 9 employee left. Entity A revises its estimate
to a total of 28% employee departure over the vesting period.
During 20x3. 8 employees left. Therefore, the actual
departure over the past 3 year is 24%.

Solution:
Salaries Expense (100 SO x 100 employees = 10,000SO)
January 1: NONE
Dec 31, 20x1: (10,000 x 75%) x P15 x 1/3 P 37,500
Dec 31, 20x2: [(10,000 x 72%) x P15 x 2/3] – 37,500 34,500
Dec 31, 20x3: [(10,000 x 76%) x P15 x 2/3] – 37,500 – 34.500 42,000
__________________________________________________________________________
PERFORMANCE CONDITION – VESTING PERIOD VARIES
On January 1, 20x1, ABC Co. grants 1,000 shares to each of
its 100 key employees’ conditional upon each employee remaining in
ABC’s employ during the vesting period.

The shares will vest as follows:

a. At the end of 20x1 if earnings increase by more than 18%.
b. At the end of 20x2 if earnings increase by more than an
average of 13% per year over the two-year period; or
c. At the end of 20x3 if earnings increase by more than an
average of 10% per year over the tree-year period

The shares have fair value of P15 per share at the start of 20x1,
which is equal to the share price at grant date. No dividends are
expected to be paid over the three-year period.
By the end of 20x1, the entity’s earnings have increased by 14%,
and 6 employees have left. The entity expects that earnings will
continue to increase at a similar rate in 20x2, and therefore expects
that the shares will vest at the end of 20x2. The entity expects,
on the basis of weighted average probability, that additional 6
employees will leave during 20x2. Therefore, ABC expects that 88
employees will vest in 1,000 shares each at the end of 20x2.
By the end of 20x2, the entity’s earnings have increased by only
10% and therefore the shares do not vest at the end of 20x2. Five
employees have left during the year. The entity expects that
additional 5 employees will leave during 20x3, and that earnings
will increase by at least 6%, thereby achieving the average of 10%
per year.
By the end of 20x3, 4 employees have left and earnings had
increased by 8%, resulting in an average increase of 10.67% per
year. Therefore 419 employees received 100 shares at the end of
20x3.

Solution:
January 1: MEMO Entry
Dec. 31,20x1: Salaries Expense – share options
[(100 – 6 – 6) x 1,000 x P15 x ½) 660,000
Share Premium – SOO 660,000
Dec. 31, 20x2: Salaries Expense – share options
[(100 – 6 – 5 – 5) x 1,000 x P15 x 2/3) 180,000
Share Premium – SOO 180,000
Dec. 31, 20x3: Salaries Expense – share options
[(100 – 6 – 5 – 4) x 1,000 x P15 x 3/3) 435,000
Share Premium – SOO 435,000

__________________________________________________________________
Market Condition – Vesting Period Varies
On January 1m 20x1m ABC Co. grants 1,000 share options with
a five-year life to each of ten senior executives. The share options
will vest and become exercisable immediately if and when the entity’s
SAMPLE PROBLEMS
share price increases from P25 to P40, provided that the executive
remains in service until the share price target is achieved.
The entity applies a binomial option pricing model, which
takes into account the possibility that the share price target will
be achieved during the five-year life of the options, and the
possibility that the target will not be achieved. The entity
estimates that the fair value of the share options at grant date is
P15 per option.
From the option pricing model, the entity determined that the
mode of the distribution of possible vesting dates is three years.
In other words, of all the possible outcomes, the most likely outcome
of the market condition is that the share price target will be
achieved at the end of 20x3. Therefore, the entity estimates that
the expected vesting period is 3 years. The entity also estimates
that 2 executives will have left by the end of year 5.
Throughout 20x1 and 20x2, ABC continues to estimate that a
total of 2 executives will leave by the end of 20x3. However, in
total, 3 executives left, one in each of years 20x1, 20x2 and 20x3.
The share price target is achieved at the end of 20x4/ another
executive leaves during 20x4. Before the share price target is
achieved.

Solution:
January 1: MEMO Entry
Dec. 31,20x1: Salaries Expense – share options
[1,000 (10 – 2) x P15 x 1/3) 40,000
Share Premium – SOO 40,000
Dec. 31, 20x2: Salaries Expense – share options
[1,000 (10 – 2) x P15 x 2/3)-40,000 40,000
Share Premium – SOO 40,000
Dec. 31, 20x3: Salaries Expense – share options
[1,000 (10 – 3) x P15 x 3/3)-80,000 25,000
Share Premium – SOO 25,000
__________________________________________________________________
MODIFICATION, CANCELLATIONS AND EARLY SETTLEMENTS
REPRICING
On January 1, 20x1, ABC Co. grants 100 share options to each
of its 300 employee. Each grant is conditional upon the employee
remaining in service over the next three years.
ABC estimates that the fair value of each option is P15. On
the basis of a weighted average probability, ABC estimates that 60
employees will leave during the three-year period and therefore
forfeit their rights to the share options.
During 20x1, 24 employees left the company. Also on December
31, 20x1, ABC’s share price has dropped, and ABC reprices its share
options. ABC estimates that additional 42 employees will leave
during 20x2 and 20x3.
ABC estimates that at December 31,20x1, the fair value of
each of the original share options granted is P5 and that fair value
of each repriced share option is P8. The repriced share options vest
at the end of 20x3.
During 20x2, 21 employees left, and ABC estimates that
additional 18 employees will leave during 20x3.
During 20x3, 17 employees left, and hence a total of 62
employees ceased employment during the vesting period. For the
remaining 238 employees, the share options vested at December
31,20x3.