CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ
BATCH 92 OCTOBER 2022 CPALE
SHARE OPTIONS
1. On January 1, 2022, an entity granted 200 share options each to 300 employees, conditional upon the
employee’s remaining in the entity’s employ during the vesting period. The share options vest at the end
of a three-year period. On grant date, each share option has a fair value of P50. The par value per share
is P100 and the option price is P120. On December 31, 2022, 20 employees have left and it is expected
that on the basis of a weighted average probability, a further 10 employees will leave before the end of
the three-year period. On December 31, 2023, 10 employees actually left and a further 15 employees will
leave during 2024. On December 31, 2024, 15 employees actually left and all of the share options are
exercised on such date.
1. What amount should be reported as compensation expense for 2024?
a. 900,000
b. 800,000
c. 700,000
d. 850,000
2. What amount should be reported as share premium when the options were exercised on December
31, 2024?
a. 3,570,000
b. 1,020,000
c. 1,080,000
d. 3,780,000
2. An entity granted share options to employees. The total compensation expense to the vesting date on
December 31, 2025 was calculated at P6,000,000. The entity decided to settle the award early on
December 31, 2024. The compensation expense charged since the date of grant on January 1, 2022 was
P1,500,000 for 2022 and P1,300,000 for 2023. The compensation expense that would have been charged
for 2024 is P1,200,000.
1. What amount should be reported as compensation expense for 2024?
a. 3,200,000
b. 2,000,000
c. 1,200,000
d. 0
2. What amount should be reported as compensation expense for 2024, if the share options are not
exercised but instead, the entity paid the employees P5,000,000 on December 31, 2024?
a. 5,000,000
b. 2,200,000
c. 3,200,000
d. 0
3. An entity granted 150,000 share options to the employees with a fair value of P6,000,000. The options
vest in three years. The option price is P80 and the par value is P50. The Monte-Carlo model was used
to value the share options. On January 1, 2022, which is the date of grant, the estimate of employees
leaving the entity during the vesting period is 5%. On December 31, 2023, the estimate of employees
leaving before vesting date is revised to 6%. On December 31, 2024, only 5% of the employees actually
left and only 100,000 share options were exercised when the market value is P150 per share and the
remaining share options lapsed.
1. What amount should be reported as compensation expense for 2024?
a. 2,000,000
b. 1,900,000
c. 1,860,000
d. 1,940,000
2. What amount should be reported as share premium from the exercise of the share options on
December 31, 2024?
a. 7,000,000
b. 8,700,000
c. 1,700,000
d. 4,000,000

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4. On January 1, 2022, an entity granted to a senior executive 30,000 share options, conditional upon the
executive’s remaining in the entity employ until December 31, 2024. The par value per share is P50. The
exercise price is P100. However, the exercise price drops to P80 if the entity’s earnings increase by at
least an average of 10% per year over the three-year period. On grant date, the entity estimated that the
fair value of the share option is P30 if the exercise price is P80 and P25 if the exercise price is P100.
During 2022 and 2023, the earnings increased by 11% and 12% respectively. However, during 2024, the
earnings increased only by 4%. All share options were exercised on December 31, 2024.
1. What amount should be reported as compensation expense for 2022?
a. 900,000
b. 300,000
c. 450,000
d. 400,000
2. What amount should be reported as compensation expense for 2023?
a. 600,000
b. 300,000
c. 150,000
d. 250,000
3. What amount should be reported as compensation expense in 2024?
a. 300,000
b. 600,000
c. 150,000
d. 750,000
4. What is the share premium upon exercise of the share options on December 31, 2024?
a. 1,500,000
b. 2,400,000
c. 2,250,000
d. 1,650,000
5. On January 1, 2022, an entity granted 60,000 share options to employees. The share options vest at the
end of three years provided the employees remain in service until then. The option price is P60 and the
par value is P50. At the date of grant, the fair value of the share options cannot be measured reliably.
The share options have a life of 4 years. The share prices are P62 on December 31, 2022, P66 on
December 31, 2023, P75 on December 31, 2024 and P85 on December 31, 2025. All share options were
exercised on December 31, 2025.
1. What amount should be reported as compensation expense for 2022?
a. 75,000
b. 60,000
c. 40,000
d. 30,000
2. What amount should be reported as compensation expense for 2023?
a. 360,000
b. 240,000
c. 200,000
d. 180,000
3. What amount should be reported as compensation for 2024?
a. 900,000
b. 300,000
c. 450,000
d. 660,000
4. What amount should be reported as compensation expense for 2025?
a. 200,000
b. 660,000
c. 600,000
d. 0
5. What is the share premium from the exercise of the share options on December 31, 2025?
a. 2,100,000
b. 1,500,000
c. 900,000
d. 450,000
End
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