Document ID: chunk:federal_register_of_legislation:F2022C00493:reg:5
Version: federal_register_of_legislation:F2022C00493
Segment Type: reg
Provision Reference: reg 5
Character Range: 246211–250479

5                                                                                                                                                                                                                                                                                                                                                                                                                                                       CU0 – CU241,820                                               (241,820)                       0
+ 113 employees × 100 SARs × CU25.00                                                                                                                                                                                                                                                                                                                                                                                                                    282,500
Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             40,680
                                                                                                                                                                                                                                                                                                                                                                                                                                                        Total                                                                              787,500

IG Example 12A
Background
An entity grants 100 cash-settled share appreciation rights (SARs) to each of its 500 employees on the condition that the employees remain in its employ for the next three years and the entity reaches a revenue target (CU1 billion in sales) by the end of Year 3. The entity expects all employees to remain in its employ.
For simplicity, this example assumes that none of the employees' compensation qualifies for capitalisation as part of the cost of an asset.
At the end of Year 1, the entity expects that the revenue target will not be achieved by the end of Year 3. During Year 2, the entity's revenue increased significantly and it expects that it will continue to grow. Consequently, at the end of Year 2, the entity expects that the revenue target will be achieved by the end of Year 3.
At the end of Year 3, the revenue target is achieved and 150 employees exercise their SARs. Another 150 employees exercise their SARs at the end of Year 4 and the remaining 200 employees exercise their SARs at the end of Year 5.
Using an option pricing model, the entity estimates the fair value of the SARs, ignoring the revenue target performance condition and the employment-service condition, at the end of each year until all of the cash-settled share-based payments are settled. At the end of Year 3, all of the SARs vest. The following table shows the estimated fair value of the SARs at the end of each year and the intrinsic values of the SARs at the date of exercise (which equals the cash paid out).
Year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Fair value of one SAR                                    Intrinsic value of one SAR