Question Tag: Vesting Conditions

Zara Plc operates within the thriving food packaging industry in Ghana. At 1 January 2020, the firm agreed to grant 10,000 shares each to 500 employees, conditional on the employees remaining in the firm’s employment during the vesting period. The terms of the scheme indicated that the shares will vest at:

i) 31 December 2020, if the firm’s EPS growth is greater than 18%
ii) 31 December 2021, if the firm’s EPS growth is greater than an average of 13% per year over the 2-year period
iii) 31 December 2022, if the firm’s EPS growth is greater than an average of 10% per year over the 3-year period

The award was estimated to have a fair value of GH¢8 per share at the grant date. The following events took place during the three years at:

• 31 December 2020: EPS was up 14%, and 30 staff left. The firm expected EPS to continue growing at the same level and hence for shares to vest at 31 December 2021. A further 30 employees were expected to leave in 2021.
• 31 December 2021: EPS was up by only 10%, so shares did not vest. 28 employees left during the year. The firm expected a further 25 employees to leave in 2022 and that EPS would increase by greater than 6%, thereby achieving an average EPS growth rate of 10% per year.
• 31 December 2022: 23 employees left, and EPS was up 8%. The average EPS over the three-year period was greater than 10%.

Required:
Recommend how Zara Plc would account for the share-based payment scheme during the years ended 31 December 2020, 2021, and 2022. Show extracts from only the 2021 financial statements.