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Apple Ltd grants 10,000 share options requiring 3 years' service + 20% share-price growth (market condition). Grant date option FV (with market condition modelled) = ₹95. Y1: share price up 5%. Y2: up 18%. Y3: up 25% (market condition met). Identify accounting:
ARecognise ₹95 × 10,000 / 3 = ₹3,16,667 each year regardless of intermediate price movements — market condition is in FV, no true-up; if employee leaves, that's the only true-up
BRecognise expense only after Y3 since condition was met in Y3
CRecognise full ₹9,50,000 in Y1
DReverse Y1 expense in Y2 (price target not yet met)
Answer & Solution
Correct answer: A. Recognise ₹95 × 10,000 / 3 = ₹3,16,667 each year regardless of intermediate price movements — market condition is in FV, no true-up; if employee leaves, that's the only true-up
Market condition is in the grant-date FV (₹95 already reflects price-target probability via Monte Carlo). No true-up. Expense recognised straight-line over service period. Even if market condition ultimately fails, expense is NOT reversed — service was received.
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