Question

Anazazi Co. offers all its 10,000 employees the opportunity to participate in an employee share-purchase plan. Under the terms of the plan, the employees are entitled to purchase 100 ordinary shares (par value \(1 per share) at a 20% discount. The purchase price must be paid immediately upon acceptance of the offer. In total, 8,500 employees accept the offer, and each employee purchases on average 80 shares at \)22 per share (market price \(27.50). Under IFRS, Anazazi Co. will record:

(a) no compensation since the plan is used to raise capital, not compensate employees.

(b) compensation expense of \)5,500,000.

(c) compensation expense of \(18,700,000.

(d) compensation expense of \)3,740,000.

Short answer

Correct option is “d”.

Step-by-step solution

Explanation on compensation expense

Stock-based compensation expense also known as equity or share-based compensation expense, is a practice of supplementing employees' cash compensation with shares of ownership interest in the company.

Computation of compensation expense

Particulars	Amount ($)
Number of employees	8,500
Average shares purchased	80
Share price (27.50-22)	5.5
Compensation Expense (8,500 x 80 x 5.5)	3,740,000