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Hi,
I found this example in the technical article, but don’t understand why $2m is the answer and why market value has been considered:
A company issues fully paid shares to 500 employees on 31 July 20X8. Shares issued to employees normally have vesting conditions attached to them and vest over a three-year period, at the end of which the employees have to be in the company’s employment. These shares have been given to the employees because of the performance of the company during the year. The shares have a market value of $2m on 31 July 20X8 and an average fair value for the year of $3m. It is anticipated that in three-years’ time there will be 400 employees at the company.What amount would be expensed to profit or loss for the above share issue?
A $3m
B $2m
C $1m
D $666,667Hi,
The shares were issued on 31 July X8 and so we use the value of the shares issued at that date as the employees are receiving the shares on that date.
We only use the fair value for equity settled share based payments and cash settled share based payments. This transaction is neither of these as the employees are not receiving options over the share nor cash.
Thanks
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