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Problems - Share-Based Payments

The document discusses various examples of share-based payment transactions including: 1) Issuing share options to pay for inventory that is later sold for a higher value. 2) Issuing shares to settle services from a contractor over a one-year period. 3) Issuing shares to purchase an office building. 4) Issuing shares to employees that vest over three years provided they remain employed. 5) Granting share options to directors that vest after two years subject to continued employment.

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huka
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178 views

Problems - Share-Based Payments

The document discusses various examples of share-based payment transactions including: 1) Issuing share options to pay for inventory that is later sold for a higher value. 2) Issuing shares to settle services from a contractor over a one-year period. 3) Issuing shares to purchase an office building. 4) Issuing shares to employees that vest over three years provided they remain employed. 5) Granting share options to directors that vest after two years subject to continued employment.

Uploaded by

huka
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Share-based payments

1. A company issued share options on 1/06/2016 to pay for the purchase of


inventory. The value of the inventory on 1/06/2016 was Rs 6 mn and this
value was unchanged up to the date of sale.
The inventory is eventually sold on 31/12/2018 for Rs 8mn. The shares
issued have a market value of Rs 6.3mn.
How will this purchase of inventory be dealt with in the financial
statements?

2. PQR hired a company for maintenance of heavy machinery. The services


will be settled by issuing 15,000 shares (par value Rs 10). Contract is for
1/9/2018 to 31/8/2019. Fair value of services using market value of
similar contracts is Rs 120,000.

3. AMN issued 995 shares for purchase of office building on 1/2/2019. Fair
value of office building was Rs 20,00,000 and par value of shares is Rs
100.

4. A company issues fully paid shares to all 500 existing employees on 31


July 2018. Shares issued to employees normally have vesting conditions
attached to them and vest over a three-year period, at the end of which the
employees must be in the company’s employment. However, these shares
have been given to the employees because of the performance of the
company during the year.
The shares have a market value of Rs 2 mn on 31 July 2018 and an
average fair value over the previous 12 months of Rs 3 mn. It is
anticipated that in three-years’ time there will be 400 employees at the
company.
What amount would be expensed to profit or loss for the year ended 31
July 2018?

5. A company grants 2,000 share options to each of its 3 directors on


1/1/2016, subject to the directors being employed on 31/12/2018. The
options vest on 31/12/2018. The fair value of each option on 1/1/2016 is
Rs 10. On 31/12/2016 it is anticipated that only 2 directors will be
employed on 31/12/2018.
How will the share options be treated in the financial statements for the
year ended 31 December 2016?

6. X Ltd grants 1,000 share options (ESOPs 2017) each to its 100
employees on 1st March 2017. Grant is conditional upon the employee
working for the entity over the next 3 years. Options are to be
immediately exercised after three years.
Exercise Price = Rs. 1,000.
Par Value of Equity = Rs 10
Current MPS = Rs 850, Risk Free Interest Rate = 6%, Volatility = 25%
Based on the attrition trend, the entity expects 20% of the employees to
leave each year, which will result in the forfeiture of their options.
Explain accounting for FY 2016-17, FY2017-18, FY2018-19 and
FY2019-20.

7. A company grants 300 share options to 1000 employees. Vesting period


is 3 years & exercise period is 3 years thereafter.
Current MPS is Rs 30 per share & exercise price is Rs 50. Face Value is
Rs 10. Fair Value of options on grant date is Rs 15 per option
Expected forfeitures every year 3%.
At the end of Year 2 the company has decided to revise the expected
forfeiture rate to 6% per year for the entire period.
At end of year 3 840 employees completed vesting period.
How will the share options be treated in the financial statements for the
yearend 1, 2 and 3?
In year 5 & 6, 200 and 600 employees exercise right to buy shares. Rights
of 40 employees remain unexercised & lapse at end of year 6.

8. AH grants 100 shares to 500 employees on 1/1/2014 Employees have to


remain in service during the vesting period. Shares will vest at end of
the :
1st year – if AH’s earnings increase by 12%
2nd year – if AH’s earnings increase by more than 20% over the 2 years
3rd year – if AH’s earnings increase by more than 22% over the 3 years
Fair value per share on grant date is Rs 122. In 2014 earnings increased
by 10% and 29 employees left AH. It is expected that the shares will vest
at the end of 2015. It also expects that additional 31 employees will leave
in 2015 and 440 employees will receive their shares at end of 2015. At
end of 2015 earnings increased by 18% and shares did not vest. Only 29
employees left during 2015. AH believes further 23 employees will leave
in 2016 and earnings will increase to meet the performance requirements.
21 employees leave during 2016. At end of 2016 earnings increase and
shares are issued to employees. Determine expenses for each year.

9. LMN has granted 10,000 share options to the MD for which he must
work for next 3 years & market price of shares must increase by 20%
over the period. The share price movement over the 3 years has been
22%, 19%, 25% respectively. On grant date the Fair Value of the option
was Rs 120. How should this be recognised?

10.ALM issued 100 shares to 20 employees subject to being in service for


next 3 years. The settlement is to be made in cash. Fair value on grant
date is Rs 200 each. Fair value on each reporting date is Rs 180, Rs 190
and Rs 220 respectively. Calculate expenses for each year.

11.On 1/4/2015XYZ issued 10,000 share appreciation rights (SARs) to its


employees with condition to remain in service for next 3 years. SARs will
be settled in cash. Fair Value of SARs on issue date is Rs 95. Expected
that 95% of employees will be in service on 31/3/16, 92% on 31/3/17 and
finally 89% will be vested & settled on 31/3/18. Fair values on 31/3 of
the 3 years are 112, 109 and 114 respectively.

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