Reference no: EM132975737
Audit of SHE: Roque
In early 2019 Pharsa Corp. granted its 220 employees stock options which can be exercised by the employees remaining in the company's employ until the end of 2022, provided further that the average increase in sales over the four-year period is at least 10%. The said options are exercisable starting 2023 and shall expire 2 years after. 2 options entitle the employee to acquire 1 share at P38 exercise price. Ordinary shares had a P50 par value and were currently selling in the market at P76 per share. Each share option had a market value of P12.50.
The number of option per employee depending on the average increase in sales over the vesting period is as follows:
10% - 15% 100 each
16% - 20% 150 each
20% - 25% 175 each
More than 25% 200 each
The following information regarding employee turnover are deemed relevant:
- In 2019, 10 employees left the company. The company estimates that an additional 25 employees will leave by the end of 2022.
- In 2020, 10 additional employees actually left. The company estimates that an additional 20 employees will leave by the end of 2022.
- In 2021, 10 additional employees actually left. The company estimates that 15 additional employees will leave by the end of 2022.
- In 2022, 10 additional employees actually left.
Actual and estimated Sales at the end of each year are as follows:
Actual Sales Estimated Increase in Sales
2020 2021 2022
2018 P10,000,000
2019 11,400,000 14% 15% 15%
2020 13,452,000 20% 20%
2021 16,815,000 30%
2022 25,222,500
Requirements:
Problem 1: What is the salaries expense related to the share option in 2020?
Problem 2: What is the salaries expense related to the share option in 2022?
Problem 3: Assuming that 80% of the share options vested were exercised in 2023, what is the credit to the share premium account as a result of the exercise?