Liverpool limited grants 100 options to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for the next 3 years.The fair value of each option at grant date is $15.Liverpool Ltd estimates that 15% of its employees will leave during the vesting period.The following table summarises the actual employee departures and revised estimates of employee departures across the vesting period.
$$\begin{array} { | l | l | l | }
\hline \text { Year ending } 30 \text { June } & \text { Actual departures } & \begin{array} { l }
\text { Revised estimate of departures } \
\text { before the option vests }
\end{array} \
\hline 2010 & 4 & \text { Further } 7 \
\hline 2011 & 4 & \text { Further } 4 \
\hline 2012 & 3 & \text { NA } \
\hline
\end{array}$$
By the end of year 2011 the company's share price had fallen and it decides to re-price the options.At this time the fair value of the original options is estimated to be $5 and the fair value of the re-priced options is estimated to be $8.
What is the employee benefits expense of Liverpool Ltd related to this share option for the year ended 30 June 2012?
A) $19 500
B) $22 750
C) $26 500
D) $70 200

Question

Liverpool limited grants 100 options to each of its 50 employees on 1 July 2009.Each grant is conditional on the employee working for the company for the next 3 years.The fair value of each option at grant date is $15.Liverpool Ltd estimates that 15% of its employees will leave during the vesting period.The following table summarises the actual employee departures and revised estimates of employee departures across the vesting period. 
$$\begin{array} { | l | l | l | } 
\hline \text { Year ending } 30 \text { June } & \text { Actual departures } & \begin{array} { l } 
\text { Revised estimate of departures } \
\text { before the option vests }
\end{array} \
\hline 2010 & 4 & \text { Further } 7 \
\hline 2011 & 4 & \text { Further } 4 \
\hline 2012 & 3 & \text { NA } \
\hline
\end{array}$$
By the end of year 2011 the company's share price had fallen and it decides to re-price the options.At this time the fair value of the original options is estimated to be $5 and the fair value of the re-priced options is estimated to be $8.
What is the employee benefits expense of Liverpool Ltd related to this share option for the year ended 30 June 2012?
A) $19 500
B) $22 750
C) $26 500
D) $70 200

Quizplus · Accepted Answer

The employee benefits expense for the year ended 30 June 2012 can be calculated by considering the revised estimates of departures and the re-pricing of the options. Initially, 50 employees were granted 100 options each at a fair value of $15, but due to departures and re-pricing, the calculation needs to adjust for these factors. By the end of 2011, 11 employees had left (4 in 2010 and 4 in 2011, with an initial estimate that 15% would leave), and the options were re-priced to a fair value of $8. The expense is calculated based on the remaining employees and the adjusted fair value of the options.

Liverpool Limited Grants 100 Options to Each of Its 50