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An entity grants options conditional on the employee NOT competing with the entity for 3 years post-vesting (a NON-COMPETE clause). Grant date FV (with non-compete effect) = ₹15 mn. Identify the accounting.
ARecognise ₹15 mn over employment term; reverse on departure
BRecognise ₹15 mn over the 3-year vesting period; reverse if director competes
CRecognise ₹15 mn IMMEDIATELY at grant date because the non-compete clause is a NON-VESTING CONDITION — the entity does not receive any future services. NO REVERSAL even if the director joins a competitor later
DDefer recognition entirely
Answer & Solution
Correct answer: C. Recognise ₹15 mn IMMEDIATELY at grant date because the non-compete clause is a NON-VESTING CONDITION — the entity does not receive any future services. NO REVERSAL even if the director joins a competitor later
A non-compete clause is a non-vesting condition. Because no future services are required, expense is recognised IMMEDIATELY at grant date. Subsequent breach of the non-compete clause does NOT reverse the expense.
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