Reference no: EM132801700
Question - At the beginning of 2018, an entity grants 100 share options each to 1,000 employees. The grant is conditional upon the employees remaining in the entity's employ during a vesting period of three years.
The exercise price at grant date is estimated at P30. However, the exercise price drops to P20 if the entity's earnings increase by at least an average of 10% per year over the three-year period.
On grant date, the entity estimates that the fair value of the share options, with an exercise price of P20, is P10 per option. If the exercise price is P30, the entity estimates that the share options have a fair value of P9 per option.
The following actual events occurred:
2018
-60 employees have left. The entity expects, on the basis of a weighted average probability, that a further 60 employees will leave during 2019 and 2020, respectively.
-The entity's earnings increased by 12% and the entity expects that earnings will continue to increase at this rate over the next two years. The entity therefore expects that the earnings target will be achieved, and hence, the share options will have an exercise price of P20.2019
-At year end, a further 70 employees have resigned. The entity expects that a further 60 employees will leave during 2020.
-The entity's earnings increased by 13%, and it continues to expect that the earnings target will be achieved.
2020
-A further 56 employees have left by the end of the year.
-Due to a general decrease in market demand, the entity's earnings increased by only 3%. Because the earnings target was not achieved, the 100 vested share options for each employee have exercise price of P30. What is the compensation expense for 2021?
a. P266,667
b. P270,000
c. P273,333
d. P192,600