Share Based Payment Flashcards
What is the amount used to measure share options in the Fair Value method?
Fair Value of Options
If the fair value method of the share options cannot be measured reliably, what will you use?
Intrinsic Value Method
(IV = Market Value of Shares - Option Price)
How do you solve for the intrinsic value of the option shares?
IV = Market Value of Shares - Option Price, beg.
How do you recognize share options when they vest immediately?
Total Compensation Expense (TCE) is recognized in full.
Dr Compensation Expense
Cr Share Options Outstanding (Share Premium)
How do you recognize share options when they do not vest immediately?
They are recognized as expense OVER the vesting period.
What is the journal entry when the Share Options are exercised?
Dr Cash
Dr Share Options Outstanding
Cr Share Capital
Cr Share Premium
Note: Share Options Outstanding is debited because it is to close the credit.
What are the journal entries when the share options are not vested immediately?
Beg Year: No entry
Subsequent Years: Amortized over the period (Dr CE, Cr SOO)
End Year:
Dr Cash
Dr SOO
Cr SC
Cr SP
Expiration:
Dr SOO
Cr SP
Intrinsic Value Method vs
To solve for the compensation expense on a share based payment on the subsequent years, how do you do it?
Find the net employees (deduct the actual number of employees remaining and the expected)
Multiply it by the agreed option price and number of shares.
Multiply it by fair value and then multiply it by the fraction of the year.
Deduct previous years’ compensation expenses.
Keyword: Cumulative.
On the intrinsic value method, if there are years beyond the vesting period, what happens?
There is a remeasurement of the Total Compensation Expense until the settlement period. The total compensation for the years after vesting period and before settlement date is deducted from the total compensation expense from the prior period.
(Note: There is a difference between the total compensation expense and the compensation expense for the period, which is why CE’s of the previous periods are deducted from the TCE of the current period.)
On the modification of share options (Increase in Fair Value and Decrease in Option Price), how will you compute for the computation expense?
Compute for the original share option expense.
Multiply the increase in fair value with # of shares.
Divide it by number of shares remaining.
Deduct it from previous ADDITIONAL CE.
Note: By additional CE, we mean the additional compensation expense from the previous calculation in increase in fair value.
What is the formula to find the measurement of share appreciation rights?
- FV of Liab = (MV of Shares - Predetermined Price) x Phantom Shares
(Note: JIf no predetermined price, multiply MV of shares to phantom shares straight up)
How to find the compensation expense FOR THE YEAR in a cash settled share based payment?
MV of Shares - Predetermined Price x Phantom Shares
Divide: Number of years remaining
Note: Predetermined price is the beginning market value.
