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Question 2c

Delta is an entity which is engaged in the construction industry and prepares financial statements to 30 September each year. The financial statements for the year ended 30 September 2015 are shortly to be authorised for issue. The following events are relevant to these financial statements:

(c) On 1 October 2014, Delta granted share options to 100 senior executives. The options vest on 30 September 2017. The number of options granted per executive depend on the cumulative revenue for the three years ended 30 September 2017. Each executive will receive options as follows:

Cumulative revenue for the three years ended 30 September 2017 Number of options PER EXECUTIVE
Less than $180 million Nil
At least $180 million but less than or equal to $270 million 200
More than $270 million 300

Delta’s revenue for the year ended 30 September 2015 was $50 million. The directors of Delta have produced reliable budgets showing that the revenues of Delta for the next two years are likely to be:

– Year ended 30 September 2016 – $65 million.
– Year ended 30 September 2017 – $75 million.

On 1 October 2014, the fair value of these share options was $3 per option. This figure had increased to $3·60 per option by 30 September 2015 and was expected to be $5 per option by 30 September 2017. All of the 100 executives who were granted the options on 1 October 2014 were expected to remain as employees throughout the three-year period from 1 October 2014 to 30 September 2017. (4 marks)

Required:
Explain and show how the three events would be reported in the financial statements of Delta for the year ended 30 September 2015.

Note: The mark allocation is shown against each of the three events above.