At the beginning of year 1, an entity grants to 20 senior executives 1000 share options, each based on two conditions. First, the executive has to remain with the entity until the end of year 3. Second, the share options may not be exercised unless the share price has increased from €100 at the beginning of year 1 to above €130 at the end of year 3. If the share price is above €130 at year 3, the share options may be exercised at any time during the next five years.
The entity applies a binomial option-pricing model, which takes into account the possibility that the share price will exceed €130 at the end of year 3 (in this case the share options become exercisable) and the possibility that the share price will not exceed €130 at the end of year 3 (and then the options will be forfeited). It estimates the fair value of the share options with this market condition to be €48 per option.
At the end of year 1, the company estimates the turnover of senior executives at 2%. In the second year, one executive leaves the company but the turnover estimate remains the same. During the third year two executives leave the company. Calculate the remuneration expense for each year in which an expense needs to be recorded. Which account will be credited when the remuneration expense is recorded?