Question

Yellow Company is a calendar-year firm with operations in several countries. At January 1, 2021, the company had issued 43,000 executive stock options permitting executives to buy 43,000 shares of stock for $33. The vesting schedule is 20% the first year, 20% the second year, and 60% the third year (graded-vesting). The fair value of the options is estimated as follows:

Vesting Date	Amount Vesting				Fair Value per Option
Dec. 31, 2021		20	%			$	6
Dec. 31, 2022		20	%			$	7
Dec. 31, 2023		60	%			$	9

Assuming Yellow prepares its financial statements in accordance with International Financial Reporting Standards (IFRS), what is the compensation expense related to the options to be recorded in 2022?

Answer 1

Answer:

The cost for the year is recognized when the vesting of options takes place.

In this question, 20% vesting takes place in 2022, hence, compensation expense of 20% stock options would be booked in 2022.

Total no. of options granted = 43,000

% vesting in 2022 = 20%

No. of shares vested in 2022 = 43,000 X 20% = 8,600

Fair value expenses of options on Dec 31, 2022 = $7 per option

Hence,

total compensation expenses to be booked = No. of options vested X Fair value per option

total compensation expenses to be booked = $8,600 X $7

total compensation expenses to be booked  = $60,200.