Reference no: EM132887299

At 1 January 2020, SHAPE Ltd grants share options to each of its 100 employees working in the sales department. The share options will vest at the end of 2022, provided that the employees remain in SHAPE Ltd's employment, and provided that the volume of sales of a particular product increases by at least an average of 5% per year. If the volume of sales of the product increases by an average of between 5% and 10% per year, each employee will receive 100 share options. If the volume of sales increases by an average of between 10% and 15% each year, each employee will receive 200 share options. If the volume of sales increases by an average of 15% or more, each employee will receive 300 share options.

• On grant date, SHAPE Ltd estimates that the share options have a fair value of $20 per option. The company also estimates that the volume of sales of the product will increase by an average of between 10% and 15% per year. SHAPE Ltd also estimates, on the basis of a weighted average probability, that 20% of employees will leave before 31 December 20X2.
• By 31 December 2020, seven employees have left and SHAPE Ltd still expects that a total of 20 employees will leave by the end of 20X2. Product sales have increased by 12% and the entity expects this rate of increase to continue over the next two years. Fair value of the share option has increased to $25 per option.
• By 31 December 2021, a further five employees have left. SHAPE Ltd now expects only three more employees will leave during 2022. Product sales have increased by 18%, resulting in an average of 15% over the two years to date. The company now expects that sales will average 15% or more over the three-year period. Fair value of the share option has further increased to $28 per option.
• By 31 December 2022, a further two employees have left. SHAPE Ltd's sales have increased by an average of 16% over the three years. The share options now have a fair value of $30 per option.

Required:

Problem 1: Prepare the journal entries relating to the share options for SHAPE Ltd for the years ended 31 December 2020, 2021 and 2022.