prepare any necessary entries in e s consolidated financial statements as at dec 31 613380

Award with rights to receive (and retain) dividends during vesting period

An entity grants 100 free shares to each of its 500 employees. The shares are treated as fully vested for legal and tax purposes, so that the employees are eligible to receive any dividends paid. However, the shares will be forfeited if the employee leaves within three years of the award being made. Accordingly, for the purposes of IFRS 2, vesting is conditional upon the employee working for the entity over the next three years. The entity estimates that the fair value of each share (including the right to receive dividends during the IFRS 2 vesting period) is €15. Employees are entitled to retain any dividend received even if the award does not vest.

20 employees leave during the first year, and the entity’s best estimate at the end of year 1 is that 75 employees will have left before the end of the vesting period. During the second year, a further 22 employees leave, and the entity revises its estimate of total employee departures over the vesting period from 75 to 60. During the third year, a further 15 employees leave. Hence, a total of 57 employees (20 + 22 + 15) forfeit their rights to the shares during the three year period, and a total of 44,300 shares (443 employees × 100 shares per employee) finally vest.

The entity pays dividends of €1 per share in year 1, €1.20 per share in year 2, and €1.50 in year 3.