Penneshaw Ltd 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 3 years.The fair value of each option at grant date is $15. The following information is available:
$$\begin{array} { | l | l | l | }
\hline \text { Year ending 30 June } & \begin{array} { l }
\text { Estimate of departures before the } \
\text { option vests }
\end{array} & \begin{array} { l }
\text { Fair value of option at end of } \
\text { period }
\end{array} \
\hline 2010 & 10 & \$ 14 \
\hline 2011 & 12 & \$ 18 \
\hline 2012 & 14 \text { (actual) } & \$ 20 \
\hline
\end{array}$$
What is the employee benefits expense of Penneshaw Ltd related to this share option for the year ended 30 June 2012?
A) $16 000
B) $20 000
C) $21 333
D) $26 400

Question

Penneshaw Ltd 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 3 years.The fair value of each option at grant date is $15. The following information is available:
$$\begin{array} { | l | l | l | } 
\hline \text { Year ending 30 June } & \begin{array} { l } 
\text { Estimate of departures before the } \
\text { option vests }
\end{array} & \begin{array} { l } 
\text { Fair value of option at end of } \
\text { period }
\end{array} \
\hline 2010 & 10 & \$ 14 \
\hline 2011 & 12 & \$ 18 \
\hline 2012 & 14 \text { (actual) } & \$ 20 \
\hline
\end{array}$$
What is the employee benefits expense of Penneshaw Ltd related to this share option for the year ended 30 June 2012?
A) $16 000
B) $20 000
C) $21 333
D) $26 400

Quizplus · Accepted Answer

The employee benefits expense for the year ended 30 June 2012 can be calculated by considering the total fair value of the options that are expected to vest, adjusted for the actual number of departures. Initially, 50 employees were granted 100 options each at a fair value of $15, but adjustments are made based on actual departures and the fair value at the end of each period. For the final year, with 14 actual departures, 36 employees (50-14) are expected to vest, each with 100 options, and the fair value at the end of the period is $20. Therefore, the total expense is 36 employees * 100 options/employee * $20/option = $72,000. This amount is recognized over the vesting period of 3 years, so the annual expense is $72,000 / 3 = $24,000. However, for the final year, since there have been adjustments in the estimates of departures in previous years, the calculation needs to account for the cumulative expense to date and adjust for the final year's expense to ensure the total recognized expense matches the $72,000 total value. Given the options and the information provided, the correct calculation aligns with option D, which suggests an adjustment in the final year to match the total expense required over the vesting period, considering the actual outcome of departures and the final fair value of the options.

Penneshaw Ltd Grants 100 Options to Each of Its 50