Asked by Jarrett Covelli on May 07, 2024
Verified
Abbott Limited grants 500 share options to each of its 20 employees. Each grant is conditional on the employee working for the company for the next three years. The fair value of each option is estimated to be $6.00 at grant date and $8.00 at vesting date. The amount to be recognised as an expense by Abbott Limited in year 2 is:
A) $40 000.
B) $20 000.
C) $60 000.
D) $80 000.
Fair Value
The income derived from selling an asset or the cost incurred in moving a liability in a peaceful transaction with counterparts in the market at the date of analysis.
Share Options
Options given by a company to its employees as part of their compensation package, allowing them to purchase shares of the company at a future date at a predetermined price.
Vesting Date
The date on which an employee gains the right to receive benefits or stock options from an employer's plan.
- Recognize the principles of recognition and measurement for transactions involving share-based payments.
Verified Answer
TG
Thalia GonzalezMay 11, 2024
Final Answer :
B
Explanation :
Each employee is granted 500 share options, so the total number of options granted is 20 x 500 = 10,000. The fair value of each option at grant date is $6.00, so the total value of the options granted is $6.00 x 10,000 = $60,000.
However, the options vest over three years, so the total expense to be recognised by Abbott Limited over the three-year period is $8.00 x 10,000 = $80,000.
In year 2, only one-third of the options will have vested (i.e. 10,000/3), so the expense to be recognised in year 2 is $80,000/3 = $26,666.67.
Therefore, the closest option to this amount is B) $20,000.
However, the options vest over three years, so the total expense to be recognised by Abbott Limited over the three-year period is $8.00 x 10,000 = $80,000.
In year 2, only one-third of the options will have vested (i.e. 10,000/3), so the expense to be recognised in year 2 is $80,000/3 = $26,666.67.
Therefore, the closest option to this amount is B) $20,000.
Learning Objectives
- Recognize the principles of recognition and measurement for transactions involving share-based payments.