Question 2 BBB Ltd is a firm incorporated in Singapore, listed on the Singapore Stock Exchange, with December 31 year-ends and adopts the Singapore Financial Reporting Standards (FRSs). On 1 January 20x1, BBB Ltd's shareholders approved a share option incentive plan for fifty of its top management executives. Each executive would receive 10,000 multiplied by (1 + average annual rate of increase in net profits over the three-year period from 1 January 20x1 to 31 December 20x3) options. Each option entitles the executive to purchase the shares at an exercise price of S3.50 per share, which is the market price of BBB Ltd's shares on 1 January 20x1 The options are not transferrable. The options will be forfeited should the executive leave the firm during the service period of three years and are exercisable from 31 December 20x3 and would expire by 31 December 20x6. The management used the Black-Scholes model and estimated fair value of the share option at grant date and at each of the financial year ending 20x1, 20x2 and 20x3 to be $0.60, $0.61, S0.62 and $0.63 On the grant date of the share options, the management of BBB Ltd also estimated that the company's net profits would increase by 10% a year. Management also estimated a forfeiture rate of 10%, that is, 10% of the executives would leave the company by the end of 20x3 Question 2 BBB Ltd is a firm incorporated in Singapore, listed on the Singapore Stock Exchange, with December 31 year-ends and adopts the Singapore Financial Reporting Standards (FRSs). On 1 January 20x1, BBB Ltd's shareholders approved a share option incentive plan for fifty of its top management executives. Each executive would receive 10,000 multiplied by (1 + average annual rate of increase in net profits over the three-year period from 1 January 20x1 to 31 December 20x3) options. Each option entitles the executive to purchase the shares at an exercise price of S3.50 per share, which is the market price of BBB Ltd's shares on 1 January 20x1 The options are not transferrable. The options will be forfeited should the executive leave the firm during the service period of three years and are exercisable from 31 December 20x3 and would expire by 31 December 20x6. The management used the Black-Scholes model and estimated fair value of the share option at grant date and at each of the financial year ending 20x1, 20x2 and 20x3 to be $0.60, $0.61, S0.62 and $0.63 On the grant date of the share options, the management of BBB Ltd also estimated that the company's net profits would increase by 10% a year. Management also estimated a forfeiture rate of 10%, that is, 10% of the executives would leave the company by the end of 20x3
