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Continuing compound SBP: 3-year vesting. Year-end share price: Y1 ₹52, Y2 ₹55, Y3 ₹60. Expense and balances at Y3-end if EMPLOYEE CHOOSES CASH ALTERNATIVE (₹1,20,000 paid):
ATotal cumulative expense ₹1,35,200 (= cash 1,20,000 + equity component 15,200); liability cleared by ₹1,20,000 cash; equity ₹15,200 transferred within equity (e.g. to retained earnings)
BTotal cumulative expense ₹1,20,000; equity ₹0; liability cleared
CExpense ₹1,15,200; cash unpaid
DExpense ₹1,00,000; equity ₹0
Answer & Solution
Correct answer: A. Total cumulative expense ₹1,35,200 (= cash 1,20,000 + equity component 15,200); liability cleared by ₹1,20,000 cash; equity ₹15,200 transferred within equity (e.g. to retained earnings)
Even when cash is chosen, equity component (₹15,200) sits in equity at vesting and is not reclassified to P&L. It transfers WITHIN equity (typically to retained earnings on settlement). Total expense recognised over the 3 years = ₹1,35,200.
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