On 1 January 20x1, Sun-Bright Ltd (which adopts 31 December financial year-ends) launched an employee share...

 

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On 1 January 20x1, Sun-Bright Ltd (which adopts 31 December financial year-ends) launched an employee share option plan (ESOP) for the management team to enhance their motivation as well as improve retention rates. Each of its 10 managers was granted 100.000 share options at the exercise price of $9. The options would vest conditional upon the managers working for the company until 31 December 20x3 and would be forfeited if the manager leaves the company during the service period of three years. The options expire on 31 December 20x5. Actual and expected movement of the managers over the next three financial years ended 31 December are as follows: 1 January 20x1 31 December 20x1 31 December 20x2 Estimated resignations 2 2 Actual resignations 1 2 0 31 December 20x3 The estimated fair value (FV) of each option and the share price of Sun-Bright is given below: 1 January 20x1 31 December 20x1 31 December 20x2 31 December 20x3 FV of share option $3.75 $2.85 $3.00 $3.30 Share price of shares $8 $8.25 $8.75 $9.25 31 December 20x4 On 31 December 20x4, 5 managers exercised the share options granted to them. Required: (a) (b) Applying FRS 102 Share-based Payments, prepare the journal entries to record the transactions from 1 January 20x1 to 31 December 20x4. Narrations are not required. Ignore tax effect, if any. (16 marks) Supposing on 1 January 20x2, the management revised the exercise price of the share option to $8. As a result of this modification, the FV of the modified option on this date was estimated to be $3.25, while the FV of the original option on this date was $2.85 as shown on the table above. Compute the remuneration expense recorded for the years 20x2 and 20x3. (8 marks) Part B This part of the question should be answered independently of Part A. Subsequent to the successful launch of the ESOP for the managers, Sun-Bright has now decided to roll out the plan to its sales staff. On 1 January 20x3, Sun-Bright granted 2,000 Share Appreciation Rights (SARS) to each of its top 50 sales staff. The SAR would vest conditional upon completion of service period and is structured as follow: Half of the SARS would vest on 31 December 20x4, and they would be forfeited if the employee leaves the company during the service period of two years. The other half of the SARS would vest on 31 December 20x5, and they would be forfeited if the employee leaves the company during the service period of three years. All the vested SARs will expire after four years from the grant date if not exercised. The estimated fair value (FV) of each SAR on the following dates is as follows: FV with vesting date on 31 December 20x4 ($) FV with vesting date on 31 December 20x5 ($) 31 December 20x3 31 December 20x4 5.40 6.50 5.70 7.20 9.20 9.90 31 December 20x5 Actual and forecast staff movement for the next three financial years 31 December are as follows: 20x3 5 sales staff left the company in 20x3, and Sun-Bright estimates that 5 more employees would leave the company in 20x4 and a further 5 employees would leave in 20x5. 20x4 8 more employees left the company during the year, and Sun-Brights estimates that 8 more employees would leave the company in 20x5, i.e. 29 out of 50 employees were estimated to remain in the company as at 31 December 20x5. 20x5 There were no resignations during the year. All the remaining staffs exercised their SARs that vested on 31 December 20x4, at an intrinsic value (which is equal to the cash paid out) at $8.50. On 31 December 20x6, the remaining staff exercised their vested remaining SARs when the intrinsic value of each SAR was $12. Required: (c) Identify whether the above share-based payment plan is an equity-settled share-based payment transaction or a cash-settled share-based payment transaction. Briefly explain your reason. (d) (4 marks) Applying FRS 102 Share-based Payments, prepare the journal entries to record the transactions for the financial years ended 31 December 20x3 to 31 December 20x6. Narrations are not required. Ignore tax effect, if any. (26 marks) On 1 January 20x1, Sun-Bright Ltd (which adopts 31 December financial year-ends) launched an employee share option plan (ESOP) for the management team to enhance their motivation as well as improve retention rates. Each of its 10 managers was granted 100.000 share options at the exercise price of $9. The options would vest conditional upon the managers working for the company until 31 December 20x3 and would be forfeited if the manager leaves the company during the service period of three years. The options expire on 31 December 20x5. Actual and expected movement of the managers over the next three financial years ended 31 December are as follows: 1 January 20x1 31 December 20x1 31 December 20x2 Estimated resignations 2 2 Actual resignations 1 2 0 31 December 20x3 The estimated fair value (FV) of each option and the share price of Sun-Bright is given below: 1 January 20x1 31 December 20x1 31 December 20x2 31 December 20x3 FV of share option $3.75 $2.85 $3.00 $3.30 Share price of shares $8 $8.25 $8.75 $9.25 31 December 20x4 On 31 December 20x4, 5 managers exercised the share options granted to them. Required: (a) (b) Applying FRS 102 Share-based Payments, prepare the journal entries to record the transactions from 1 January 20x1 to 31 December 20x4. Narrations are not required. Ignore tax effect, if any. (16 marks) Supposing on 1 January 20x2, the management revised the exercise price of the share option to $8. As a result of this modification, the FV of the modified option on this date was estimated to be $3.25, while the FV of the original option on this date was $2.85 as shown on the table above. Compute the remuneration expense recorded for the years 20x2 and 20x3. (8 marks) Part B This part of the question should be answered independently of Part A. Subsequent to the successful launch of the ESOP for the managers, Sun-Bright has now decided to roll out the plan to its sales staff. On 1 January 20x3, Sun-Bright granted 2,000 Share Appreciation Rights (SARS) to each of its top 50 sales staff. The SAR would vest conditional upon completion of service period and is structured as follow: Half of the SARS would vest on 31 December 20x4, and they would be forfeited if the employee leaves the company during the service period of two years. The other half of the SARS would vest on 31 December 20x5, and they would be forfeited if the employee leaves the company during the service period of three years. All the vested SARs will expire after four years from the grant date if not exercised. The estimated fair value (FV) of each SAR on the following dates is as follows: FV with vesting date on 31 December 20x4 ($) FV with vesting date on 31 December 20x5 ($) 31 December 20x3 31 December 20x4 5.40 6.50 5.70 7.20 9.20 9.90 31 December 20x5 Actual and forecast staff movement for the next three financial years 31 December are as follows: 20x3 5 sales staff left the company in 20x3, and Sun-Bright estimates that 5 more employees would leave the company in 20x4 and a further 5 employees would leave in 20x5. 20x4 8 more employees left the company during the year, and Sun-Brights estimates that 8 more employees would leave the company in 20x5, i.e. 29 out of 50 employees were estimated to remain in the company as at 31 December 20x5. 20x5 There were no resignations during the year. All the remaining staffs exercised their SARs that vested on 31 December 20x4, at an intrinsic value (which is equal to the cash paid out) at $8.50. On 31 December 20x6, the remaining staff exercised their vested remaining SARs when the intrinsic value of each SAR was $12. Required: (c) Identify whether the above share-based payment plan is an equity-settled share-based payment transaction or a cash-settled share-based payment transaction. Briefly explain your reason. (d) (4 marks) Applying FRS 102 Share-based Payments, prepare the journal entries to record the transactions for the financial years ended 31 December 20x3 to 31 December 20x6. Narrations are not required. Ignore tax effect, if any. (26 marks)