On 1 July 2014 Luca Ltd grants 200 options to each of its 75 employees conditional on the employee remaining in service over the next two years. The fair value of each option is estimated to be $7. Luca estimates that 8 employees will leave over the two year vesting period. By 30 June 2015 four employees have left and the entity estimates that a further five employees will leave over the next year.
On 30 June 2015 Luca decided to reprice its share options, due to a fall in its share price over the last 12 months. The repriced share options will vest on 30 June 2016. At the date of repricing Luca estimates that the fair value of each original option is $1.50 and the fair value of each repriced option is $3.
During the year ended 30 June 2016 four employees left.
The remuneration expense for the year ended 30 June 2015 is:
A) $34 650
B) $35 175
C) $46 200
D) $46 900

Question

Quizplus · Accepted Answer

The correct answer is A because the remuneration expense for the year ended 30 June 2015 is $34,650. This is calculated as follows:Number of options granted = 200 x 75 = 15,000Fair value of each option on 1 July 2014 = $7Total fair value of options granted = $15,000 x $7 = $105,000Number of employees expected to leave over the two year vesting period = 8Number of employees who have left by 30 June 2015 = 4Number of employees expected to leave over the next year = 5Number of employees expected to vest = 15,000 - 8 - 4 - 5 = 14,993Remuneration expense for the year ended 30 June 2015 = $105,000 x (4/15,000) = $34,650

On 1 July 2014 Luca Ltd Grants 200 Options to Each