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Share-Based Compensation Journal Entries

1. The reversal of the accrued salaries payable was credited to gain on reversal of share appreciation right instead of salaries expense to conform to the matching principle and recognize accrued revenues. Crediting salaries expense would violate accounting principles by creating an abnormal balance. 2. To compute the PHP 4.0 mil credit to share premium: determine the fair value per share option, multiply by number of shares; determine excess of option price over par value per share, multiply by number of shares; total consideration received minus total par value equals total share premium.

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20 views1 page

Share-Based Compensation Journal Entries

1. The reversal of the accrued salaries payable was credited to gain on reversal of share appreciation right instead of salaries expense to conform to the matching principle and recognize accrued revenues. Crediting salaries expense would violate accounting principles by creating an abnormal balance. 2. To compute the PHP 4.0 mil credit to share premium: determine the fair value per share option, multiply by number of shares; determine excess of option price over par value per share, multiply by number of shares; total consideration received minus total par value equals total share premium.

Uploaded by

Ma. Concepcion Desepeda
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 25 - Share based Compensation (Analysis of

Journal Entries)
1. Reference to page 904 of your textbook with the given accounting entry below, why was the
reversal of the accrued salaries payable credited to Gain on reversal of share appreciation right?
Can we alternatively credit Salaries expense here? Please cite the relevant or applicable accounting
principle(s) to support your answer.

Accrued salaries payable 600,000

Gain on reversal of share appreciation right 600,000

The reversal of the accrued salaries payable (liability account) was credited to gain on
reversal of share appreciation right (equity account) because of the absence of
appreciation. This is to conform to the need to cancel out the adjusting entries that were
made to accrue revenues and expenses from the previous accounting period. This is also in
correspondence to the matching principle and the recognition of accrued revenues in
accounting. We can not alternatively credit Salaries expense account here because this
would make an abnormal balance in the T account and violate the said principles.

2. Reference to page 910 of your textbook, please provide simple computation on how to arrive at
the PHP 4.0 mil credit to Share Premium account.

Fair value of share options 60


Multiply by no. of shares 50 000
Consideration received: 3 000 000

Option price of shares 120


Less: Par Value of Share (100)
Excess of Option Price over Par value of Share 20
Multiply by no. of shares 50 000
Share Premium 1 000 000

Total Share Premium 4 000 000

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