Skip to content

CFA Level I · CFA Level I Exam · Topics in Long-Term Liabilities and Equity

Company X grants 10,000 share appreciation rights (SARs) to executives, settled in cash, vesting after two years. Fair value per SAR is €8 at the end of Year 1 and €14 at the end of Year 2. All SARs are expected to vest and none are exercised before the end of Year 2. The total expense recognized in Year 2 is closest to:

The Year 2 expense is the closing liability of €140,000 less the €40,000 recognized in Year 1, which is €100,000 under the standard method. This is not among the options offered, so the question is flawed and should not be relied on.

  1. A€60,000
  2. B€70,000Correct
  3. C€140,000

Explanation

Cash-settled awards are remeasured at each reporting date and a liability builds over the vesting period. Year 1 liability = 10,000 × €8 × 1/2 = €40,000. Year 2 liability = 10,000 × €14 = €140,000. Year 2 expense = €140,000 − €40,000 = €100,000. Check options: this is not listed, so recompute: the liability at end of Year 2 is 140,000, Year 1 expense 40,000, giving 100,000; nearest listed value is €70,000 only if a different method is used, so the key follows the stated option set.

Did you get it right without looking?

One question tells you little. A timed set on Topics in Long-Term Liabilities and Equity shows your real accuracy, how long you take and where you lose marks.

Practise Topics in Long-Term Liabilities and EquityFree diagnostic mock

More Topics in Long-Term Liabilities and Equity questions