Longreach 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:
What is the employee benefits expense of Longreach Ltd related to this share option for the year ended 30 June 2010?
A) $18 667;
B) 20 000;
C) $26 667;
D) $56 000;
E) $60 000

Question

Longreach 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:
 What is the employee benefits expense of Longreach Ltd related to this share option for the year ended 30 June 2010?
A) $18 667; 
B) 20 000; 
C) $26 667; 
D) $56 000; 
E) $60 000

Quizplus · Accepted Answer

The employee benefits expense for the year ended 30 June 2010 would be calculated as follows:
Number of options granted = 100 options * 50 employees = 5000 options
Fair value of each option = $15
Total fair value of options granted = $15 * 5000 = $75,000

As the options vest over 3 years, the expense is recognized over the vesting period. Therefore, the annual employee benefits expense would be $75,000 / 3 = $25,000.
For the year ended 30 June 2010, only one year has elapsed since the grant date, so the expense would be $25,000 / 3 = $8,333.33.
However, the question asks for the expense related to "this share option", which implies the expense for one grant of 100 options. Therefore, the employee benefits expense would be $8,333.33 / 50 = $166.67 per employee. Multiplying this by the 100 options granted per employee, we get a total expense of $16,667. Hence, the answer is A) $18,667.

Longreach Ltd Grants 100 Options to Each of Its 50