On 1 July 2019 Fraser Ltd granted 200 options to each of its 100 employees. The share options will vest on 30 June 2021 if the employees remain employed with the company on that date. The share options have a life of four years. The exercise price is $10, which is also Fraser's share price at the grant date. Fraser is unable to reliably estimate the fair value of the share options at the grant date. Fraser's share price and the number of options exercised are set out below. Share options may only be exercised at year end.
$$\begin{array} { | l | l | l | }
\hline \text { Year ended } & \begin{array} { l }
\text { Share price } \
\text { at year end }
\end{array} & \begin{array} { l }
\text { Number of options } \
\text { exercised at year end }
\end{array} \
\hline \text { 30 Jure } 2020 & \$ 11 & - \
\hline \text { 30 Jurne } 2021 & \$ 12 & - \
\hline 30 \text { Jure } 2022 & \$ 13 & { 8 2 0 0 } \
\hline \text { 30 Jure } 2023 & \$ 14 & 10000 \
\hline
\end{array}$$ The cumulative remuneration expense to be recognised by Fantasy as at 30 June 2021 is:
A) $8 200
B) $18 200
C) $36 400
D) $182 000

Question

On 1 July 2019 Fraser Ltd granted 200 options to each of its 100 employees. The share options will vest on 30 June 2021 if the employees remain employed with the company on that date. The share options have a life of four years. The exercise price is $10, which is also Fraser's share price at the grant date. Fraser is unable to reliably estimate the fair value of the share options at the grant date. Fraser's share price and the number of options exercised are set out below. Share options may only be exercised at year end.
$$\begin{array} { | l | l | l | } 
\hline \text { Year ended } & \begin{array} { l } 
\text { Share price } \
\text { at year end }
\end{array} & \begin{array} { l } 
\text { Number of options } \
\text { exercised at year end }
\end{array} \
\hline \text { 30 Jure } 2020 & \$ 11 & - \
\hline \text { 30 Jurne } 2021 & \$ 12 & - \
\hline 30 \text { Jure } 2022 & \$ 13 &  { 8 2 0 0 } \
\hline \text { 30 Jure } 2023 & \$ 14 & 10000 \
\hline
\end{array}$$ The cumulative remuneration expense to be recognised by Fantasy as at 30 June 2021 is:
A) $8 200
B) $18 200
C) $36 400
D) $182 000

Quizplus · Accepted Answer

The cumulative remuneration expense to be recognized by 30 June 2021 is based on the fair value of the options expected to vest, which cannot be directly measured. Since the options vest if employees remain employed until 30 June 2021, and assuming all employees remain, the total options expected to vest would be 200 options per employee for 100 employees, totaling 20,000 options. Without a reliable fair value, the intrinsic value method (difference between the share price at the grant date and the exercise price) cannot be applied directly since the exercise price equals the share price at the grant date ($10). Instead, the expense is recognized over the vesting period (2 years from 1 July 2019 to 30 June 2021). Given the lack of specific fair value information, the best estimate is to distribute the cost of the options evenly over the vesting period, which would imply recognizing the total intrinsic value of the options granted (20,000 options at $10 each) over the 2-year period. However, without specific fair value or intrinsic value changes provided, and given the information provided does not directly lead to a clear calculation under typical accounting standards, the question seems to lack sufficient detail for a standard calculation. Thus, the correct answer would typically involve recognizing the expense related to the grant over the vesting period, but the question does not provide a clear basis for choosing one of the provided numerical options based on standard accounting practices for share-based payments (e.g., under IFRS 2 or ASC 718). The mention of cumulative remuneration expense without a clear method to calculate fair value or intrinsic value adjustments leaves us to infer or assume standard practices, which typically involve recognizing the cost of the options over the vesting period based on their fair value at the grant date. Given the options and the information provided, none directly align with standard calculations without additional assumptions.

On 1 July 2019 Fraser Ltd Granted 200 Options to Each