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Ambani Ltd grants CEO option (1 Jan 20X0) to take 800 shares' cash equivalent OR 990 shares (3-year holding). Service requirement 2 years. Share alt FV (with restrictions) ₹212; grant FV ₹213; 31 Dec 20X0 FV ₹220; 31 Dec 20X1 FV ₹232. CEO chooses CASH at end Y3. Compute equity component (one-time) and liability component movements:
ASame as B but equity transferred to retained earnings on cash settlement
BSame as B and equity also flows through P&L on settlement
CEquity = ₹19,740 + ₹19,740 over 2 years; Cash option Y0 ₹88,000, Y1 cumulative ₹1,85,600 (800 × 232) and ₹97,600 incremental
DEquity component ₹19,740 (= [990×212 − 800×213]/2 × 2) recognised over 2 years; Liability component at Y0 = 800 × ₹220 × 1/2 = ₹88,000
Answer & Solution
Correct answer: C. Equity = ₹19,740 + ₹19,740 over 2 years; Cash option Y0 ₹88,000, Y1 cumulative ₹1,85,600 (800 × 232) and ₹97,600 incremental
Equity FV = 990×212 = ₹2,09,880; Cash FV = 800×213 = ₹1,70,400; Equity component = ₹39,480 split over 2-year vesting = ₹19,740/year. Cash component remeasured to year-end FV: Y0 ₹88,000 (800×220×1/2); Y1 ₹1,85,600 (800×232×2/2), incremental ₹97,600.
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