Share based payments

Question 1

Share Based Payment

Answer 1

When a company offers forms of equity as compensation

Question 2

2 primary types of share based payments

Answer 2

1) share options (give the right to purchase shares in a company at a pre-established price)
2) share appreciation rights (SARs) (allow employee to profit when price of shares improve, which ownership does not have to be held by employee to receive payout)

Question 3

When can share options be recognized?

Answer 3

• Recognized once past the vesting period
• The vesting period is the time after the Grant and Vesting date have both been passed

Question 4

Dates related to stock options

Answer 4

1) Grant date
2) Vesting date (dates the options become exercisable)
3) exercise date
4) Expiry date

Question 5

Measurement of Stock options

Answer 5

• Measurement: FV at grant date

Question 6

Journal entries for Stock options

Answer 6

• Journal entry after vesting period: DR. salary expense, CR. contributed surplus-share options
• Journal entry at exercise date: DR. cash, DR. contributed surplus-share options, CR. share capital
• Journal entry if expired: DR. contributed surplus-stock options, CR. contributed surplus-expired stock options

Question 7

Share appreciation rights (SARs) vs Stock options

Answer 7

• the difference between SARs and share options is that employees do not pay option price to obtain benefit

Question 8

Measurement of SARs

Answer 8

• measured at FV and revalued at the end of each year as the compensation will ultimately be paid out
• ASPE difference; ASPE uses intrinsic value (market price-exercise price) not FV

Question 9

Journal entries for SARs

Answer 9

• Initial entry (assuming cash settled): DR. compensation expense, CR. SAR liability
• Entry if redeemed: DR. SAR liability, CR. cash
• Entry if expired: DR. SAR liability, CR. compensation expense