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:

52. What is the salaries expense related to the share option in 2020?

53. What is the salaries expense related to the share option in 2022?

54. 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?