On 1 July 2013 Poggio Ltd grants 300 options to each of its 100 employees conditional on the employee remaining in service over the next three years. The fair value of each option is estimated to be $12. Poggio estimates that 15 employees will leave over the three year vesting period. By 30 June 2014 four employees have left and the entity estimates that a further ten employees will leave over the next two years. On 30 June 2014 Poggio decided to reprice its share options, due to a fall in its share price over the last 12 months. The repriced share options will vest on 30 June 2016. At the date of repricing Poggio estimates that the fair value of each original option is $3 and the fair value of each repriced option is $5. During the year ended 30 June 2015 a further 6 employees leave and Poggio estimates that another 3 employees will leave during the year ended 30 June 2016. During the year ended 30 June 2016 four employees left. The entry at 30 June 2015 to account for the share based payment transaction is:
A)
DR$\quad$ Wages expense
CR$\quad$ Liability to employee
B)
DR$\quad$ Wages expense
CR$\quad$ Options issued (equity)
C)
DR$\quad$ Wages expense
CR$\quad$ Share capital
D) DR$\quad$ Wages expense
CR$\quad$ Cash

Question

On 1 July 2013 Poggio Ltd grants 300 options to each of its 100 employees conditional on the employee remaining in service over the next three years. The fair value of each option is estimated to be $12. Poggio estimates that 15 employees will leave over the three year vesting period. By 30 June 2014 four employees have left and the entity estimates that a further ten employees will leave over the next two years. On 30 June 2014 Poggio decided to reprice its share options, due to a fall in its share price over the last 12 months. The repriced share options will vest on 30 June 2016. At the date of repricing Poggio estimates that the fair value of each original option is $3 and the fair value of each repriced option is $5. During the year ended 30 June 2015 a further 6 employees leave and Poggio estimates that another 3 employees will leave during the year ended 30 June 2016. During the year ended 30 June 2016 four employees left. The entry at 30 June 2015 to account for the share based payment transaction is:
A) 
DR$\quad$ Wages expense 
CR$\quad$ Liability to employee
B)
DR$\quad$ Wages expense 
CR$\quad$ Options issued (equity)
C)
DR$\quad$ Wages expense 
CR$\quad$ Share capital
D) DR$\quad$ Wages expense 
CR$\quad$ Cash

Quizplus · Accepted Answer

The correct accounting treatment for share-based payment transactions, such as the issuance of options to employees, is to recognize the expense associated with the grant of options and credit the equity account (Options issued) for the value of the options granted. This reflects the increase in equity from issuing the options as part of compensation.

On 1 July 2013 Poggio Ltd Grants 300 Options to Each