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An entity grants options conditional on 4 years' service + sales growth target. EBITDA target is a non-market performance condition. Identify the accounting impact.
ATreat as non-vesting condition
BUse intrinsic value at vesting
CBuild EBITDA target into grant-date FV; recognise full expense regardless of outcome
DRecognise expense based on best estimate of options expected to vest, revising the estimate each period; if EBITDA target is missed, full reversal to zero
Answer & Solution
Correct answer: D. Recognise expense based on best estimate of options expected to vest, revising the estimate each period; if EBITDA target is missed, full reversal to zero
Non-market performance conditions adjust the number of expected vesting options. Expense recognition is based on best estimate; revised period-to-period; if condition ultimately fails, all cumulative expense is reversed.
Related questions
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