Advanced Financial Accounting: Solutions Manual

Advanced Financial
Accounting
An IFRS® Standards Approach, 3e
Pearl Tan, Chu Yeong Lim and Ee Wen Kuah
Solutions Manual
Chapter 13
Share-based Payment
Copyright © 2016 by McGraw-Hill Education (Asia)

Advanced Financial Accounting (Tan, Lim and Kuah)
Solutions to Chapter 13
CHAPTER 13
CONCEPT QUESTIONS
1. The three types of share-based transactions are:
(a) Equity –settled share-based payment transaction. These are transactions in which a firm
issues its own equity instruments as consideration for goods or services received from
its own employees or from third parties.
(b) Cash-settled share-based payment transactions. In these type of transactions, the firm
incurs a liability which is based on the fair value of its own equity instruments for goods
or services received from its own employees or from third parties.
(c) Share-based transactions with cash alternatives. These are transactions in which a firm
receives goods or services from its own employees or from third parties and the either
the firm or the counter party has the option of settling the transaction in cash or in the
form of equity instruments of the firm. The transaction is treated as a cash-settled share-
based transaction if the firm has incurred a liability to settle in cash. If no liability has
been incurred, the transaction is treated as an equity-settled share-based transaction.
2. The explanations of the following terms are as follows:
(a) Grant date is the date when a firm and its own employees or a third party agrees to the
terms and conditions of a share-based payment transaction. If the agreement is
conditional upon the approval of shareholders of the firm, the grant date is the date
when shareholders approved the agreement.
(b) Measurement date is the date at which the fair value of a firm’s equity instrument is
measured for the accounting of a share-based payment transaction under IFRS 2. If the
counterparty in a share-based payment transaction is the firm’s own employees, the
measurement date is the grant date. If the counterparty is an outside party, the
measurement date is the date when the counterparty renders the service or delivers the
goods.
(c) Vesting date is the date at which the counterparty satisfied the vesting conditions of a
share-based payment transaction.
(d) Vesting conditions are the conditions in a share-based payment transaction that must
be satisfied by the counter-party before the latter is entitled to receive equity
instruments of the firm or cash under the share-based payment transaction.
(e) Forfeiture rate is the number (or percentage) of equity instruments expected to be
forfeited because of non-compliance with one or more vesting conditions.
3. The methods of measuring the fair value of an entity’s equity instruments include:
(a) The quoted market price of the entity’s shares,
(b) An appropriate option valuation model such as the Black-Scholes model or
2
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(c) The intrinsic value method.
4. There are two types of vesting conditions: service conditions and performance conditions.
Service conditions pertain to the stipulated service period that must be served before the
vesting condition is satisfied. Performance conditions usually incorporate a service
condition as well as a performance target such as the achievement of a certain level of sales
or profit. In respect of service conditions, if the equity instruments have not vested because
the counterparty has not completed the specified period of services, IFRS 2 requires that
the firm assumes that the services be rendered during the vesting period. The firm should
recognise an expense as the services are being rendered with a corresponding increase in
equity.
5. The general principles in accounting for share-based transactions are as follows:

(a) When goods or services are received from the counterparty to a share-based
transaction, an expense must be recorded with a corresponding increase in equity.
(b) The issuer of the shares has to consider the timing of the provision of the service. If
the equity instruments are issued for past services, an expense has to be recorded
immediately. If the instruments are issued for future services, the expense is
recognized over the vesting period.
(c) In the case of services rendered by employees, the fair value of services rendered is
measured based on the fair value of the equity instruments at the date of the grant,
as typically, it is not feasible to measure reliably the fair value of services rendered by
employees. The fair value of the equity instruments estimated at the grant date is not
subsequently revised. The amount of expense to be recognized for services to be
rendered during the vesting period is based on the best available estimate of the
number of equity instruments expected to vest; this estimate is revised subsequently
if new information indicates that the number of equity instruments expected to vest
differs from the previous estimate.
(d) In the case of transactions with other parties who are not employees, the transaction
is measured based on the fair value of goods or services rendered at the date the
goods or services are received because the fair value of the goods or services can
normally be estimated reliably. However, in the exceptional case where this
presumption does not hold, the transaction is measured based on the fair market
value of the equity instruments granted.
6. A vesting condition is a condition that must be met before the grantee is entitled to
receive compensation either in the form of cash or equity instruments of the entity.
Vesting conditions fall into one of two categories: service conditions or performance
conditions. As the term implies, a service condition stipulates that a specified period of
service must be completed by the employee or a third party providing services to the
entity. Performance conditions have two components: a service condition and a
performance target. A performance target may be a non-market related target such as
attaining a specified level of sales or profit over a specified period of time or a market-
related condition which is normally tied to the market price of the firm’s shares or a share
index.
3
7. Repricing refers to the revision in the exercise price of a share option as a result of a
modification of the terms of a share option plan. If the repricing results in an increase in
the total fair value of the share-based arrangement, the firm should recognise the effect of
the repricing. However, if the repricing results in a decrease in the total fair value of the
share-based arrangement, the modification is ignored as if it had not been made.
8. A share appreciation right is a type of share-based payment plan for employees under which
an employee is entitled to a cash payment equal to the increase in the share price over the
exercise price (the intrinsic value) at settlement date. The liability of the firm is measured
initially based on the fair value of the share appreciation rights and is remeasured at each
reporting period until the date of final settlement.
9. IFRS 2 allows the a firm’s equity instruments to be measured at their intrinsic value in the
rare event that the firm is unable to reliably estimate the fair value of the equity instruments.
The intrinsic value is remeasured at each reporting date until the date of final settlement.
10. In the case of equity-settled share-based transaction, the goods or services received and the
corresponding increase in equity must be measured at the fair value of goods or services
unless the fair value cannot be reliably estimated. The fair value of services rendered by
employees is measured by reference to the fair value of equity instruments at grant date.
This is due to the fact that normally they cannot be measured reliably. In a cash-settled
share-based transaction the entity incurs a liability for goods or services received. The fair
value of the liability has to be remeasured at each reporting date and at the date of
settlement. Any change in the fair value recognized in profit or loss for the period. There is
no such remeasurement for equity-settled transactions.
11. Since P Co has an obligation to settle the share-based payment (SBP) with P Co’s equity
instruments, P has to recognize the SBP as equity-settled. S Co also recognizes the
transaction as an equity-settled because it receives the goods and services and has no
obligation to settle the SBP payment. The Group will recognize the SBP as equity-settled.
Journal entries
P Co (Equity-settled)
Dr Investment in S
Cr Equity
S Co (Equity-settled)
Dr Expense
Cr Equity contributions
Group (Equity-settled)
Dr Expense
Cr Equity
12. In this situation, P Co has an obligation to settle the SBP with employees of its subsidiaries
S Co in S Co’s equity instruments. Since the settlement is in another entity’s instruments,
P Co recognizes the SBP as cash-settled. S Co recognizes the SBP as equity-settled as it is
4
the recipient of the goods and services. The group recognizes the SBP as equity-settled as
the equity instruments issued are the group instruments.
Journal entries
P Co (Cash-settled)
Dr Investment in S
Cr Liabilities
Dr Expense
Group (Equity-settled)
Dr Expense
Cr Equity
13. In this situation, S Co has an obligation to pay its employees remuneration that is pegged
to the price of shares of its parent, P Co. P Co has no obligation to settle the SBP and it is
also not a recipient of goods and services. No entry is required for P Co. For S Co and the
Group, the SBP is accounted for as a cash-settled SBP. S Co is the recipient of services and
it has an obligation to settle the instrument with reference to the share prices. S Co has
an obligation for future cash outflows to its employees. The same obligation applies to the
group.
Journal entries
S Co and Group (Cash-settled)

Dr Expense
Cr Liabilities
14. P Co has an obligation to pay to employees of its subsidiary, S Co, remuneration that is
pegged to the price of shares of P Co. In this situation, P Co has an obligation to pay in
cash an amount that is pegged to the share price of its shares. It accounts for the SBP as a
cash-settled SBP and an increase in its investment in S Co. S Co is the beneficiary of the
SBP for services received and accounts for the benefit as an equity contribution from P Co
and the receipt of service as an expense. The group recognizes the expense for the services
received and a liability for the obligation for a future outflow of cash.
Journal entries
P Co (Cash-settled)
Dr Investment
Cr Liabilities
Dr Expense
Group (Cash-settled)
Dr Expense
Cr Liabilities
5
EXERCISES
Exercise 13.1
(Note: This is a discussion question, so no calculation is required. Also, to calculate the remuneration
expense and the liability for each year, additional information pertaining to the fair value of the SARs
would have to be given.)
The share appreciation rights plan is a cash-settled share-based payment arrangement. IFRS 2 requires
a firm to recognise remuneration expense and a liability for services rendered. The fair value of the
liability is measured at 31 December 20x1 based on the estimated fair value of the SARs (this is not the
same as the share price). At 31 December 20x2, remuneration expense and the related liability is
remeasured. As long as the liability has not been fully settled, the liability is remeasured at each
subsequent reporting date. The cash paid out is equal to the intrinsic value of the SARS (share price less
exercise price) at the date of exercise. The liability is gradually reduced when the employees exercised
the SARs and will be fully extinguished when all the eligible employees have exercised the SARs or
the SARs have lapsed.
Exercise 13.2
IGRS 2 requires a firm to recognise the remuneration expense related to services provided by employees
under a share options plan. There are at least two approaches to measuring the remuneration expense to
be recognised in this question. One approach, which is the one favoured by IFRS 2, is to measure the
remuneration expense based on the fair value of the equity instruments issued by the firm. Another
approach is to measure remuneration expense based on the intrinsic value of the equity instruments.
This approach should be used in the rare situation where the fair value of the equity instruments cannot
be reliably measured. In this case, both the estimated fair value and the intrinsic values are provided.
The question is: is the fair value of the equity instruments capable of being fairly measured? The issue
is of great significance to the firm because the measurement approach used will have a great impact on
the firm’s reported earnings during the vesting period. If the fair value of $43 million is considered a
reliable estimate, then the remuneration expense, assuming no forfeiture during the vesting period, will
be $21.5 million for 20x3 and 20x4. However, if the $43 million is considered not a reliably estimated
amount, then measurement of remuneration expense should be based on the intrinsic value which is
$1.9 million in 20x3 and $2.6 million in 20x4.
The use of either the fair value of the equity instrument at grant date or the intrinsic value method also
has accounting consequences in terms of accounting for the tax effects of the remuneration expense. If
the fair value of the equity instrument is used to measure remuneration expense while the related tax
deduction is based on intrinsic value and recognised at the time of exercise, a temporary timing
difference is created. We need to evaluate whether the future tax deductions are greater or less than the
cumulative remuneration expense. If the future tax deductions are greater than the cumulative
remuneration expense, a portion of the tax effect will have to be recognised directly in equity and the
balance recognised in profit or loss. On the other hand, if the cumulative remuneration expense is greater
than the future tax deductions, the entire tax effect is recognised directly in profit or loss. Again there
is a difference in terms of impact on reported earnings.
Normally, the estimated fair value of the options at grant date and the intrinsic values at end of 20x3
and 20x4 should not differ significantly, especially if the estimation period is not long, which is
6
usually the case with share options. In this case, the difference between the intrinsic values and the
estimated fair value is simply too great and this suggests that the estimated fair value may not be
reliably estimated. Therefore, measurement of the remuneration expense should be based on the
intrinsic value method.
Exercise 13.3
The share option carries a vesting condition which is a market condition since it has a target share
price. IFRS2 requires the recognition of an expense for services provided regardless of whether the
market condition is satisfied so long as other vesting conditions are satisfied. As the chief executive
was not expected to forfeit the share options, Delphi Company records the following journal enries:
31 May 20x4
Dr Remuneration expense 76,667
Cr Share options reserve 76,667
(Recognition remuneration expense : 100,000 options x $2.30 x 1/3)
31 May 20x5
(Recognition remuneration expense : 100,000 options x $2.30 x 2/3 - $76,667)
31 May 20x6
(Recognition remuneration expense : 100,000 options x $2.30 - $153,333)
(2) 1 June 20x6
Dr Cash 300,000
Cr Share option reserves 230,000
Cr Share capital 530,000
(Record exercise of share options by chief executive officer and increase in share capital)
7
Exercise 13.4
Journal entries:
31 December 20x1
Dr IPO expense 83,333
Cr Equity reserve 83,333
(Record receipt of services under an equity-settled share-based payment arrangement:

$500,000/6 months)
31 May 20x2
Dr IPO expense 416,667
Cr Equity reserve 416,667
(Record receipt of services under an equity-settled share-based payment arrangement:

$500,000 - $83,333)
Dr Equity reserve 500,000
(Transfer of equity reserve to share capital as IPO successfully launched)
PROBLEMS
Problem 13.1
(1) Calculation of expense relating to share options
Date Current period Cumulative expense

expense
31.12.20x1 100 x 10,000 x 0.95 x $1.50 x $475,000 $475,000
1/3
31.12.20x2 (100 x 10,000 x 0.95 x$1.50 x $475,000 $950,000
2/3) – $475,000
31.12.20x3 100 x 10,000 x .94 x $1.50 - $460,000 $1,410,000
$950,000
(2) Journal entries
31 December 20x1
Cr Share option – reserve 475,000
(Record share option expense for 20x1)
31 December 20x2
8
31 December 20x3
Problem 13.2
(1) The fair value of the equity alternative is $308,000 (11,000 shares × $2.80 x 10). The fair value of
the cash alternative is $300,000 (10,000 phantom shares × $3 x 10). Therefore, the fair value of the
equity component of the compound instrument is $8,000 ($308,000 – $300,000).
Assume the following scenarios at the end of 20x3:

Scenario 1: The employees chose the cash alternative.
Scenario 2: The employees chose the equity alternative.
(2) Calculation of remuneration expense and allocation to equity and liability are as follows:
Year Expense Equity Liability

$ $ $
20x1 Liability component:
(10,000 × $3.50 × 10 x 1/3) 116,667 116,667
Equity component:
($8,000 × 1/3) 2,667 2,667
(10,000 × $4 × 10x 2/3) – $116,667 150,000 150,000
Equity component:
($8,000 × 1/3) 2,667 2,667
(10,000 × $5 x 10 – $266,667 233,333 233,333
Equity component:
($8,000 × 1/3) 2,666 2,666
End 20x3 Scenario 1: cash paid to settle liability ($500,000)

Scenario 1 totals 508,000 508,000 0
Scenario 2: 110,000 shares issued 508,000* (500,000)
Scenario 2 totals 508,000 508,000 0
*issue of shares to settle total of the liability component
IFRS 2:38 requires that the remuneration expense is accounted for separately under the debt and the
equity components as follows:
9
Debt component - the remuneration expense is accounted for in accordance with the requirements
applicable to cash-settled share-based payment transactions.
Equity component - the remuneration expense is accounted for in accordance with the requirements
applicable to equity-settled share-based payment transactions.
Note: the total remuneration is the same for both scenarios.
Journal entries (optional)
31 December 20x1
Cr Share option reserves (equity) 2,667
Cr Liability 116,667
(Record share option expense)
31 December 20x2
31 December 20x3
Under Scenario 1 (Employees chose cash alternative):
31 December 20x3
Dr Liability 500,000
Cr Cash 500,000
(Settlement of liability under share-based compensation plan)
Under Scenario 2 (Employees chose equity alternative):
31 December 20x3
Dr Share option reserves (equity) 8,000
(Settlement of liability under share-based compensation plan by issue of shares)
10
Problem 13.3
This is an equity-settled share-based payment transaction which should be measured based on the fair
value of the equity instruments granted. However, in rare cases such as this, where the entity is unable
to estimate reliably that fair value at the specified measurement date (e.g. grant date, for transactions
with employees), IFRS 2:24 requires the entity to measure the transaction using an intrinsic value
measurement method.
(1) Calculation of remuneration expenses
Current Cumulative
period expense
expense
Year Calculations $ $
20x1 (350,000 options × 28/35) × ($0.94 – $0.85) × 1/3 years 8,400 8,400
20x2 (350,000 options × 30/35) × (1.00 – $0.85) × 2/3 years – $8,400 21,600 30,000
20x3 300,000 options × ($1.10 – $0.85) – $30,000 45,000 75,000
20x4 100,000 outstanding options × ($1.20 – $1.10) + 30,000 105,000
200,000 exercised options × ($1.20 – $1.10)
20x5 100,000 exercised options × ($1.25 – $1.20) 5,000 110,000
(2) Journal entries:
31 December 20x1
Cr Share option reserve – equity 8,400
(Record share-based payment expense for 20x1)
31 December 20x2
31 December 20x3
11
31 December 20x4
Dr Cash (200,000 x 0.85) 170,000
Dr Share option reserve - equity 70,000
(200/300 x 105,000)
(Record exercise of 200,000 options at end of 20x4)
31 December 20x5
Dr Cash (100,000 x 0.85) 85,000
Dr Share option reserve – equity 40,000
(100/300 x 105,000 + 5,000)
(Record exercise of 100,000 options at end of 20x5)
Problem 13.4
Note: IFRS 2:27 requires:
(1) Bonjour to recognize remuneration expense for services received over the three years. The
remuneration is measured base on the fair value of the equity instruments at grant date. This
requirement applies irrespective of any modifications to the terms and conditions on which the
equity instruments were granted, or a cancellation or settlement of that grant of equity
instruments.
(2) The addition of the cash alternative at the end of 20x2 creates an obligation to settle in cash.
Bonjour recognises the liability to settle in cash at the modification date, based on the fair value
of the shares at the modification date and the extent to which the specified services have been
received. (IFRS 2:30 - 33).
12
(3) Bonjour remeasures the fair value of the liability at each reporting date and at the date of
settlement, with any changes in fair value recognised in profit or loss for the period.
(1) Calculate the remuneration expense for 20x2, 20x3 and 20x4.
Remuneration expense for 20x2:
100,000 shares x $3 x 1/3 = $100,000
Cumulative amount credited to equity = $100,000
(100,000 shares x $3 x 2/3) - $100,000 = $100,000
Cumulative amount credited to equity = $200,000
The addition of a cash alternative at the end of 20x3 creates a liability (obligation to settle in cash) calculated as
follows:
100,000 shares x $2.70 x 2/3 = $180,000
This amount is transferred from equity to liability resulting in a net balance of $20,000 in equity.
(100,000 shares x $3) - $200,000 = $100,000

Adjustment in fair value of liability (20,000)*
Remuneration expense for 20x4 $80,000
This amount is allocated between equity and liability as follows:
Equity ($20,000/$200,000 x $100,000) = $10,000
Liability ($180,000/$200,000 x $100,000) = $90,000
Cumulative amount in equity is $30,000.
*Since the share price has decreased further, the liability at vesting date is adjusted further.
Adjustment of liability to closing fair value = ($180,000 + $90,000) – 100,000 shares x $2.50
= ($20,000)
Summary:
Total expense over vesting period = $280,000
Allocated between:
Equity $ 30,000
Liability $250,000
$280,000
13
Problem 13.5
Since the earnings in 20x1 increased by 13% and is expected to remain in the range of 10% and 15%
over the three year-period, the chief executive officer is entitled to 100,000 shares options.
100,000 share options x $5 x 1/3 = $166,667
At the end of 20x2, earnings for the three year period is expected to be more than 15%; hence the chief
executive officer is entitled to 150,000 share options.
(150,000 share options x $5 x 2/3) - $166,667 = $333,333
The actual rate of earnings growth over the three-year period is 10%. Therefore, the chief executive
officer is entitled to only 100,000 share options.
100,000 share options x $5 - $500,000 = $0
(2) Journal entries:
31 December 20x1
(Record remuneration expense for 20x1.)
31 December 20x2
31 December 20x3 No journal entry is recorded as remuneration expense is nil.
Problem 13.6
Year Computations Expense Equity

20x1
Remuneration expenses for year:
100,000 shares options × 95 × $0.80 x ½ 3,800,000 3,800,000
20x2 Remuneration expenses for year: 3,560,000 3,560,000
14
(100,000 shares × 92 × $0.80) – $3,800,000

Journal entries:
31 December 20x1
Dr Remuneration expense 3,800,000
Cr Share option reserve – equity 3,800,000
31 December 20x2
Dr Remuneration expense 3,560,000
Cr Share option reserve – equity 3,560,000
(Record remuneration expense for 20x.)
Problem 13.7
In 20x1, earnings increase by 25% and the exercise price decreases by the same percentage point to
$2.25. The estimated fair value of the option is $1.875.
20x1 remuneration expense:
100,000 shares options × 10 × $1.875 x 1/3 = $625,000
In 20x2, earnings increase by 30%. Therefore, the exercise price decreases by 30% to $2.10 and the
estimated fair value of the option increases to $1.95
(100,000 shares options × 10 × $1.95 x 2/3) – $625,000 = $675,000
In 20x3, earnings increase by 33% and the exercise price decreases to $2.01. The estimated fair value
per option increases to $2.00
(100,000 shares options × 10 × $2) - $1,300,000 = $700,000.
31 December 20x1
31 December 20x2
15
31 December 20x3
1 January 20x4
Dr Share option reserve – equity 2,000,000
Dr Cash (100,000 x 10 x 2) 2,000,000
Cr Share capital 4,000,000
(Record exercise of options)
16
Problem 13.8
(Please note that the cash actually paid out is the increase in share price over the exercise price, that is,
the intrinsic value.)
(1) Calculation of remuneration expense

Date Computations Current period expense Cumulative liability
20x1 20 x 10,000 x 0.95 x $4 x 1/3 $253,333 $253,333
20x2 (20 x 10,000 x 0.95 x $3.50 x 2/3) – $190,000 $443,333
$253,333
20x3 (18 x 10,000 x $4.50) - $443,333 $366,667 $810,000
20x4 (8 x 10,000 x $4.20) - $810,000 + -$474,000 + $390,000 = $336,000
10 x 10,000 x $3.90 - $84,000
20x5 8 x 10,000 x $4.30 0 - $336,000 + $344,000 0
=
$8,000
(2) Journal entries
31 December 20x1
(Record remuneration expense and related liability of SARs for 20x1).
31 December 20x2
31 December 20x3
31 December 20x4
Cr Remuneration expense 84,000
Cr Cash 390,000
(Record writing back of remuneration expense and settlement of liability on exercise

of options)
17
31 December 20x5
Cr Cash 344,000
(Record remuneration expense and settlement of liability on exercise of options)
Summary of remuneration expenses:
20x1 253,333
20x2 190,000
20x3 366,667
20x4 (84,000)
20x5 8,000
Total 734,000
Check:
10 employees x 10,000 SARs x $3.90 = 390,000
8 employees x 10,000 SARS x $4.30 344,000
734,000
18

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What are the three types of share-based transactions?

What are the three types of share-based transactions?

What are the explanations of grant date, measurement date, vesting date, vesting conditions and forfeiture rate?

What are the explanations of grant date, measurement date, vesting date, vesting conditions and forfeiture rate?

Advanced Financial

Pearl Tan, Chu Yeong Lim and Ee Wen Kuah

Copyright © 2016 by McGraw-Hill Education (Asia)

1. The three types of share-based transactions are:

2. The explanations of the following terms are as follows:

(a) The quoted market price of the entity’s shares,

(b) An appropriate option valuation model such as the Black-Scholes model or

(c) The intrinsic value method.

5. The general principles in accounting for share-based transactions are as follows:

S Co and Group (Cash-settled)

Dr Remuneration expense 76,667

Cr Share options reserve 76,667

(Recognition remuneration expense : 100,000 options x $2.30 x 1/3)

Dr Remuneration expense 76,666

Cr Share options reserve 76,666

(Recognition remuneration expense : 100,000 options x $2.30 x 2/3 - $76,667)

Dr Remuneration expense 76,667

Cr Share options reserve 76,667

(Recognition remuneration expense : 100,000 options x $2.30 - $153,333)

(2) 1 June 20x6

Dr IPO expense 83,333

Cr Equity reserve 83,333

(Record receipt of services under an equity-settled share-based payment arrangement:

Dr IPO expense 416,667

Cr Equity reserve 416,667

(Record receipt of services under an equity-settled share-based payment arrangement:

Dr Equity reserve 500,000

Cr Share capital 500,000

(Transfer of equity reserve to share capital as IPO successfully launched)

(1) Calculation of expense relating to share options

Date Current period Cumulative expense

Dr Remuneration expense 475,000

Cr Share option – reserve 475,000

(Record share option expense for 20x1)

Dr Remuneration expense 475,000

Cr Share option – reserve 475,000

(Record share option expense for 20x2)

Dr Remuneration expense 460,000

Cr Share option – reserve 460,000

(Record share option expense for 20x3)

Assume the following scenarios at the end of 20x3:

Year Expense Equity Liability

End 20x3 Scenario 1: cash paid to settle liability ($500,000)

Note: the total remuneration is the same for both scenarios.

Journal entries (optional)

Under Scenario 1 (Employees chose cash alternative):

Under Scenario 2 (Employees chose equity alternative):

(1) Calculation of remuneration expenses

(2) Journal entries:

Dr Remuneration expense 8,400

Cr Share option reserve – equity 8,400

(Record share-based payment expense for 20x1)

Dr Remuneration expense 21,600

Cr Share option reserve – equity 21,600

(Record share-based payment expense for 20x2)