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

Compared with a company that grants employees restricted shares, a company that instead grants cash-settled share appreciation rights is most likely to report:

The company would report a liability that is remeasured at fair value at each reporting date. Cash-settled SARs obligate the company to pay cash, so they are liabilities, unlike equity-settled restricted shares whose cost is fixed at grant date and credited to equity.

  1. AA liability that is remeasured at fair value at each reporting date.Correct
  2. BEquity that increases by the full expense recognized over the vesting period.
  3. CA fixed expense determined solely at the grant date.

Explanation

Cash-settled SARs create an obligation to pay cash, so a liability is recorded and remeasured each reporting date, with changes going to profit or loss. Equity increases arise for equity-settled awards such as restricted shares, and a fixed grant-date expense also applies to equity-settled awards.

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