Question 4b
On 1 October 2011 Omega granted share options to 200 senior executives. The options will vest on 30 September 2014 subject to the following conditions:
– Each executive will be entitled to 1,000 options if the cumulative profit in the three-year period from 1 October 2011 to 30 September 2014 exceeds $30 million. If the cumulative profit for this period is between $35 million and $40 million, then 1,500 options will vest. If the cumulative profit for the period exceeds $40 million, then 2,000 options will vest.
– If an executive leaves during the three-year vesting period, then that executive would forfeit any rights to share options.
– Notwithstanding the above, no options will vest unless the share price at 30 September 2014 exceeds $5.
Details of the fair values of the shares and share options at relevant dates are as follows:
| Date | Fair value of | |
|---|---|---|
| An Omega share | One of the options | |
| $ | $ | |
| 1 October 2011 | 4.00 | 0.50 |
| 30 September 2012 | 4.40 | 0.60 |
| 30 September 2013 | 4.60 | 0.75 |
| Date | Expected profit for the three-year period |
|---|---|
| $m | |
| 1 October 2011 | 32 |
| 30 September 2012 | 39 |
| 30 September 2013 | 45 |
On 1 October 2011, none of the relevant executives were expected to leave in the three-year period from 1 October 2011 to 30 September 2014 and none left in the year ended 30 September 2012. However, 10 executives left unexpectedly on 30 June 2013. None of the other executives are expected to leave before 30 September 2014.
Omega correctly reflected this arrangement in its financial statements for the year ended 30 September 2012.
Required:
Prepare relevant extracts from the statement of financial position of Omega at 30 September 2013 and its statement of profit or loss and other comprehensive income for the year ended 30 September 2013. You should give appropriate explanations to support your extracts. (6 marks)