Reference no: EM132919819

Question - On January 1, Year 1, Entity A grants share options to each of its 100 employees working in the sales department. Each of these employees receives 10 share options. The share options will vest on December 31, Year 3, provided that the employees remain in the entity's employ. On January 1, Year 1, fair value per option is P30.

On December 31, Year 1, it is expected that during the whole vesting period of three (3) years, 10% of the employees will leave Entity A. On December 31, Year 2, this expectation is revised to 30%. Finally, by December 31, Year 3, 20% of the employees left Entity A.

There is also a performance condition in addition to the service condition. According to the performance condition, the options only vest if Entity A's sales revenue increases by at least 20% by December 31, Year 3. On December 31, Year 1 and Year 2, it is expected that the target will be met. However, the target is not met by December 31, Year 3.

1. What amount of compensation expense should be recognized in Year 1?

2. What amount of compensation expense should be recognized in Year 2?

3. Prepare the entry to record compensation expense for Year 1 and Year 2.