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CMS Business School (Jain Deemed-To-Be University)

The document is an assignment for a course on advanced financial reporting. It asks the student to identify 5 companies that have issued share-based payments and describe the key concepts related to share-based compensation. The response provides definitions for various share-based payment terms like grant date, vesting, vesting period, exercise period, exercise price, and intrinsic value. It also explains how share-based compensation is accounted for on company financial statements, using Amazon as an example to show the impact on the income statement and cash flow statement.

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Bijosh Thomas
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19 views

CMS Business School (Jain Deemed-To-Be University)

The document is an assignment for a course on advanced financial reporting. It asks the student to identify 5 companies that have issued share-based payments and describe the key concepts related to share-based compensation. The response provides definitions for various share-based payment terms like grant date, vesting, vesting period, exercise period, exercise price, and intrinsic value. It also explains how share-based compensation is accounted for on company financial statements, using Amazon as an example to show the impact on the income statement and cash flow statement.

Uploaded by

Bijosh Thomas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CMS Business School

(Jain Deemed-to-be University)

Batch 2019-2021 Semester II

Assignment

Subject: Advanced Financal Reporting

Student Name Register/Roll number Section


SHARATH S 19MBAR0146 CF1
1. Identify 5 companies which have made share based payments during the

period (2019-2020)?

a. Apple

b. Goldman Sachs

c. Amazon

d. Infosys

f. Facebook.

2.Write down all the concepts learnt in Share based payments (Eg Grant

date,Vesting period,fair value etc) and also write how it is reflected in the

financial statements ?

Ans.

Is a way of paying employees, executives, and directors of a company with

shares of ownership in the business. It is typically used to motivate

employees beyond their regular cash-based compensation(salary and bonus)

and to align their interests with those of the company. Shares issued to

employees are usually subject to a vesting period before they can be sold.
Companies compensate their employees by issuing them stock options or

restricted shares. The shares typically vest over a few years, meaning, they

cannot be sold by the employee until a specified period of time has

passed. If the employee quits the company before the shares are vested,

they forfeit those shares. As long as the employee stays long enough with

the company, all of their shares will vest. They can hold the shares

indefinitely, or sell them to convert them into cash.

CONCEPT includes

1. GRANT DATE

2. VESTING

3. VESTING PERIOD

4. EXERCISE PERIOD

5. EXERCISE PRICE

6. INTIRSIC VALUE
1. GRANT DATE:

The grant date is the date on which a stock option or other equity-based award is granted to the

recipient. The grant date is considered to be that date on which an employer and a employee agree

upon the most essential terms and conditions associated with the award. If shareholder approval is

needed, then the grant date is considered to be delayed until that approval has been obtained, unless

shareholder approval is considered to be perfunctory.

2. VESTING:

Vesting is a legal term that means to give or earn a right to a present or future payment,

asset, or benefit. It is most commonly used in reference to retirement plan benefits when

an employee accrues nonforfeitable rights over employer-provided stock incentives or

employer contributions made to the employee's qualified retirement plan account or

pension plan.

3. VESTING PERIOD :

The vesting period is the period of time before shares in an employee stock option plan or benefits in

a retirement plan are unconditionally owned by an employee.If that person's employement

terminates before the end of the vesting period, the company can buy back the shares at the original

price. The employee cannot sell or transfer the stock options during the vesting period.

4. EXERCISE PERIOD:
means the time period after vesting within which the employee should exercise his

right to apply for shares against the option vested in him in pursuance of the

ESOS.

5. EXERCISE PRICE:

The exercise price is the price at which an underlying security can be purchased or sold

when trading a call or put option, respectively. The exercise price is the same as the strike

price.If an option, which is known when an investor takes a trade. An option gets its

value from the difference between the fixed exercise price and the market price of the

underlying security.

6.INTIRSIC VALUE:

Intrinsic value is a measure of what an asset is worth. This measure is arrived at by means

of an objective calculation or complex financial model, rather than using the currently

trading market price of that asset .

In financial analysis this term is used in conjunction with the work of identifying, as

nearly as possible, the underlying value of a company and its cash flow. In options

pricing it refers to the difference between the strike price of the option and the current

price of the underlying asset.


Let’s look at Amazon's 2017 annual report and examine how much they paid out in

equity to employees, directors, and executives, as well as how they accounted for it

on their financial statements.

As you can see in cash flow statements below, net income must be adjusted by
adding back all non-cash items, including stock-based compensation, to arrive at
cash from operating activities.
In2017,

Amazon paid $4.2 billion of share-based compensation to its employees.

Since the company has approximately 560,000 employees, that works out to about
$7,500 per employee on average.

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