prepare any necessary entries in e s financial statements as on dec 31 for the years 613333

Award with non-market vesting condition and variable exercise price

An entity grants to a senior executive 10,000 share options, conditional upon the executive’s remaining in the entity’s employment for three years. The exercise price is CHF40. However, the exercise price drops to CHF30 if the entity’s earnings increase by at least an average of 10% per year over the three year period.

On grant date, the entity estimates that the fair value of the share options, with an exercise price of CHF30, is CHF16 per option. If the exercise price is CHF40, the entity estimates that the share options have a fair value of CHF12 per option. During year 1, the entity’s earnings increased by 12%, and the entity expects that earnings will continue to increase at this rate over the next two years. The entity therefore expects that the earnings target will be achieved, and hence the share options will have an exercise price of CHF30.

During year 2, the entity’s earnings increased by 13%, and the entity continues to expect that the earnings target will be achieved. During year 3, the entity’s earnings increased by only 3%, and therefore the earnings target was not achieved. The executive completes three years’ service, and therefore satisfies the service condition. Because the earnings target was not achieved, the 10,000 vested share options have an exercise price of CHF40.

The entity will recognise the following amounts during the vesting period for services received as consideration for the options.