1. On January 1, 20x1, ABC Co. contracted XYZ & Co., CPAs for an outsourced internal audit...

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Question:

1. On January 1, 20x1, ABC Co. contracted XYZ & Co., CPAs for an outsourced internal audit engagement. ABC Co. has its own internal audit department which performs similar services to those outsourced with XYZ. But due to lack of human resources and the immediate need of management for the internal audit services, XYZ has been contracted.

On January 1, 20x1, XYZ & Co. agreed to receive 1,000 shares of ABC with par value per share of ₱100 in consideration for its services as there is no restriction for equity ownership for CPAs providing internal audit services (unlike for financial audits).

The audit field work ended on March 1, 20x1 but the close-out meeting was held on March 10, 20x1. All of the services required under the contract have been substantially rendered as of March 10, 20x1, with the exception of some follow-up procedures required under ISPPIA (International Standards for the Professional Practice of Internal Auditing).

The fair values of the shares were ₱500 on January 1, 20x1, ₱600 on March 1, 20x1, and ₱620 on March 10, 20x1 while the fair value of the services remained unchanged at ₱600,000 over the engagement period.

Requirement: Provide the journal entries on the following dates: Jan. 1, 20x1, March 1, 20x1 and March 10, 20x1.

2 Use the following information for the next three questions:

On January 1, 20x1, ABC Co. grants 1,000 share options to each of its 100 key employees conditional upon each employee remaining in ABC's employ over the next three years. ABC estimates that the fair value of each share option is ₱15.

1. On the basis of a weighted average probability, ABC Co. estimates on January 1, 20x1 that 20 per cent of employees will leave during the three-year period and therefore forfeit their rights to the share options. Twenty (20) employees actually left the company during the three-year period. Fifteen (15) employees left in 20x1 and the other five (5) left in 20x3.

Requirement: Provide the journal entries on the following dates: Jan. 1, 20x1, Dec. 31, 20x1, Dec. 31, 20x2, and Dec. 31, 20x3.

2. On the basis of a weighted average probability, ABC Co. estimates on January 1, 20x1 that 20 employees will leave during the three-year period and therefore forfeit their rights to the share options. During 20x1, 2 employees left. The entity revised its estimate of total employee departures over the three-year period from 20 to 15 employees. During 20x2, additional 3 employees left. The entity revised its estimate of total employee departures over the three-year period from 15 to 12 employees. During 20x3, additional 5 employees left.

Requirement: Provide the journal entries on the following dates: Jan. 1, 20x1, Dec. 31, 20x1, Dec. 31, 20x2, and Dec. 31, 20x3.

3. On the basis of a weighted average probability, ABC Co. estimates on January 1, 20x1 that 20 employees will leave during the three-year period and therefore forfeit their rights to the share options. No employees have actually left the company during the three-year vesting period.

Requirement: Provide the journal entries on the following dates: Jan. 1, 20x1, Dec. 31, 20x1, Dec. 31, 20x2, and Dec. 31, 20x3.

3. On January 1, 20x1, Golf View Village Co. grants 1,000 share options to each of its 180 employees on condition that the employees remain in Golf View's employ until the end of 20x3. The exercise price per share option is ₱20. The fair value per share option is ₱80. On December 31, 20x1, Golf View modifies the share option grant by reducing the exercise price to ₱60. This resulted to an increase in the fair value per option before the modification of ₱100 to ₱120 after the modification.

Questions:

1. What amount of compensation expense shall be recognized in 20x1?

2. What amount of compensation expense shall be recognized in 20x2?

4 On January 1, 20x1, Creek Co. grants 1,000 share options to each of its 180 employees on condition that the employees remain in Creek's employ until the end of 20x3. The exercise price per share option is ₱20. The fair value per share option is ₱80. On December 31, 20x1, Creek Co. modifies the share option grant by extending the vesting period to the end of 20x4.

Questions:

1. What amount of compensation expense shall be recognized in 20x1?

2. What amount of compensation expense shall be recognized in 20x2?

5 On January 1, 2008, ABC Company offered its chief executive officer, stock appreciation rights with the following terms:

Predetermined price ₱100 per share

Number of shares 10,000 shares

Service period-3 years 2018, 2019 and 2020

Exercise date December 31, 2020

The stock appreciation rights are exercised on December 31, 2010. The quoted price of the ABC stock is as follows: ₱118 on December 31, 2018, ₱112 on December 31, 2019 and ₱124 on December 31, 2020.

Requirements:

1. At what amount should ABC Company should record its 2018 compensation expense?

2. At what amount should ABC Company should record its 2018 compensation expense?

3. At what amount should ABC Company should record its 2018 compensation expense?

6 Answer the following problems and Provide Solutions

Use the following information for the next three questions:

On January 1, 20x1, PLUSH LUXORIOUS Co. granted 1,000 share appreciation rights (SARs) to employees with the condition that the employees remain in service for the next three years. Information on the SARs is shown below:

Date	Number of SARs expected to vest	Fair value of each SAR
Jan. 1. 20x1	1,000	40
Dec. 31, 20x1	900	48
Dec. 31, 20x2	800	60
Dec. 31, 20x3	750	64

All of the 750 SARs that vested were exercised on December 31, 20x3. The intrinsic value (which is equal to the cash paid out) is equal to the fair value of the SARs of ₱64 on December 31, 20x3.

1. How much is the salaries expense recognized in 20x1?

2. How much is the accrued liability as of December 31, 20x2?

3. How much is the salaries expense recognized in 20x3?