Intermediate Accounting 3

1. Chapter 3: Share-Based Payments (Part 1)

5. Assessment Tasks

1. An entity issues shares as consideration for the purchase of inventory. The shares were issued on January 1,
20X4. The inventory is eventually sold on December 31, 20X5. The value of the inventory on January 1, 20X4,
was P3 million. This value was unchanged up to the date of sale. The sale proceeds were P5 million. The shares
issued have a market value of P3.2 million.

Requirement: Provide all the entries in 20x4 and 20X5.

2. An entity issues fully paid shares to 200 employees on December 31, 20X4. Normally shares issued to
employees vest over a two-year period, but these shares have been given as a bonus to the employees because
of their exceptional performance during the year. The shares have a market value of P500,000 on December 31,
20X4, an average fair value for the year of P600,000 and an aggregate par value of P300,000.

Requirement: Provide all the entries in 20x4.

3. Entity A is an unlisted entity, and its shares are owned by two directors. The directors have decided to issue 1,000
share options to an employee in lieu of many years' service. However, the fair value of the share options cannot
be reliably measured as the entity operates in a highly specialized market where there are no comparable
Companies. The exercise price is P100 per share, and the options were granted on January 1,20X4, when the
value of the shares was also estimated at P100 per share. At the end of the financial year, December 31, 20X4,
the value of the shares was estimated at P150 per share and the options vested on that date.

Requirement: Provide all the entries in 20x4.

4. Ashleigh, a public limited company, has granted share options to its employees with a fair value of P6 million. The
options vest in three years' time. The Monte-Carlo model was used to value the options, and these estimates had
been made
• Grant date (January 20X4): estimate of employees leaving the entity during the vesting period – 5%
• January 1, 20X5: revision of estimate of employees leaving to 6% before vesting date
• December 31 20X6: actual employees leaving 5%

Requirement: Provide all the entries from 20x4 to 20x6.

5. An entity grants 1,000 share options to each of its 200 employees on January 1, 20X1. The fair value of the
entity's shares on January 1, 20x1 is P100 per share while the fair value of the share options on this date is P25.
The share options vest in three years' time and is exercisable four years after vesting date. The exercise price is
P80 per share.

On January 1, 20x1, the entity expects 5 employees to resign before the vesting date. During 20x1, 6 employees
actually resigned.

On December 31, 20x1, the entity revises its estimate to a total of 8 employees leaving the entity s employ before
the vesting date.

During 20x2, 1 employee resigned. The entity's estimate of employees leaving the entity s employ remains
unchanged.

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 During 20x3, 3 employees resigned.

Requirements: Provide all the entries in 20X1, 20x2 and 20x3.

6. Use the information in the preceding problem but ignore the assumptions after 20X1.

During 20x2, 1 employee resigned. The entity settles the share options on December 31, 20x2.

Requirements: Provide the entries to record the compensation expense in 20X1 and 20X2.

7. On January 1, 20x1, an entity grants five employees 1,000 share options as compensation for their commendable
past performance. The share options are exercisable immediately at an exercise price of P70, but will expire after
two years' time. The fair value per option on grant date is P60. As of year-end, no employee has yet exercised its
share option.

Requirement: Provide the entry, if any, to record compensation expense in relation to the share option grant.

8. On January 1, 20x1, an entity grants each of its ten employees 500 share options on condition that the employees
remain in the entity's employ until December 31, 20X2. The share options are exercisable within three years after
December 31, 20x2. The fair value per option on grant date is P60

In 20x1, 1 employee resigned. The entity expects that an additional 1 employee will resign in 20x2.

In 20X2, no employee resigned.

Requirements: Provide the journal entries in 20X1 and 20x2.

9. An entity grants share options to its employees with a total fair value of P3,200,000 on January 1, 20x1. The
options vest in three years’ time On December 31, 20X1, the entity expects that only 90% of the share options
granted will vest. On December 31, 20x2, the entity revises its estimate of the number share options that will vest
to 96%. On December 31, 20x3, 100% of the share options vest.

Requirement: Provide all the entries from 20x1 to 20x3.

10. An entity grants 1,000 share options to each of its 100 employees on January 1, 20x1. The fair value of the
entity's shares on January 1, 20x1 is P80 per are while the fair value of the share options on this date is P12. The
share options vest in three years' time and is exercisable four years after vesting date. The exercise price is P72
per share.

On January 1, 20x1, the entity expects 7 employees to resign before the vesting date. During 20x1, 6 employees
actually resigned.

On December 31, 20x1, the entity updates its estimate of the number of employees leaving the entity's employ.
The entity now expects additional three employees to leave the entity's employ before the vesting date.

During 20x2, 1 employee resigned. The entity revises again its estimate of employees leaving the entity's employ
to a total of eight employees.

During 20x3, 2 employees resigned.

Requirements: Provide all the entries in 20x1, 20x2 and 20x3.

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 11. Use the information in the preceding problem but ignore the assumptions after 20X1.

During 20x2, 1 employee resigned. The entity settles the share options on December 31, 20x2.

Requirements: provide the entries to record the compensation expense in 20x1 and 20X2

Use the following information for the next four questions:

On January 1, 20x1, SUFFUSE TO FILL co. grants 1,000 share options to each of its 100 key employees conditional
upon each employee remaining in SUFFUSE's employ over the next three years SUFFUSE estimates that the fair
value of each share option is P30.

12. On grant date, SUFFUSE estimates that no employees will leave the company during the three-year service
period. During the three-year period, no employees have actually left the company. Provide all the necessary
journal entries.

13. On the basis of a weighted average probability, SUFFUSE Co. estimates on January 1, 20x1 that 20 per cent of
employees (100 x 20% = 20 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 Ieft in 20x1 and the other five (5) left in 20x3. Provide all the necessary journal entries.

14. On the basis of a weighted average probability, SUFFUSE co, estimates on January 1, 20x1 that 20 per cent of
employees (100 x 20% = 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 per cent (20 employees) to 15 per cent (15 employees). During 20x2,
additional 3 employees left. The entity revised its estimate of total employee departures over the three-year period
from 15 percent to 12 per cent (12 employees). During 20x3, additional 5 employees left. Hence, a total of 10
employees forfeited their rights to the share options during the three-year period, and a total of 90,000 share
options (90 employees x 1,000 options per employee) vested at the end of 20x3. Provide all the necessary journal
entries.

15. On the basis of a weighted average probability, SUFFUSE Co. estimates on January 1, 20x1 that 20 per cent of
employees (100 x 20% = 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. Provide all
the necessary journal entries.

6. References

Millan, Z. 2019. Intermediate Accounting. Bandolin Enterprises

Philippine Financial Reporting Standards (PFRS)

ISUE__ __ Syl ___

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