Share - Based Payment

Question 1

Share Options are cash-settled. True or False?
Share Appreciation Rights are equity-settled. True or False?

Answer 1

Share Options → Equity-settled
SARs → Cash-settled

Question 2

Share Options

What are the 2 methods?
How to compute compensation in each methods?
What is the journal entry?

Answer 2

1. FV method
- Compensation = FV of options @ grant date

2. Intrinsic Value method
- Compensation = MP less Option Price

Dr. Compensation Exp // Cr. SOO

Grant Date → wala kang pake kahit nagbago na yung FV

Question 3

SARs

How to compute compensation?
What is the journal entry?

Answer 3

Compensation = MP less Option Price

Dr. Compensation Exp // Cr. SARS Payable

Question 4

Vesting

Immediately vs Not Immediately
How to recognize compensation expense?
What is the condition?

Answer 4

Immediately
- Compensation expense = Recognized fully at grant date
- no condition required

Not Immediately
- Compensation Expense = Recognized over the vesting period (not period of share options)
- must met a condition

Question 5

If condition is about market condition, IGNORE (employees can’t do anything about it)

Answer 5

Yes

Question 6

Template in Solving Share-based Compensation

Answer 6

Y1 | Y2 | Y3
(FV) (# of Employees) (# share options / SARs)
1/n | 2/n | 3/n
———————————-
less last year

Question 7

WITH CASH AND SHARE ALTERNATIVES
- like compound financial instrument (residual method)
- how to compute?

Answer 7

FV of share alternative / goods
Less : FV of liability @ grant date
‘= Equity Component

Question 8

IF CHOICE IS CASH ALTERNATIVE
- liability & equity → debited (settled; transferred to SP)
- increase in liability → financing cost

Answer 8

Yes

Question 9

IF CHOICE IS SHARE ALTERNATIVE
- liability & equity → debited
- SOO + SARs → Compensation Expense
- compare to Par Value → SP

Answer 9

Yes