IG $13$ Share$-$based payment arrangements with cash alternatives

Hana Tours Corporation intends to add a share$-$based payment plan to the compensation benefit of its

Chief Executive Officer. The CEO will be allowed to choose between $1,000$ phantom shares or $1,200$

ordinary shares. Exercise of the phantom shares will give the CEO a right to a cash payment equal to the

value of $1,000$ shares. On the other hand, the CEO can opt to receive $1,200$ ordinary shares instead of the

cash payment. The grant is conditional upon the completion of three years' service. If the employee

chooses the share alternative, the shares must be held for three years after vesting date.

Hana Tours Corporation does not know the proper accounting treatment to this share$-$based plan

because it offers either a cash alternative $($cash payment link to the value of the ordinary shares$)$ or equity

alternative $($the actual ordinary shares$).$ Your role is to advise Hana Tours on how to account for this

portion of the compensation package of the CEO. Prepare your one$-$page position paper with illustrations

on how to account for the share based payment from Years $1$ to $3$ based on the following data:

The share price at grant date is $P50$ per share.

At the end of years $1,2$ and $3,$ the share price is $P52,P55$ and $P60$ respectively.

The entity does not expect to pay dividends in the next three years.

After taking into account the effects of the post$-$vesting transfer restrictions, the entity estimates

that the grant date fair value of the share alternative is $P48$ per share.

At the end of year $3,$ the CEO chooses the equity alternative.