PROBLEM 33-8 Intrinsic Value

On January 1, 2018, Awake Co. grants 1,000 share options to 40 employees. The share options will vest at the end of 2020, provided the employees remain in service until then. The share options have a life of five years. The exercise price is 45 and the entity's share price is 45 at the date of grant.

At the date of grant, the entity concludes that it cannot estimates reliably the fair value of the share options granted.

At the end of 2018, three employees have ceased employment and the entity estimate that a further four employees will leave during 2019 and 2020.

Two employees leave during 2019, and the entity revises its estimate of the number of share options that it expects will vest to 80 per cent or 32,000 share options.

Three employees leave during 2020. Hence, 32,000 share options vested at the end of 2020.

The entity's share price and the number of share options exercised during year 2018 to 2020 are set out below. Share options that were exercised during a particular year were all exercised at the end of that year.

Year

Share Price at year-end

Number of share options exercised at year-end

2018

60

0

2019

65

0

2020

70

0

2021

68

18,000

2022

80

14,000

Questions:

How much is the salaries expense for 2018

110,000c. 480,000

640,000d. 330,000

How much is the salaries expense for 2019

110,000c. 210,000

320,000d. 640,000

How much is the salaries expense for 2020

110,000c. 320,000

330,000d. 640,300

How much is the gain due to decrease in intrinsic value for 2021

Nilc. 36,000

28,000d. 64,000

How much is the salaries expense for 2022

104,000c. 330,000

168,000d. 185,600