Share-Based Compensation Recognition

Very Hard Employee Compensation Share-based Compensation

XYZ Corporation is preparing its financial statements for the year ended December 31, 2023. As part of its employee compensation program, XYZ granted share options to its employees on January 1, 2023. The total fair value of the options granted was calculated at $1,000,000, using a Black-Scholes model. The options vest over a four-year period with a contractual life of ten years.

XYZ Corporation follows IFRS reporting standards. During the year, the company recognized compensation expense based on the fair value of the share-based payments. However, management is uncertain about how to account for certain nuances regarding cash-settled versus equity-settled share-based payments in their forthcoming statements. How should XYZ Corporation recognize the expense related to these share options in the income statement for the year 2023?

XYZ should recognize a share-based compensation expense of $250,000 in 2023, reflecting one-fourth of the total fair value since the options vest over four years.

XYZ should recognize a liability of $500,000 in 2023, representing the estimated cash settlement amount for the options at vesting.

XYZ should recognize a share-based compensation expense of $1,000,000 in 2023, representing the total fair value of the option grant.

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