Understanding Share-Based Compensation Accounting

Very Easy Employee Compensation Share-based Compensation

In the context of share-based compensation, companies often grant stock options to their employees as a form of incentive. Understanding how these options are accounted for is crucial for analyzing a company's financial statements.

Which of the following statements regarding the accounting treatment of share-based compensation is correct?

Share-based payments are recognized as an expense in the income statement over the vesting period.

The fair value of share options is only recognized when the employee exercises the options.

Share-based compensation does not affect earnings, as it is recorded directly in equity.

Hint

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