HW on Share-Based Payment.pdf - HOMEWORK ON SHARE-BASED PAYMENT Problem 1 – Share option with service condition and non-market condition On Jan 2 2017

# HW on Share-Based Payment.pdf - HOMEWORK ON SHARE-BASED...

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HOMEWORK ON SHARE-BASED PAYMENT Problem 1 Share option with service condition and non-market condition On Jan. 2, 2017, Pandora Co. granted 50 share options each to 400 employees, conditional upon the employees’ remaining in the company’s employ during the vesting period. The shares will vest at the end of 2017 if the company’s earnings increased by more than 15%; or at the end of 2018 if the earnings increased by an average of 12% over the two-year period; or at the end of 2019 if the earnings increased by an average of 10% over the three-year period. The options have a fair value of P25 on Jan. 2, 2017, which is equal to the share price on the grant date. At the end of 2017, earnings had increased by 13% and 20 employees have left and the company expects that earnings will continue to increase at a similar rate in 2018 and expects to vest in 2018. The company also expects, on the basis of weighted average of probability, that a further 20 employees will leave during 2018. At the end of 2018, earnings increased by only 9% and therefore shares do not vest at the end of 2018. Also, 15 employees left the company in 2018 and the company further expects that 10 employees will leave the company in 2019. The company expects that earnings will continue to increase at similar rate. At the end of 2019, earning increased by 9% and 5 employees have left the company in 2019. Determine Pandora’s remuner ation expense recognized in 2017, 2018 and 2019. Problem 2 Share option with service condition and non-market condition On Jan. 1, 2017, Aeolus Corp. grants share options to each of its 50 employees. The share option will vest on Dec. 31, 2019 , provided that the employees remain in the company’s employ and provided that volume of sales of a particular product increases by an average of between 5% and 10% per year, the employees will receive 100 share options. If the volume of sales increases between 10% and 15% each year, the employees will receive 200 share options. If the volume of sales increases by an average of 15% or more, each employee will receive 300 share options. On Jan. 1, 2017, Aeolus estimated that the share options have a fair value of P30 per option and expects that the volume of sales of the product will increase by an average of between 10% and 15%. The company expects that no employees are leaving within the next 3 years. At the end of 2017, sales increased by 12% and the company expect that this rate of increase will continue in the next two years. At the end of 2018, product sales had increased by 18% and the company expects that sales will increase by an average of 15% or more over the three-year period. At

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