At the beginning of Year 4, ABC Corp. grants to a senior executive 3,000 share options, conditional upon the executive's remaining in the entity's employ until the end of Year 6. The exercise price is P40. However, the exercise price drops to P30 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 P30, is P15 per option. If the exercise price is P40, the entity estimates that the share options have a fair value of P12 per option. During Year 4, 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 P30. During Year 5, the entity's earnings increased by 13%, and the entity continues to expect that the earnings target will be achieved. During Year 6, 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 3,000 vested share options have an exercise price of P40. What is the cumulative compensation expense for Years 4, 5 and 6?
At the beginning of Year 4, ABC Corp. grants to a senior executive 3,000 share options, conditional upon the executive's remaining in the entity's employ until the end of Year 6. The exercise price is P40. However, the exercise price drops to P30 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 P30, is P15 per option. If the exercise price is P40, the entity estimates that the share options have a fair value of P12 per option.
During Year 4, 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 P30. During Year 5, the entity's earnings increased by 13%, and the entity continues to expect that the earnings target will be achieved.
During Year 6, 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 3,000 vested share options have an exercise price of P40.
What is the cumulative compensation expense for Years 4, 5 and 6?
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