Since 1977

FAR OCAMPO/CABARLES/SOLIMAN/OCAMPO
FAR.2733-Share-Based Payment OCTOBER 2019

DISCUSSION PROBLEMS
1. Share-based payment transaction is a transaction in 6. In accordance with PFRS 2, fair value is
which the entity a. The price that would be received to sell an asset or
a. Receives goods or services from the supplier of paid to transfer a liability in an orderly transaction
those goods or services in a share-based payment between market participants at the measurement
arrangement. date.
b. Incurs an obligation to settle the transaction with b. The amount for which an asset could be
the supplier in a share-based payment exchanged, or a liability settled, between
arrangement when another group entity receives knowledgeable, willing parties in an arm’s length
those goods or services. transaction.
c. Either a or b. c. The amount for which an asset could be
d. Neither a nor b. exchanged, a liability settled, or an equity
instrument granted could be exchanged, between
2. Provided the specified vesting conditions, if any, are knowledgeable, willing parties in an arm’s length
met, share-based payment arrangement is an transaction.
agreement between the entity and another party that d. The estimated selling price in the ordinary course

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entitles the other party to receive of business less the estimated costs of completion
a. Cash or other assets of the entity for amounts that and the estimated costs necessary to make the

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are based on the price (or value) of equity
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instruments of the entity.
b. Equity instruments of the entity. 7. The fair value of a share-based payment transaction is

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c. Either a or b. determined at the date of
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d. Neither a nor b. a. Grant c. Settlement
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b. Exercise d. Expiration
3. Cash-settled share- based payment transaction is a
share-based payment transaction in which the entity 8. In relation to share-based payment transactions, grant
a. Acquires goods or services by incurring a liability to date is
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transfer cash or other assets to the supplier of a. The date at which the entity and another party
those goods or services for amounts that are based (including an employee) agree to a share-based
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on the price (or value) of equity instruments of the payment arrangement, being when the entity and
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entity. the counterparty have a shared understanding of

b. Receives goods or services as consideration for its the terms and conditions of the arrangement.
own equity instruments. b. The date when the entity confers on the
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c. Receives goods or services but has no obligation to counterparty the right to cash, other assets, or
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settle the transaction with the supplier. equity instruments of the entity, provided the
d. All of the above. specified vesting conditions, if any, are met.
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c. The date when approval is obtained if the

4. Which statement is incorrect regarding measurement agreement is subject to an approval process (for
of equity-settled share-based payment transactions? example, by shareholders).
a. The entity shall measure the goods or services d. All of the above.
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received, and the corresponding increase in equity,

directly, at the fair value of the goods or services
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received, unless that fair value cannot be Use the following information for the next two questions.
estimated reliably.
On January 1, 2018, Madelle Corp. granted an employee
b. If the entity cannot estimate reliably the fair value
an option to purchase 3,000 shares of Madelle's P5 par
of the goods or services received, the entity shall
value ordinary shares at P20 per share. The option
measure their value, and the corresponding
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became exercisable on December 31, 2019, after the

increase in equity, indirectly, by reference to the
employee completed two years of service. The market
fair value of the equity instruments granted.
prices of Madelle's shares and share options were as
c. For transactions with employees and others
follows:
providing similar services, the entity shall measure
Market price Market price of
the fair value of the services received by reference
Date of share similar share option
to the fair value of the equity instruments granted,
Jan. 1, 2018 P30 P8
because typically it is not possible to estimate
Dec. 31, 2018 50 9
reliably the fair value of the services received.
Dec. 31, 2019 45 11
d. The fair value of equity instruments shall be re-
measured every period end until settlement.
9. Madelle should recognize compensation expense in
2019 profit or loss of
5. When applying PFRS 2 an entity measures fair value in
a. P45,000 c. P15,000
accordance with
b. P30,000 d. P12,000
a. PFRS 2 c. PAS 32
b. PFRS 13 d. PAS 2

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10. Assuming the fair value of the share options cannot be • Grant date (January 1, 2017): estimates of
reliably measured, Madelle should recognize employees leaving the entity during the vesting
compensation expense in 2019 profit or loss of period - 4%.
a. P45,000 c. P15,000 • January 1, 2018: revision of estimate of employees
b. P30,000 d. P12,000 leaving to 6% before vesting date.
• December 31, 2019: actual employees leaving 5%.
What would be the expense charged in the income
11. Many shares and most share options are not traded in
statement in 2019?
an active market. Therefore, it is often difficult to
a. P2.00 million c. P1.94 million
arrive at a fair value of the equity instruments being
b. P1.86 million d. P1.90 million
issued. Which of the following option valuation
techniques should not be used as a measure of fair
17. Which statement is incorrect if a grant of equity
value in the first instance?
instruments is cancelled or settled during the vesting
a. Black-Scholes model. c. Monte Carlo model.
period?
b. Binomial model. d. Intrinsic value.
a. The entity shall account for the cancellation or
settlement as an acceleration of vesting, and shall
12. Option pricing models take into account which of the
therefore recognize immediately the amount that
following factors
otherwise would have been recognized for services
a. The current price of the underlying shares
received over the remainder of the vesting period.
b. The expected volatility of the share price
b. Any payment made to the employee on the
c. The risk-free interest rate for the life of the option
cancellation or settlement of the grant shall be
d. All of the above
accounted for as the repurchase of an equity
interest.
13. Windom Corp. on January 1, 2017, granted share

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c. Any payment made to the employee on the

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options for 100,000 shares of its P10 par value ordinary
cancellation or settlement of the grant that
shares to its key employees. The market price of the

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exceeds the fair value of the equity instruments
ordinary share on that date was P23 per share and the
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option price was P20. The Black-Scholes option pricing
recognized as an expense.
model determines total compensation expense to be

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d. If the share-based payment arrangement included
P600,000. The options are exercisable beginning
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liability components, the entity shall re-measure
January 1, 2020, provided those key employees are still
the fair value of the liability and equity
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in Windom’s employ at the time the options are

components at the date of cancellation or
exercised. The options expire on January 1, 2021.
settlement.
On January 1, 2020, when the market price of the
share was P29 per share, all 100,000 options were 18. An entity has granted share options to its employees.
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exercised. The amount of compensation expense The total expense to the vesting date of December 31,
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Windom should record for 2019 is 2020, has been calculated as P8 million. The entity
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a. P100,000 c. P150,000 has decided to settle the award early, on December

b. P200,000 d. P700,000 31, 2019. The expense charged in the income
statement since the grant date of January 1, 2017, had
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14. In what circumstances is compensation expense been year to December 31, 2017, P2 million, and year
immediately recognized under PFRS 2? to December 31, 2018, P2.1 million. The expense that
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a. In all circumstances. would have been charged in the year to December 31,
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b. In no circumstances is compensation expense 2019, was P2.2 million. What would be the expense
immediately recognized. charged in the income statement for the year
c. In circumstances when options are exercisable December 31, 2019?
within 2 years for services rendered over the next a. P2.2 million c. P3.9 million
2 years. b. P8.0 million d. P2.0 million
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d. In circumstances when options are granted for

prior service and the options are immediately
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exercisable. 19. Which statement is incorrect if a grant of equity

instruments is modified?
15. On January 2, 2019, Kine Co. granted Morgan, its a. The determination of whether a change in terms
president, compensatory share options to buy 1,000 and conditions has an effect on the amount
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shares of Kine's P10 par ordinary shares. The options recognized depends on whether the fair value of
call for a price of P20 per share and are exercisable for the new instruments is greater than the fair value
three years following the grant date. Morgan of the original instruments (both determined at the
exercised the options on December 31, 2019. The modification date).
market price of the share was P50 on January 2, 2019, b. If the fair value of the new instruments is more
and P70 on December 31, 2019. The fair value of a than the fair value of the old instruments (e.g. by
similar share option with the same terms was P28 on reduction of the exercise price or issuance of
the grant date. What is compensation expense for additional instruments), the incremental amount is
2019 for the share-based payments? recognized over the remaining vesting period in a
a. P 9,333 c. P20,000 manner similar to the original amount. If the
b. P10,000 d. P28,000 modification occurs after the vesting period, the
incremental amount is recognized immediately.
c. If the fair value of the new instruments is less than
16. Ashleigh, a public limited company, has granted share the fair value of the old instruments, the original
options to its employees with a fair value of P6 million. fair value of the equity instruments granted should
The options vest in three years’ time. The Monte-Carlo be expensed as if the modification never occurred.
model was used to value the options, and these d. None of the above.
estimates had been made:

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20. At the beginning of year 1, an entity grants 100 share Compute for the amount to be recognized as
options to each of its 200 employees. Each grant is compensation expense in year 3.
conditional upon the employee remaining in service a. P55,000 c. P75,000
over the next three years. The entity estimates that b. P45,000 d. P 0
the fair value of each option is P21. On the basis of a
weighted average probability, the entity estimates that 25. Entity A has entered into a contract with Entity B. B will
60 employees will leave during the three-year period supply A with a range of services. The payment for
and therefore forfeit their rights to the share options. those services will be in cash and based upon the price
of A's ordinary shares on completion of the contract.
Suppose that 15 employees leave during year 1. Also
This share-based payment transaction is
suppose that by the end of year 1, the entity’s share
a. Asset-settled share-based payment transaction
price has dropped, and the entity reprices its share
b. Liability-settled share-based payment transaction
options, and that the repriced share options vest at the
c. Cash-settled share-based payment transaction
end of year 3. The entity estimates that a further 35
d. Equity-settled share-based payment transaction
employees will leave during years 2 and 3. During
year 2, a further 10 employees leave, and the entity
26. Which statement is false regarding cash-settled share-
estimates that a further 10 employees will leave during
based payment transactions?
year 3. During year 3, a total of 8 employees leave.
a. The entity shall measure the goods or services
The entity estimates that, at the date of repricing, the acquired and the liability incurred at the fair value
fair value of each of the original share options granted of the liability.
(ie before taking into account the repricing) is P10 and b. Until the liability is settled, the entity is required to
that the fair value of each repriced share option is P13. remeasure the fair value of the liability at the end
of each reporting period and at the date of
The amount to be recognized as expense in year 2 is settlement.

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a. P159,000 c. P150,750

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c. Changes in fair value of the liability are recognised
b. P105,000 d. P135,750 in profit or loss for the period.

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in equity.
21. A condition upon which the exercise price, vesting or

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exercisability of an equity instrument depends that is 27. On January 1, 2017, Fulgoso, Inc. established a share
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related to the market price of the entity’s equity appreciation rights plan for its executives conditional
instruments, such as attaining a specified share price
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upon the executives’ remaining in the entity’s employ

or a specified amount of intrinsic value of a share for four years. It entitled them to receive cash at any
option, or achieving a specified target that is based on time after four years for the difference between the
the market price of the entity’s equity instruments market price of its ordinary share and a pre-
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relative to an index of market prices of equity established price of P20 on 100,000 SARs. Current
instruments of other entities. market prices of the share are as follows:
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a. Service c. Market January 1, 2017 P25 per share

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b. Performance d. Vesting December 31, 2017 38 per share

December 31, 2018 30 per share
22. Which of the following conditions must be taken into December 31, 2019 33 per share
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account when estimating fair value of equity

instruments at the measurement date? What amount of compensation expense should Fulgoso
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a. Service c. Market recognize for the year ended December 31, 2019?
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b. Performance d. None of these a. P475,000 c. P550,000

b. P975,000 d. P150,000
23. An entity shall recognize the goods or services
received from a counterparty irrespective of whether Use the following information for the next two questions.
which condition is satisfied
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Jay, a public limited company, has granted 20 share

a. Service c. Market
appreciation rights to each of its 500 employees on
b. Performance d. None of these
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January 1, 2016. The rights are due to vest on December

31, 2019 with payment being made on December 31,
24. At the beginning of year 1, the entity grants 1,000
2020. Assume that 80% of the awards vest. Share prices
share options to each of its 20 employees working in
are:
the sales department, conditional upon the employee’s
January 1, 2016 P15
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remaining in the entity’s employ for three years, and

December 31, 2016 18
the sales team selling more than 50,000 units of a
December 31, 2019 21
particular product over the three-year period.
December 31, 2020 19
However, the share options cannot be exercised unless
the share price has increased at the end of year 3 by 28. What liability will be recognized on December 31,
at least 20%. The fair value of the share options is 2019, for the share appreciation rights?
P15 per option at the date of grant. a. P 60,000 c. P 48,000
b. P210,000 d. P150,000
By the end of year 1, two employees have left and the
entity expects that a total of 5 employees will leave by 29. How should the settlement of the transaction be
the end of year 3. During year 2, the entity increases accounted for on December 31, 2020?
the sales target to 100,000 units. By the end of year a. Payment to employees of P32,000, no gain
2, a further four employees have left. The entity now recorded
expects two more employees will leave during year 3. b. Payment to employees of P16,000, gain of P32,000
By the end of year 3, the entity has sold 55,000 units, is recorded
and the share options are forfeited. The share price c. Payment to employees of P48,000, no gain
has increased by only 10%. By the end of year 3, a recorded
further three employees have left. d. Payment to employees of P32,000, gain of P16,000
is recorded

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 EXCEL PROFESSIONAL SERVICES, INC.

30. An entity grants to an employee the right to choose 31. At the beginning of year 1, the entity grants 10,000
either 1,000 phantom shares, ie a right to a cash shares with a fair value of P27 per share to a senior
payment equal to the value of 1,000 shares, or 1,200 executive, conditional upon the completion of three
shares. The grant is conditional upon the completion years’ service. By the end of year 2, the share price
of three years’ service. If the employee chooses the has dropped to P21 per share. At that date, the entity
share alternative, the shares must be held for three adds a cash alternative to the grant, whereby the
years after vesting date. executive can choose whether to receive 10,000
shares or cash equal to the value of 10,000 shares on
At grant date, the entity’s share price is P50 per share.
vesting date. The share price is P18 on vesting date.
At the end of years 1, 2 and 3, the share price is P52,
P55 and P60 respectively. The entity does not expect The net expense to be recognized in year 3 is
to pay dividends in the next three years. After taking a. P90,000 c. P70,000
into account the effects of the post-vesting transfer b. P60,000 d. P40,000
restrictions, the entity estimates that the grant date
fair value of the share alternative is P48 per share. 32. PFRS 2 requires disclosure of
a. The nature and extent of share-based payment
Compute for the amount to be recognized as
arrangements that existed during the period.
compensation expense in year 2.
b. How the fair value of the goods or services
a. P21,868 c. P19,334
received, or the fair value of the equity
b. P36,667 d. P19,200
instruments granted, during the period was
determined.
c. The effect of share-based payment transactions on
the entity's profit or loss for the period and on its
financial position.

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d. All of the above.

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