Question

On 1 July 2019 Campbell Ltd provided 1 million options to its chief executive officer. The...

On 1 July 2019 Campbell Ltd provided 1 million options to its chief executive officer. The options were valued at $1.20 each and allowed the chief executive officer to acquire shares in Campbell Ltd for $8.40 each. The chief executive officer is not permitted to exercise the options before 30 June 2021 but may then exercise them at any time between 1 July 2021 and 30 June 2022. The market price of the Campbell Ltd shares on 1 July 2019 was $9.75.

On 31 December 2021 the share price reaches $10.78 and the chief executive officer decides to exercise her options and acquire shares in Campbell Ltd.

Required: Account for the issue and exercise of options in Campbell Ltd

Homework Answers

Answer #1
Date Account Dr. Cr.
01-07-19 Salaries (1000,000 options * $1.20) $ 1,200,000
To Share Options $ 1,200,000
(Being provision of options recognised as part of total salaries cost)
31-12-21 Cash (1000,000 options * $8.40) $ 8,400,000
To Share capital $ 8,400,000
(Being recoginition of options exercised by the Chief executive officer)
31-12-21 Share Options $ 1,200,000
To Share capital $ 1,200,000
(Being transfer of share options to share capital)

When the options are exercised then the cost booked against options i.e. $1,200,000 on 1st Jul 2019 will be transferred to share capital.

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