QUESTION 3 You are keeping the accounting books of two different companies (lona Ltd and Stafa Ltd) which both apply IFRS. The following information is provided for each of these companies: 1) At the beginning of year 1, lona Ltd grants 50 share options to each of its 120 employees, conditional on the employee remaining in the employ of lona Ltd over the next 2 years. The company estimates that the fair value of the options on grant date is $12. On the basis of a weighted average probability, lona Ltd estimates that 15% of its employees will leave during the vesting period. At the end of year 1 eight employees have left, and lona Ltd estimates that a further nine will leave during year 2. By the end of year 1 the company's share price has dropped, and it decides to reprice the share options. It estimates that the fair value of the original share options is $7 and the fair value of the repriced share options is $10. Nine employees leave during year 2. 2) Stafa Ltd grants 1000 share appreciation rights (SARS) to 10 senior managers, to be taken in cash within 2 years of vesting date on condition that the managers do not leave in the next three years. The SARS vest at the end of year 3. Stafa Ltd estimates the fair value of the SARs at the end of each year as shown below. The intrinsic value of the SARs at the date of exercise is also shown below. During year 1, one employee leaves and Stafa Ltd estimates that a further two employees will leave before the end of year 3. One employee leaves during year 2 and the company estimates that another employee will depart during year 3. One employee leaves during year 3. At the end of year 4, four employees exercise their options. Year Fair value Intrinsic Value No of managers who exercised their SARS 1 4.40 2 5.50 3 10.20 9.00 4 Required For both companies, show the relevant journal entries and prepare a schedule setting out the remuneration expense and liability (where relevant) to be recognised at the end of each year. (20%)