ACC 208: Intermediate Financial Accounting:

On 1 January 20x1, BBB Ltd grants 50,000 share options to each of its 40 top executives (total: 2 million share options). Each option entitles the executives to purchase a share at the exercise price of $2. The employee share options will vest only if the executive works for the company until 31 December 20x3. The share options are exercisable during 20x4 and will expire by 31 December 20x4.

During 20x1, four executives leave the company. The company revises its estimate that, in total, twelve executives will leave the company over the three-year period.

During 20x2, another two executives leave the company. The company again revises its estimate that, in total, only ten executives instead of twelve executives will leave the company over the three-year period.

During 20x3, another three executives leave the company. On 30 June 20x4, all the options are exercised when the share price was $4.80.

Based on the Binomial model, the fair value of each employee option is determined to be $3.00, $3.10, $3.20 and $3.30 on 1 January 20x1, 31 December 20x1, 31 December 20x2 and 31 December 20x3 respectively.

BBB Ltd is a Singapore listed company and adopts Singapore FRSs. It also has December 31 year-ends. When presenting your answers, please round to the nearest dollar.

Required:

(a) Define vesting conditions and explain what the vesting condition is for this option plan.(3 marks)

(b) Illustrate the accounting of this option plan under FRS 102 Share-based Payment by preparing the journal entries (journal narrative not required) for each of the years from 20x1 to 20x4. Show all workings. In addition, if any event or transaction does not require any journal entry, please state that clearly in your answers.(18 marks)

(c) Explain the principle laid down in FRS 102 Share-based Payment pertaining to share options that are not exercised after the vesting date and explain the rationale behind the principle. (4 marks)