Reference no: EM132764906

On January 1, 2018, ABC Company initiated a share incentive plan for many employees. The plan provides for each qualified executive to receive options for 200 shares of ordinary. The option is exercisable at any time after four years and prior to expiration, which is five years from the date of grant. Employment with the company is required through the exercise date. The options are not transferable and the specified exercise price is set equal to the grant date market price of the share. Compensation cost is to be assigned equally to each year from the grant date to the first exercise (vesting) date, which is four years. On January 1, 2018, 1,000 employees were each granted options to acquire 200 shares under the plan when the market price of the share was P30. Management expects a forfeiture rate of approximately 4 percent per year over the service period.

• The application of an option pricing model results in a fair value of each option at the grant date of P12 per option. On December 31, 2021, 840 grantees are still employed by the company and will vest with 200 options each. All vested options are exercised on December 28, 2022, prior to their expiration on December 31, 2022. The market price of the share on December 28, 2022, was P50 per share.

Problem 1: Determine the compensation expense to be recognized in 2021 and the balance of the liability component of the instrument as of Dec. 31, 2019?