Instruction: Answer the following questions below. I also included sample computation from our module. You can use it as your reference. Thank you, tutors.

On January 1, 2020, the Switzerland Company granted employees a share-based payment with cash and share alternatives.

The provision includes the right to a cash payment equal to the value of 12,000 phantom shares or 18,000 ordinary shares with a par value of ?50.

Grant is conditional upon completion of 3 years of service. If the employees choose the share alternative, the shares must be held for 3 years after the vesting date.

Related share prices are:

Date of grant ?65

December 31, 2020 ?68

December 31, 2021 ?70

December 31, 2022 ?73

After taking into account the effect of vesting restrictions, the entity estimated that the fair value of the share alternative on the date of the grant is ?48. On January 1, 2023, the employees selected the share alternative.

Requirements:

1. How much is the equity component on January 1, 2020, arising from the share-based payment with cash and share alternative?
2. How much is the compensation expense for 2022?
3. How much is the share premium recorded from the issuance of shares on January 1, 2023?
4. What are the related journal entries?

Reference:

Share appreciation rightsis a cash-settled share-based compensation.

The liability is recorded based on the market value at a certain period.

Hence, the final balance is based on the market value at the date of settlement.

Let us solve the illustrative problem to fully understand the topic.

On January 1, 2020, Pirena Company granted employees a share-based payment with cash and share alternatives.

The provision includes the right to a cash payment equal to the value of 5,000 phantom shares or 7,200 ordinary shares with a par value of ?15.

Grant is conditional upon completion of 2 years of service. If the employees choose the share alternative, the shares must be held for 2 years after the vesting date.

Related share prices are:

Date of grant ?22

December 31, 2020, ?25

December 31, 2021, ?30

After taking into account the effect of vesting restrictions, the entity estimated that the fair value of the share alternative on the dateof the grant is ?26. On January 1, 2022, the employees selected the share alternative.

Requirements:

1. How much is the equity component on January 1, 2020, arising from the share-based payment with cash and share alternative?
2. How much is the compensation expense for 2021?
3. How much is the share premium recorded from the issuance of shares on January 1, 2022?

Fair value of the share alternative P187,200 No. of shares 7,200 multiplied by FV (Date of grant) $26 Less: Fair value of liability at grant date #110,000 No. of phantom shares 5,000 multiplied by FV (Date of grant) P22 Total Share option outstanding - Equity component #77,200 divided by vesting period N Salaries expense - share option, 2020 P38,600 No. of shares (share basis) 5,000 multiplied by FV at year-end P25 Total liability #125,000 divided by vesting period 2 Salaries expense - share appreciation rights, 2020 #62,500Related journal entries: Date Account Particulars Debit Credit December 31, 2020 Salaries expense - share options 38,600 Share premium - share options outstanding 38,600 To record share options for the period. Salaries expense - share appreciation rights #62,500 Salaries payable - share appreciation rights P62,500 To record share apprecatoryghts for the period. No. of shares (share basis) 5,000 multiplied by FV at year-end P30 Total liability P150,000 multiplied by vesting period ratio 1.0000 Cumulative share appreciation rights P150,000 Share appreciation rights, 2020 P62,500 Salaries expense - share appreciation rights, 2021 P87,500Salaries expense - share appreciation rights, 2021 P87,500 Salaries expense - share options, 2021 P38,600 Total salaries expense, 2021 P126,100 Related journal entries: Date Account Particulars Debit Credit December 31, 2021 Salaries expense - share options 38,600 Share premium - share options outstanding 38,600 To record share options for the period. Salaries expense - share appreciation rights 87,500 Salaries payable - share appreciation rights 87,500 To record share apprecatoryghts for the period. Date Account Particulars Debit Credit January 1, 2022 Salaries payable - share appreciation rights 150,000 Share premium - share options outstanding 77,200 Share capital 108,000 Share premium 119,200 To record the exercise of share alternarive