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Edit: I’m an idiot! They have SIX directors, not five (I even typed six in my original post!). I’m leaving the rest of this here for others as a cautionary note to …
READ THE QUESTION THOROUGHLY!!
I’m revising for the SBR exam I’m sitting this Thursday, and am on Question 24 of Kaplan’s Exam Kit: Garden. The question involves the following:
On 1 December 20X5, a share-based payment scheme was introduced for Garden’s six directors. The directors are entitled to 600,000 share options each if they remain employed by the company until 30 November 20X8. The fair value of each share option at the grant date was $4, and $5 at 30 November 20X6 (year end). At 1 December 20X5 it was estimated that none of the directors would leave before the end of the three years but, as at 30 November 20X6, the estimated number was revised to one.
The question asks for the correct accounting treatment of the above at 30 November 20X6, and Kaplan’s answer is as follows:
5 directors x 600,000 options x $4 x 1/3 = $4 million
Isn’t that wrong? Shouldn’t the calculation take into account the expectation of one director leaving? My answer would be:
4 directors x 600,000 options x $4 x 1/3 = $3.2 million.
Hello there.
I have just reviewed the question and I think that it should be:
5 directors x 600,000 options x $4 x 1/3 = $4 million
The question asks: the accounting treatment as on 30 Nov 20X6. The only revised information became avaliable on 30 Nov 20X6 and not during the year, hence there are still 5 directors as on 30 Nov 20X6.
This is my opinion and may be wrong, but I believe it is correct.
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