Question

1. What accounting standard in 2004 caused stock options to decline as the primary source of non-cash compensation? Why?

2. Does compensation expense from stock options meet the definition of an expense as discussed in SFAC 6? Why?

3. Do you think compensation expense from stock options should be recognized as an expense? Choose one position, and support it.

Answer 1

Answer:-

1.

• APB 25 was old inside a year. The production in 1973 of the Black-Scholes equation set off a tremendous blast in business sectors for traded on an open market alternatives, a development fortified by the opening, likewise in 1973, of the Chicago Board Options Exchange.
• It was without a doubt no fortuitous event that the development of the exchanged choices markets was reflected by an expanding utilization of offer choice concedes in official and representative pay.
• The National Center for Employee Ownership evaluates that almost 10 million workers got investment opportunities in 2000; less than 1 million did in 1990.
• It before long turned out to be clear in both hypothesis and practice that choices of any sort were worth much more than the characteristic esteem characterized by APB 25.

2.

• Investment opportunity cost is a strategy for representing the estimation of offer choices, appropriated as impetuses to workers, inside the benefit and misfortune revealing of a recorded business.
• On the pay articulation, monetary record, and income explanation say that the misfortune from the activity is represented by noticing the contrast between the market cost (on the off chance that one exists) of the offers and the money got, the activity cost, for issuing those offers through the alternative.

3.

• Adversaries of thinking about alternatives as a cost say that the genuine misfortune because of the distinction between the activity cost and the market cost of the offers is now expressed on the income explanation.
• They would likewise call attention to that a different misfortune in profit per share (because of the presence of more offers remarkable) is additionally recorded on the asset report by noticing the weakening of offers extraordinary.
• Just, representing this on the wage proclamation is accepted to be excess to them.