On $1$ January $20\mathrm{.}4,$ Pepper Limited set up an equity compensation scheme for its directors. Under the scheme, each of $12$ directors were allocated options to acquire $5000$ Pepper Limited ordinary shares. The strike price was set at R$15$ per share on $1$ January $20\mathrm{.}4.$

Except in Scenario $1,$ the directors are required to stay in the employ of Pepper Limited until $31$ December $20\mathrm{.}6$ before vesting takes place. Thereafter, the directors have $4$ years to exercise their options. The compant has a $31$ December year$-$end.

An appropriate option$-$pricing model has determined the fair value of options as follows:

Without adjustment for expected savings from vesting conditions

With adjustment for the probability that options may not vest because of the market condition only

$1$ January $20\mathrm{.}4$

$31$ December $20\mathrm{.}531$ December $20\mathrm{.}7$

Fair value $($For all assumptions were relevant$)$

R$4\mathrm{.}60$

R$5\mathrm{.}50$ R$6\mathrm{.}80$

Fair Value $($For only assumptions $4,5,6$ & $7)$

R$4\mathrm{.}14$

R$4\mathrm{.}95$ R$6\mathrm{.}12$

$31$ December $20\mathrm{.}4$

R$4\mathrm{.}90$

R$4\mathrm{.}41$

$31$ December $20\mathrm{.}6$

R$6\mathrm{.}20$

R$5\mathrm{.}58$

You are to consider the following assumptions:

Assumption $1($Cash settled$)$

Its estimated that at least $3$ of the directors will leave their employment during the vesting period. At $31$ December $20\mathrm{.}6,$ all the $12$ directors were still in the employ of the company.

Assumption $2($Cash settled$)$

Its estimated that at least $3$ of the directors will leave their employment during the vesting period. During $20\mathrm{.}5,2$ directors resigned and in $20\mathrm{.}6$ one director died due to COVID and another retired before vesting date.

Assumption $3($Equity$-$settled$)$

At $31$ December $20\mathrm{.}4$ and $31$ December $20\mathrm{.}5,$ it was estimated that $2$ of Pepper Limiteds directors would leave during the vesting period. Three directors left the company during $20\mathrm{.}5.$ One was killed in a car crash in $20\mathrm{.}6.$

$1$

On $31$ December $20\mathrm{.}6,5$ directors exercised their options when the share price was R$18\mathrm{.}80$ each.

Assumption $4($Equity$-$settled$)$

The share options will only vest at the end of three years if Pepper Limiteds revenue has increased by $200\%.$ No employees were expected to leave or actually did leave during the vesting period.

Pepper Limited was on course to meet their revenue target until September $20\mathrm{.}6$ when a dramatic and sudden recession caused them to fail to do so$.$

Assumption $5($Equity$-$settled$)$

The share options will only vest at the end of three years if Pepper Limiteds share price has doubled. No employees were expected to leave or actually did leave during the vesting period.

Pepper Limited were on course to meet their share price target until September $20\mathrm{.}6$ when a dramatic and sudden stock market collapse caused them to fail to do so$.$

Assumption $6($Equity$-$settled$)$

The share options will only vest at the end of three years if Pepper Limiteds share price has doubled. No employees were expected to leave during the vesting period, but due to a financial scandal, all of the directors resigned en bloc on $30$ June $20\mathrm{.}6.$

The new board restored confidence however, and the share price duly doubled by $31$ December $20\mathrm{.}6.$

Assumption $7($Cash$-$settled$)$

For this scenario, assume that each of the $12$ directors were allocated share appreciation rights $($instead of options$)$ linked to $5000$ Pepper Limited ordinary shares.

At $31$ December $20\mathrm{.}4$ and $31$ December $20\mathrm{.}5,$ it was estimated that $2$ of Pepper Limiteds directors would leave during the vesting period. Two directors left the company during $20\mathrm{.}5.$ One was killed in a car crash in $20\mathrm{.}6.$

On $31$ December $20\mathrm{.}6,4$ directors exercised their share appreciation rights when the share price was R$18\mathrm{.}80$ each.

With respect to Scenario A$,$ assume on $1$ January $20\mathrm{.}4$ the that the fair value of the shares traded by Pepper Ltd is R$16,$ the strike price is R$12,$ the fair value of the options is R$5$ and assuming that the options vested immediately but directors can only exercise their options after $31$ December $20\mathrm{.}6,$ the correct share based expense to be recognised for the $20\mathrm{.}4$ financial year is:

O a$.$ R$960,000$

O b$.$ R$276,000$

O c$.$ R$300,000$

O d$.$ R$720,000$