SHARE BASED PAYMENTS – Problems

PROBLEM 1:

Irish Company granted 10,000 share options to each of its five directors on January
1, 2016. The options vest on January 1, 2020. The fair value of each option on January 1. 2016 is 50 and it is
anticipated that all of the share options will vest on January 1, 2020.
What amount should be reported as increase in expense and equity for the year ended December 31, 2016?
a. 750,000 c. 625,000
b. 500,000 d. 125,000
PROBLEM 2:

On January 1, 2016, Oak Company granted share options to certain key employees as additional compensation. The
options were for 100,000 ordinary shares of 10 par value at an option price of 15 per share. Market price of this share
on January 1, 2016 was 20. The fair value of each share option on January 1, 2016 is 8. The options were exercisable
beginning January 1, 2016 and expire on December 31, 2016 . On April 1, 2016, all share options were exercised.

What amount of compensation expense should be reported in 2016?

a. c. 200,000800,000
b. 500,000 d. 125,000

PROBLEM 3:

On January 1, 2016, Greece Company granted an employee an option to buy 20,000 shares for 40 per share, the
option exercisable for three years from January 1, 2018. Using the fair value option pricing model, total compensation
expense is determined to be 240,000. The employee exercised the option on September 1, 2018, and sold the 20,000
shares on December 1, 2018. The service period is for two years beginning January 1, 2016.

What amount should be recognized as compensation expense for 2016?

a. 240,000 c. 160,000
b. 120,000 d. 80,000

PROBLEM 4:

Esmeralda Company issued fully paid shares to 200 employees on December 31, 2016. Normally, shares issued to
employees vest over a two-year period but these shares have been given as a bonus to the employees because of
their exceptional performance during the year. The shares have a market value of 500,000 on December 31, 2016 and
an average fair value of 600,00 for the year.

What amount should be expensed for this share-based payment transaction?

a. 600,000 c. 300,000
b. 500,000 d. 250,00

PROBLEM 5-6:

Roxanne Company has granted share options to the employees. The total compensation expense to the vesting date of
December 31, 2019 has been calculated at 8,000,000.
The entity has decided to settle the award early on December 31, 2018.
The compensation expense charged since the date of grant on January 1, 2016 was 2 ,000,000 for 2016 and 2,100,000
for 2017.
The compensation expense that would have been charged in 2018 was 2,200,000.
PROBLEM 5: What is the compensation expense for 2018?

a. 2,200,000 c. 3,900,000
b. 8,000,000 d, 2,000,000
 PROBLEM 6: What is the compensation expense for 2018 if the share options are not exercised but instead
the entity paid 7,500,000 to the employees?

a. 2,200,000 c. 3,400,000
b. 3,900,000 d. 7,500,000

PROBLEM 7:

Ivy Company, an unlisted entity, decided to issue 1,000 share options to an employee in lieu of many years’ service.
However, the fair value of the share options cannot be reliably measured as the entity operates in a highly specialized
market where there are no comparable entities. The exercise price is 100 per share and the options were granted on
January 1, 2016 when the value of the shares was also estimated at 100 per share. On December 31, 2016, the value
of the shares was estimated at 150 per share and the options vested on that date.

What value should be placed on the share options issued for the year ended December 31, 2016?

a. 100,000 c. 50,000
b. 150,000 d. 25,000

PROBLEM 8:

Elizabeth Company granted 100 share appreciation rights to each of the 1,000 employees on January 2016. The entity
estimated that 90% of the awards will vest on December 31, 2018. The fair value of each share appreciation rights on
December 31, 2016 is 10.

What is the accrued liability on December 31, 2016?

a. 300,000 c. 100,000
b. 900,000 d. 90,000

PROBLEM 9-11:

On January 1, 2016, Kristen Company established a share appreciation rights plan for the executives. The plan entitled
them to receive cash at any time during the next four years for the difference between the market price of the ordinary
share and a pre-established price of 20 on 60,000 share appreciation rights. On December 31 , 2018, 20,000 SARs are
exercised by the executives.

Market price

January 1, 2016 25 per share

December 31, 2016 28 per share
December 31, 2017 35 per share
December 31, 2018 30 per share
PROBLEM 9: What amount of compensation expense should be recognized for 2016?

a. 480,000 c. 300,000
b. 120,000 d. 180,000
PROBLEM 10: What amount of compensation expense should be recognized for 2017?

a. 900,000 c. 105,000
b. 420,000 d. 225,000

PROBLEM 11: What amount should be recognized as accrued liability for share appreciation rights on
December 31, 2018?

a. 600,000 c. 400,000
b. 300,000 d. 200,000
PROBLEM 12:
On January 1, 2016, Morey Company granted Dean, the president, 20,000 share appreciation rights for past services.
These rights are exercisable immediately and expire on January 1, 2018. On exercise, Dean is entitled to receive cash
for the excess for the share market price on the grant date. Dean did not exercise any of the rights during 2016. The
market price of Morey’s share was 30 on January 1, 2016 and 45 on December 31, 2016.

As a result of the share appreciation rights, what amount should be recognized as compensation expense for 2016?

a. 0 c. 300,000
b. 100,000 d. 600,000

PROBLEM 13:

Wolf Company granted 30,000 share appreciation rights which entitled key employees to receive cash equal to the
difference between 20 and the market price of the share on the date each right is exercised. The service period is 2016
through 2018, and the rights are exercisable in 2019. The market price of the share was 25 and 28 on December 31,
2016 and 2017, respectively.

What amount should be reported as liability under the share appreciation rights on December 31, 2017?

a. 0 c. 160,000
b. 130,000 d. 240,000
PROBLEM 14-15:
Sarah Company has granted share options to the employees. The total compensation expense to the vesting date of
December 31, 2019 has been calculated at 5,000,000.
The entity has decided to settle the award early on December 3, 2018.
The compensation expense charge since the date of grant on January 1, 2016 was 1 ,000,000 for 2016 and 1,200,000
for 2017.
The compensation expense that would have been charged in 2018 was 1,800,000.
PROBLEM 14: What is the compensation expense for 2018?

a. 2,400,000 c. 2,600,000
b. 2,800,000 d. 2,500,000

PROBLEM 15: What is the compensation expense for 2018 if the share options are not exercised but instead the entity
paid 4,500,000 to the employees?

a. 2,000,000 c. 2,500,000
b. 2,900,000 d. 2,300,000
SHARE-BASED PAYMENTS – Theories
1. It is the difference between the fair value of the 3. What is the date on which the fair value of the
shares to which the counterparty has the right to equity instrument granted is measured?
subscribe and the price the counterparty is a. Measurement date
required to pay for those shares. b. Grant date
a. Fair Value c. End of reporting period
b. Intrinsic Value d. Exercise date
c. Market Value
d. Book Value 4. It is the contract that gives the holder the right,
but not the obligation, to subscribe to the entity’s
2. What is the date on which the entity and another shares at a fixed or determinable price for a
party agree to a sharebased payment specified period of time.
arrangement, being when the entity and the a. Share option
counterparty have a shared understanding of b. Share warrant
the terms and conditions of the arrangement? c. Share appreciation right
a. Grant date d. Share split
b. Measurement date
c. Exercise date
d. End of reporting period
5. If the entity has the choice of settlement in a
“cash and share alternative”, the entity shall
account for the instrument initially as
a. Equity only
b. Liability only
c. Partly equity and partly liability
d. Either equity or liability but not both
6. A cash settled share-based payment transaction
increases which of the following?
a. A current asset
b. A non-current asset
c. Equity
d. A liability
7. What is the measurement date for a share-
based payment to employees that is classified
as a liability?
a. The service inception date
b. The grant date
c. The settlement date
d. The end of the reporting period
8. These are transactions in which the entity
receives goods or services as consideration for
equity instruments of the entity, including shares
and share options.
a. Equity settled share-based payment
transactions
b. Cash settled share-based payment
transactions
c. Equity payment transactions
d. Cash payment transactions
9. If the share options do not vest until the
employee completes a specified service period,
the compensation is
a. Not recognized as expense
b. Recognized as expense immediately
c. Recognized as expense over the
service or vesting period
d. Recognized expense over a reasonable
period not exceeding 10 years
10.The entity has issued a range of share options to
employees. What type of share-based payment
transaction does this represent?
a. Asset settled share-based payment
transactions
b. Equity settled share-based payment
transactions
c. Cash settled share-based payment
transactions
d. Liability settled share-based payment
transactions
11.These are transactions in which the entity
acquires goods or services by incurring
liabilities to the supplier of those goods or
services for amounts that are based on the
price of the entity’s shares and other equity
instruments
a. Equity transactions
b. Cash payment transactions
c. Purchase transactions
d. Cash settled share-based payment
transactions
12.If the share-based payment transactions
provides that the employees have the right to
choose the settlement whether in cash or
shares, the entity is deemed to have issued
a. A compound financial instrument
b. An equity instrument
c. A liability instrument
d. Either an equity instrument or a liability
instrument but not both
13.An entity has entered into a contract with another
entity which will supply a range of services. The
payment for those services will be in cash and
based upon the price of the entity’s ordinary
shares on completion of the contract.
What type of share based payment transaction
does this represent?
a. Asset settled share-based payment
transactions
b. Liability settled share-based payment
transactions
c. Cash settled share-based payment
transactions
d. Equity settled share-based payment
transactions
14.Which of the following statements in relation to
the cash settled share-based payment
transactions is true?
I. The fair value of the liability shall be
remeasured at the end of each
reporting period.
II. The fair value of the liability shall be
remeasured at the date of settlement.
a. I only
b. II only
c. Both I and II
d. Neither I and II
15.Which of the following statements in relation to
share options granted to employees in
exchange for their services is true?
I. The services received shall be a. I only
measured at the fair value of the b. II only
employees’ services. c. Both I and II
II. Fair Value shall be measured at the d. Neither I and II
date the options vest.