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CMA Intermediate · Corporate Accounting and Auditing · Issue, Forfeiture, Rights, Bonus, Sweat Equity, ESOP and Buy-back of Shares

Under the accounting treatment of an Employee Stock Option Plan (ESOP) at the fair value method, the date on which the fair value of each option is measured for computing employee compensation expense is the:

The fair value of each option is measured on the grant date. The total compensation cost fixed at that date is spread over the vesting period, and later share price changes do not change the expense already determined.

  1. AGrant dateCorrect
  2. BVesting date
  3. CExercise date
  4. DDate of board approval of the annual accounts

Explanation

Under the fair value method, the option is measured at its fair value on the grant date, and this total value is recognised as employee compensation expense over the vesting period. Later changes in the share price do not alter the expense. Measuring at vesting or exercise date would wrongly bring in subsequent price movements.

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