Question $1(40$ marks$)$

After reorganising the management team of Moon Ltd on $1$ December $2023,$ John Li was made a director by the company's board. The board is thinking about granting John share options and is considering two different share option plans:

i Moon Ltd will grant one million share options to John on $1$ January $2024.$ If John stays with the company, these options will vest on $31$ December $2025.$ Moon expects that John will receive all the share options at the end of the two years.

ii Moon Ltd will grant one million share options to John on $1$ January $2024.$ If he continues working with the company, $500,000$ share options will vest at $31$ December $2024$ and $2025,$ respectively. Moon Ltd expects that John will receive all the share options.

On $1$ January $2024,$ the fair value of the share options is $$8$ each. The exercise price of the share options is minimal and can be ignored.

Required:

a Discuss how share option plan should be recognised as share$-$based compensation expense in accordance with HKFRS $2$ "Share$-$based Payment".

$(15$ marks$)$

b Calculate and explain the amount that should be recognised as a share$-$based compensation expense for each of the two alternatives for the years ended $31$ December $2024$ and $31$ December $2025.$

$(16$ marks$)$

c Discuss the financial impact on the company's statement of financial position and statement of profit or loss for the year ending $31$ December $2026,$ if John received a total of one million share options on $31$ December $2025,$ and exercised all the share options on $2$ January $2026.$

$(9$ marks$)$