StudentShare solutions
Triangle menu

Debate the thoeries of Accounting for stock options - Research Paper Example

Not dowloaded yet

Extract of sample
Debate the thoeries of Accounting for stock options

Fair value model, lattice model and finally minimum value method which is based upon the someone’s willingness to purchase a call option on a share of stock at the current fair value of the stock with the right to postpone payment of the exercise until the end of the options period, ignoring the volatility of the underlying stock in valuation calculation. This has necessitated the emergence of alternative incentive methods to premium cash thus employee stock options. Any stock option with exercise price higher than the price of the underlying stocks at the exercise date are exchanged for new ones with lower exercise price because companies have to account for the stock issued to their employees. But the companies have to account for them although they do not incur any costs to grant the options. Guides and standards on how such transactions are accounted for in the books of the company have to be provided. Stock option compensation that needs to be looked at is the backdating of employee stock option and how it affects the company. Agency theory argues that compensation policy should provide management with incentives to select and implement actions that add shareholder wealth. Discussion Pertaining the use of the intrinsic value method of accounting for stock options, a company is to value stock options based on their intrinsic value at that juncture they were granted. Intrinsic value refers to the difference between the stock’s market price on the grant date and also including the exercise price at which the employees can use the option to purchase stock. Incase the stock’s market price is slightly higher than the option exercise price, therefore, the stock option’s value is the difference between the two. Realizing the shortcomings of the method there is need to look for a more comprehensive and efficient method of stock options .By using this method it will result in no compensation expense since we grant employees options with exercise prices same as the fair market value of the underlying stock at the time of the grant. Fair value was encouraged to be used but it was not a mandatory requirement to be used by the companies as stipulated by the Financial Accounting Standards Board (FASB). The fair value accounting approach valued stock options basing on various factors that establish the underlying value. This is because the companies are to outlay for option grants based on the fair value of the options that were expected to vest on the date it granted them. In December 2004, FASB issued a Statement of Financial Accounting Standards (Statement) No. 123(R), Share-Based Payment. Statement 123(R) replaced Statement 123, Accounting for Stock-Based Compensation, and was consequently effective for public companies as of July 1, 2005. It was effective for non-public companies as of January 1, 2006. The company had an option of either using Black-Schole option pricing model or the binomial option so as to come up with the options fair value. However, if the company continues with the intrinsic value of the approach they required to avail additional closure in the footnotes to their financial on what the expenses would have been with fair value approach. Under Statement 123, the company is only allowed to disclose information on the effects ...Show more

Summary

Theories of Accounting for Stock Options. (Name) (University) (Course) (Tutor) (Date) Introduction The principal debate is whether compensation expenditure should be recognized for both stock options and if it so, the time frame over which it should be allocated…
Author : aron90
Debate the thoeries of Accounting for stock options essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the research paper on your topic
"Debate the thoeries of Accounting for stock options"
with a personal 20% discount.
Grab the best paper

Related Essays

Debate
Time and again, Israel has not only responded to the popular Palestinian aspirations with military might, but also the tactics adopted by the Israelis have been brutal and lethal in their approach and ramifications. Since the onset of this conflict Israel has killed a large number of innocent and unarmed men and women, children and the aged.
2 pages (500 words) Research Paper
Stock Analysis
The paper explaines broad categories of approaches, such as the fundamental evaluation and the technical scrutiny approach. The fundamental evaluation method implies the investigation of a business with the purpose of determining its approximate total worth. The technical scrutiny involves the analysis of a company’s stock price fluctuations.
5 pages (1250 words) Research Paper
Discussion Debate
For instance, this process focuses on the family’s net income as a crucial determinant. Moreover, the federal poverty guidelines are applied in evaluation of family income., while on the other hand, the Early Head Start Program may focus on electing ways of targeting services offered to a certain population that has unique needs concerning their families and children in the society (Barnett & Hustedt, 2005).
3 pages (750 words) Research Paper
Stock Analysis
The total assets and equity of the company as on Jan 2013 was over US$ 203 billion and US$ 76 billion respectively. The company’s stocks are currently trading at $69.95 at the end of Jan 2013. For the year ending 2012, the company has paid dividends at rate 0.398.
5 pages (1250 words) Research Paper
Investment Options
Buyers are thus able to protect themselves against-that is, hedge against-higher prices and sellers are able to hedge against lower prices. Hedgers can also use futures to lock in an acceptable margin between their purchase cost and their selling price. The main goal of hedgers is to protect their interests and a little on making profits.
8 pages (2000 words) Research Paper
Accounting
n, have been adopted by over 100 countries across the globe and now even the United States, which previously adopted Generally Accepted Accounting Principles or GAAP, are considering the adoption of IFRS as their reporting standards across the country. (Deloitte, 2009) This
4 pages (1000 words) Research Paper
Accounting
On top of shortening the lead-time, it has also improved overall accuracy and efficiency of the delivered information. Its biggest impact on accounting in the past five years has been the ability of organizations to
3 pages (750 words) Research Paper
Debate the thoeries of Accounting for stock options
The theories used in the accounting of stock option are measured using different models which include; the intrinsic value, historical cost method
8 pages (2000 words) Research Paper
Retirement options for nurses
m always on their toes does not allow them to work till their retirement age and most of the nurses prefer to retire as early as at an average age of 45 (Blakeley & Ribeiro, 2008). The nurses enjoy their career and they love their respectable profession but most of them look
3 pages (750 words) Research Paper
Various options hedging strategies
Ratio spread-This is an option strategy that has the aim of reducing risks associated with the movement of the price of the underlying asset with short and long positions offsetting. This strategy relies on the change of the price of the option that has been caused by changes in the underlying security’s price.
1 pages (250 words) Research Paper
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation