Doc, a public limited company, has purchased inventory of 100,000. The company has offered the supplier a choice of settlement alternatives. The alternatives are either receiving 1.000 shares of Doc six months after the purchase date (valued at P110,000 at the date of purchase) or receiving a cash payment equal to the fair value of 800 shares as of December 31, 20X4 (estimated value P90,000 at the date of purchase). What should be the accounting entry at the date of purchase of the inventory? a. Inventory P90,000, liability P90,000. b. Inventory P100,000, liability P100,000. c. Inventory P100,000, liability P110,000, intangible asset P10,000. d. Inventory P100,000, liability P90,000, equity P10,000. (Adapted) 9. In the tax jurisdiction of Mack, a public limited company, a tax deduction is allowed for the intrinsic value of the share options issued to employees. The company issued options on January 1, 20X4, worth P15 million to employees. They vest in three years. The share options' intrinsic value at December 31, 20X4, was P12 million. The tax rate in the jurisdiction is 30%. What is the tax effect of the above issue of share options at December 31, 20X4? a. P1.5 million benefit to income statement. b. P1.2 million benefit to income statement. C. P1.5 million benefit recognized in equity. d. P1.2 million benefit recognized in equity. (Adapted) 10. In the above problem, what would be the tax effect if the intrinsic value at December 31, 20X4, was P21 million? a. P2.1 million tax benefit to income. b. P2.1 million recognized in equity. C. P1.5 million tax benefit to income, P0.6 million recognized in equity. d. P1.5 million recognized in equity, P0.6 million tax benefit to income. (Adapted)

8. D.

9. B.

10. C.

Step-by-step explanation

8.

FV of inventory received..............................................P100,000

FV of debt component at date of purchase.........(90,000)

FV of equity component...................................................10,000

Journal entry:

Inventory (dr.) (FV of asset received)...................P100,000

Accounts payable (cr.) (FV of debt)..............................................P90,000

Share premium -sh. options outstanding (cr.)............................10,000

9.

The intrinsic value of the share options Dec. 31, 20x4 is P12,000,000.

The tax deduction on Dec. 31, 20x4 is computed as follows:

Intrinsic value of share options at Dec. 31, 20x4...................P12,000,000

Multiply by: Vesting pd. passed over total vesting pd..............................1/3

Tax deduction - 20x4.............................................................P4,000,000

The salaries expense on Dec. 31, 20x4 is computed as follows:

Fair value of share options at grant date...................................P15,000,000

Multiply by: Vesting pd. passed over total vesting pd...............................1/3

Salaries expense - 20x4........................................................P5,000,000

Since the allowed tax deduction is less than the salaries expense, the tax benefit of the tax deduction is recognized in profit or loss.

The tax benefit of the tax deduction is computed as follows:

Tax deduction - 20x4....................................................................P4,000,000

Multiplied by: Tax rate....................................................................................30%

Income tax benefit recognized in 20x4 profit or loss...P1,200,000

10.

The intrinsic value of the share options Dec. 31, 20x4 is P21,000,000.

The tax deduction on Dec. 31, 20x4 is computed as follows:

Intrinsic value of share options at Dec. 31, 20x4...................P21,000,000

Multiply by: Vesting pd. passed over total vesting pd..............................1/3

Tax deduction - 20x4.............................................................P7,000,000

The salaries expense on Dec. 31, 20x4 is computed as follows:

Fair value of share options at grant date...................................P15,000,000

Multiply by: Vesting pd. passed over total vesting pd...............................1/3

Salaries expense - 20x4........................................................P5,000,000

Since the allowed tax deduction is greater than the salaries expense, there is excess tax benefit. The tax benefit of the salaries expense is recognized in profit or loss while the excess tax benefit is recognized in equity.

The tax benefit recognized in profit or loss is computed as follows:

Salaries expense - 20x4.............................................................P5,000,000

Multiplied by: Tax rate...................................................................................30%

Income tax benefit recognized in 20x4 profit or loss...P1,500,000

The excess tax benefit recognized in equity is computed as follows:

Tax deduction - 20x4.............................................P7,000,000

Salaries expense - 20x4.......................................(5,000,000)

Excess tax deduction................................................2,000,000

Multiplied by: tax rate............................................................30%

Excess tax benefit recognized in equity........P600,000