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

Under IFRS, a company grants share options to employees that vest after three years of service. The grant-date fair value of the options is the amount the company uses to measure the cost. The compensation expense is most likely recognized:

The expense is recognized over the vesting period using the grant-date fair value of the options expected to vest. Employees earn the award by providing service, so cost is spread across that period instead of being recorded at grant or at exercise.

  1. AIn full on the grant date, because the employer has made an irrevocable offer.
  2. BOver the vesting period, based on the grant-date fair value of the options expected to vest.Correct
  3. COn the exercise date, based on the intrinsic value of the options at that time.

Explanation

IFRS 2 requires equity-settled awards to be measured at grant-date fair value and expensed over the service (vesting) period, adjusted for the number of awards expected to vest. Expensing all at grant ignores the service condition. Using exercise-date intrinsic value ignores the grant-date measurement rule.

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