Ch.21 acctg- share based payments

Question 1

Share-Based Compensation

Answer 1

two primary items that are covered under share-based payment:
• share options
• share appreciation rights

Question 2

Share Options

Answer 2

1. If the option vests on the same day that it is granted, it is assumed that the option is compensation for services already provided. The option is then recognized immediately.
2. As the option is earned in the periods in which the employee performs the service (over the vesting period), compensation expense is recorded for the proportionate amount of the fair value of the option
   Dr. Compensation expense XX
   Cr. Contributed surplus — share options XX
   If an entity anticipates that a percentage of options will not vest, the amount earned is multiplied by the percentage expected to vest. Employees who leave prior to an option vesting forfeit the option.

Question 3

initial measurement + subsequent

Answer 3

The fair value of options must be measured at the grant date. No journal entry is required at this time, as the option has not yet been earned.

This measurement is used for the remainder of the life of the option. Employee share options are not subsequently revalued for changes in any of the factors impacting their initial measurement, except for the number that will be vested and earned.

Question 4

Derecognition

Answer 4

redeemed: the value of the option is moved from contributed surplus to common shares.
Dr. CashXX
Dr. Contributed surplus — share optionsXX
Cr. Common shares XX
expire: option from contributed surplus — share options to contributed surplus — expired share options.
Dr. Contributed surplus — share options XX
Cr. Contributed surplus — expired share options XX

Question 5

Share Appreciation Rights

Answer 5

same purpose as share options in that they allow the employee to profit when the market price of the company’s shares improves. The key difference between SARs and share options is that employees do not pay an option price to obtain the benefit. Employees simply redeem them.
SARs can be settled in equity or in cash. Cash-settled SARs are the most common and will be addressed first

Question 6

SAR

Answer 6

Recognition: SARs are recorded in line with when they are earned, which is usually over a vesting period.
SARs are to be settled in cash, the credit is no longer to equity; instead, it establishes a liability.
Dr. Compensation expense XX
Cr. SAR liability XX

Question 7

SAR measurement

Answer 7

As the amount of compensation that will ultimately be paid out by the entity changes based on the current market price of the shares, the SARs are revalued using current information at each reporting date.

Question 8

Derecognition SAR

Answer 8

SAR is redeemed, the entity makes a cash payout and removes the liability from its financial statements.
Dr. SAR liability XX
Cr. Cash XX
SAR expires, no payout occurs. The liability is removed and the compensation expense is reversed.
Dr. SAR liability XX
Cr. Compensation expense XX