In short
Equity-classified share-based awards, such as stock options, are measured at their fair value on the grant date, estimated with an option-pricing model, and that cost is recognized over the employee's requisite service period.
Key takeaways
- Equity awards aren't remeasured after the grant date; liability-classified awards are remeasured each period.
- Companies elect either to estimate forfeitures or to account for them as they occur.
- Option-pricing models include Black-Scholes-Merton and lattice models.
Where it's tested
BAR: Stock Compensation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company grants 10,000 stock options with a grant-date fair value of $6 each, vesting over three years. What compensation expense is recognized in year one, assuming no forfeitures?