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Ankita Ltd. grants 100 shares each to 500 employees on 1 Jan 20X1, conditional on (a) service AND (b) earnings increase targets (12% Y1, 20% cumul Y2, 22% cumul Y3). Grant date FV ₹122. Year 20X1: 10% (target not met); 29 employees left; entity expects 31 more to leave in Y2 and 440 to receive shares at end Y2. Compute expense for 20X1.
ANil (target not met yet)
B₹26,84,000 (= 440 × 100 × 122 × 1/2, using expected Y2 vesting denominator 2)
C₹6,10,000 (= 500 × 100 × 122 × 1/3)
D₹40,00,000
Answer & Solution
Correct answer: B. ₹26,84,000 (= 440 × 100 × 122 × 1/2, using expected Y2 vesting denominator 2)
Earnings is non-market performance condition → embedded in NUMBER of vested instruments, not FV. Year 1 expense = expected vested employees (440) × shares (100) × FV (122) × proportionate vesting (1/2, since management expects vesting at end of Y2) = ₹26,84,000.
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