Page 13 - 20. COMPILER QB - INDAS 102

Q10. (April 2019 – 12 Marks)

Ankita Holding Inc. grants 100 shares to each of its 500 employees on 1st January, 20X1. The employees

should remain in service during the vesting period. The shares will vest at the end of the First year if the

company’s earnings increase by 12%; Second year if the company’s earnings increase by more than 20% over
the two-year period; Third year if the entity’s earnings increase by more than 22% over the three-year period.
The fair value per share at the grant date is Rs. 122. In 20X1, earnings increased by 10%, and 29 employees

left the organisation. The company expects that earnings will continue at a similar rate in 20X2 and expects

that the shares will vest at the end of the year 20X2. The company also expects that additional 31 employees
will leave the organisation in the year 20X2 and that 440 employees will receive their shares at the end of

the year 20X2. At the end of 20X2, the company's earnings increased by 18%. Therefore, the shares did not
vest. Only 29 employees left the organization during 20X2. Company believes that additional 23 employees

will leave in 20X3 and earnings will further increase so that the performance target will be achieved in 20X3.
At the end of the year 20X3, only 21 employees have left the organization. Assume that the company’s

earnings increased to desired level and the performance target has been met. Determine the expense for each
year and pass appropriate journal entries?

SOLUTION

Since the earnings of the entity are non-market related, hence it will not be considered in the fair value

calculation of the shares given. However, the same will be considered while calculating the number of shares
to be vested.
Workings:

20X1 20X2 20X3
Total employees 500 500 500

Employees left (Actual) (29) (58) (79)
Employees expected to leave in the next year (31) (23) -
Year end – No of employees 440 419 421

Shares per employee 100 100 100
Fair value of share at grant date 122 122 122

Vesting period 1/2 2/3 3/3
Expenses-20X1 (Note 1) 26,84,000
Expenses-20X2 (Note 2) 7,23,867

Expenses-20X3 (Note 3) 17,28,333

Note 1:

Expense for 20X1
= No. of employees x Shares per employee x Fair value of share x Proportionate vesting period

= 440 x 100 x 122 X ½ = 26,84,000

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