On 1 July 2013, Leo Limited granted 250 options to each of its 50 employees. The options are conditional on the employees remaining with the company for the 2 year vesting period. The options have a fair value of $10 at vesting date. In addition, the shares will vest as follows:
On 30 June 2014 if the company's earnings have increased by more than 15%
On 30 June 2015 if the company's earnings have increased by more than 12% averaged across the 2 year period
At 30 June 2014 Leo's earnings have increased by 12% and 3 employees have left.
The company expects that earnings will continue to increase at a similar rate during the year to 30 June 2015 and that the shares will vest at that time. It also expects that a further 4 employees will leave during the year.
The remuneration expense for the year ended 30 June 2014 for Leo is:
A) $35 833
B) $53 750
C) $58 750
D) $117 500

Question

Quizplus · Accepted Answer

The number of vested options on 30 June 2014 is: 
250 options/employee x 50 employees – (3 employees x 250 options/employee) = 11,250 options

The fair value of the vested options is: 
11,250 options x $10 = $112,500

The remuneration expense for the year ended 30 June 2014 is the proportion of the total fair value of the options that reflects the portion of the vesting period that has elapsed: 
($112,500 / 2 years) x 1 year = $56,250

However, since 3 employees left, the remuneration expense should be adjusted for the forfeited options: 
($56,250 / 50 employees) x 47 remaining employees = $53,750

Therefore, the correct answer is B.

On 1 July 2013, Leo Limited Granted 250 Options to Each