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” If the conditions are specifically related to the market price of the company’s shares then such conditions are ignored for the purposes of estimating the number of equity shares that will vest. The thinking behind this is that these conditions have already been taken into account when fair valuing the shares” – Written on acca website
Sir can you pls explain what are they trying to say? Like why are expenses recognised irrespective of whether conditions are satisfied?
Thanks a lotExample of market condition = share price must be > 5 dollars
The fair value of the option takes account of the volatility of share prices. They use a model known as Black Scholes which takes account of the Beta of the shares. So share price volatility is already priced in.
So, in the exam, ignore the market condition! You make the SBP charge – whether or the condition will be satisfied.
So what i understand is,
Fair value of the share option takes into account share price volatility(which is caused by market conditions). So basically FV of option takes into account market based conditions and so an expense is recorded irrespective of whether the condition is satisfied ( Assuming it will)Am i right?
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