Reference no: EM133162957

Question - On 1 January 2019 Complex Plc. entered into an equity settled share based payment scheme with its 75 sales executives whereby it agreed to grant 100 share options to each of its sales executives if the sales executives stayed in employment with the firm for the following three years and the share price of the company increases by an average of 10% per year over the vesting period. Each share option entitles the holder to buy one share of Complex Plc. at $12 within three years from the vesting date. The nominal value of each share is $1. The fair value of the share options at grant date was $20. On grant date the firm expected 25 sales executives to leave the firm before the end of the vesting period.

In the year ended 31 December 2019, 10 sales executives left Complex Plc. and share price increased by 12%. At 31 December 2019 Complex Plc. expects a total of 15 sales executives to leave the firm before the end of the vesting period and expects the share price growth rate achieved in 2019 to be maintained for the next two years. The fair value of the share options as at 31 December 2019 was $23.

During the year ended 31 December 2020, 5 sales executives left Complex Plc. and the share price increased by 5%. At 31 December 2020, Complex Plc. expects another 2 sales executives to leave the firm by the end of the vesting period and expects the share price growth rate achieved in 2020 to be maintained in the next year. The fair value of the share options as at 31 December 2020 was $13.

During the year ended 31 December 2021, 2 sales executives left Complex Plc. and share price increased by 5%. The fair value of the share options as at 31 December 2021 was $5. At 31 December 2021, 58 of the original sales executives still work with the firm and none of the share options vested as the performance condition was not achieved.

REQUIRED -

a) Discuss why share based payments are typically used in executive remuneration contracts.

b) Compute the expense (if any) in respect of the share based payment scheme that should be recognised in the Income Statement of Complex Plc. for financial years ending 31 December 2019,

c) Show and explain the journal entries that need to be undertaken by Complex Plc. to record the share based payment scheme expense for financial years ending 31 December 2019, 31 December 2020 and 31 December 2021.

d) Show and explain the journal entries that need to be undertaken by Complex Plc. to record that the share options did not vest.

e) Show and explain the journal entries that would need to be undertaken by Complex Plc. had the:

i) Share options vested but were not exercised by the maturity date.

ii) Share options vested and were exercised on 10th January 2022.