At the beginning of 2013, an entity grants 50 share options each to 500 employees. The grant is conditional upon the employees remaining in the entity’s employ during a vesting period of three years.
The exercise price at grant date is estimated at P60. However, the exercise price drops to P10 if the entity’s earnings increase by at least an average of 10% per year over the three-year period.
On grant date, the entity estimates that the fair value of the share options, with an exercise price of P40, is P20 per option. If the exercise price is P60, the entity estimates that the share options have a fair value of P18 per option.
30 employees have left. The entity proceeds expects, on the basis of a weighted average probability that a further 30 employees will leave during 2014 and 2015, respectively.
The entity’s earnings increased by 12% and the entity expects that earnings will continue to increase at this rate over the next two years. The entity therefore expects that the earnings target will be achieved, and hence, the share options will have an exercise price of P40.
At year end, a further 35 employees have resigned. The entity expects that a further 30 employees will leave during 2015.
The entity’s earnings increased by 13%, and it continues to expect that the earnings target will be achieved.
A further 28 employees have left by the end of the year
Due to a general decrease in market demand, the entity’s earnings increased by only 3%. Because the earnings target was not achieved, the 50 vested share options for each employee have exercise price of P60
Determine the following:
1. Compensation expense for 2013
2. Compensation expense for 2014
3. Compensation expense for 2015
4. Share options outstanding at the end of 2014
5. Share options outstanding at the end of 2015