Reference no: EM132675708
Questions -
QUESTION 1: On 1 July 2023 Lurline Ltd provides its managing director with a share-based incentive according to which she is offered a bonus that is calculated as 100 000 times the increase in the fair value of the entity's share price above $5.00. When the bonus was offered the share price was $4.50. If the managing director does not leave the organisation the accrued entitlement will be paid after three years. However, if she leaves the organisation the accrued entitlement will be paid out upon departure-that is, the benefit will not be forfeited.
Other information:
The share price at 30 June 2024 is $4.00.
The share price at 30 June 2025 is $5.50.
The share price at 30 June 2026 is $6.00.
The managing director stays for three years and is paid the bonus on 1 July 2026.
REQUIRED - Prepare the journal entries that would appear in the accounting records of Lurline Ltd to account for the issue of the share appreciation rights.
QUESTION 2: On 1 July 2023, Rottnest Ltd awarded 500 shares each to 200 employees subject to the following non-market vesting conditions:
The shares will vest if:
at 30 June 2024 Rottnest Ltd's earnings have increased by more than 14 per cent
at 30 June 2025, Rottnest Ltd's earnings have increased by an average of 12 per cent or more over the two-year period
at 30 June 2026, earnings have increased by an average of 9 per cent over the three-year period.
The shares had a fair value of $14.00 at 1 July 2023, which equals the share price at grant date. No dividends are expected to be paid over the three-year period.
During the year ending 30 June 2024, 30 employees leave the organization. On the basis of prior experience, Rottenest Ltd believes that a further 20 employees will leave during the vesting period. At 30 June 2024 earnings have increased by 13 per cent. It is expected that earnings will continue at a similar rate of increase for 2025. Rottenest Ltd therefore expects the shares to vest on 30 June 2025.
By 30 June 2025, 30 employees have resigned during the year. Rottnest Ltd expects a further 25 employees to leave by the end of the vesting period. During the year ended 30 June 2025 earnings increase by 10 per cent. Rottenest Ltd expects that during the year ending 30 June 2026 earnings will increase by at least 9 per cent, meaning that earnings will have increased by more than the average of 9 per cent over the three-year period.
At 30 June 2026, 35 employees have left during the year, and Rottenest Ltd's earnings have increased by 9 per cent during the year.
REQUIRED - Prepare the accounting journal entries for the years ending 30 June 2024, 2025 and 2026.