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The document describes a share option grant to an executive in 2018 that vests over 3 years. In 2019, the share price dropped and a cash alternative was added. In 2020, the vesting date, the share price was $23. The compensation expense to be recognized for 2020 is $340,000, which is calculated as the total grant value of $1,200,000 multiplied by the vesting ratio of 3/3, less amounts recognized in prior years and adjusting for the decrease in fair value.

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Gabby Lasam
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41 views

Presentation 1

The document describes a share option grant to an executive in 2018 that vests over 3 years. In 2019, the share price dropped and a cash alternative was added. In 2020, the vesting date, the share price was $23. The compensation expense to be recognized for 2020 is $340,000, which is calculated as the total grant value of $1,200,000 multiplied by the vesting ratio of 3/3, less amounts recognized in prior years and adjusting for the decrease in fair value.

Uploaded by

Gabby Lasam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Problem 1

At the beginning of 2018, Mark Sanderson Co grants 30,000 share options with a fair value of
P40 per share to a senior executive, conditional upon the completion of three years’ service. By
the end of 2019, the share price has dropped to P25 per share. At that date, the entity adds a
cash alternative to the grant, whereby the executive can choose whether to receive 30,000
shares or cash equal to the value of 30,000 shares on vesting date. The share price is P23 on
vesting date.

How much is the compensation expense that should be recognized for 2020?

a. P400,000 c. P360,000
b. P460,000 d. P340,000
SOLUTION:

2018 2019 2020


Total shares options 30,000 30,000 30,000
Multiply by: Fair value 40 40 40
Total value of the compensation 1,200,000 1,200,000 1,200,000
Multiply by: Ratio 1/3 2/3 3/3
Cumulative Compensation 400,000 800,000 1,200,000
Less: Cumulative salaries in previous years 400,000 800,000
Compensation expense 400,000 400,000 400,000
Less: Increase in fair value 60,000
Compensation expense 340,000
Problem 1

At the beginning of 2018, Mark Sanderson Co grants 30,000 share options with a fair value of
P40 per share to a senior executive, conditional upon the completion of three years’ service. By
the end of 2019, the share price has dropped to P25 per share. At that date, the entity adds a
cash alternative to the grant, whereby the executive can choose whether to receive 30,000
shares or cash equal to the value of 30,000 shares on vesting date. The share price is P23 on
vesting date.

How much is the compensation expense that should be recognized for 2020?

a. P400,000 c. P360,000
Answer is D. P340,000
b. P460,000 d. P340,000

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