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Worked-example setupScope and assumptions
- Linden Peak, its plan, recipients, award terms, valuations, service periods, condition conclusions, modification, and tax attributes are fictional and supplied for instruction.
- Three equal 10,000-unit RSU tranches vest after one, two, and three years and are attributed separately; grant-date fair value is $12 per unit.
- Fifty thousand equity-classified options have $6 grant-date fair value and a three-year service period; a beneficial modification adds $0.40 per option.
- Eight thousand cash-settled SARs are liability-classified and remeasured to $5.50 per unit at the reporting date after half the service period.
- A 5,000-unit performance award is not probable at the reporting date, so no compensation cost is recognized under the supplied conclusion.
- The supplied $360,000 reporting-date tax-deduction basis and 25-percent enacted rate determine the displayed deferred tax asset; no awards settle this period.
- Period
- First annual reporting date after grant
- Units
- US dollars, award units, and fractions of requisite service
- Rounding
- Retain full precision; display dollars and units with commas and percentages to one decimal place
Problem
Linden Peak's draft multiplies all 93,000 award units by the latest quoted share price and divides by three. That shortcut ignores classification, award-date measurement, tranche service, condition type, a modification, and tax basis. Rebuild the schedule award by award.
Establish the measurement basis before attribution
| Award | Classification and gate | Measurement basis |
|---|---|---|
| RSU tranche 1 | Equity; service | $120,000 |
| RSU tranche 2 | Equity; service | 120,000 |
| RSU tranche 3 | Equity; service | 120,000 |
| Modified options | Equity; market condition in grant-date value; $0.40 incremental value | 320,000 |
| Cash-settled SARs | Liability; reporting-date value | 44,000 |
| Performance units | Equity; performance condition not probable | — |
| Total active basis | $724,000 |
Equity classification locks the relevant fair value at grant date under the supplied facts. Liability classification remeasures. A market condition is in the grant-date fair value and does not become a probability toggle. The performance condition does.
Attribute each tranche over its service rail
| Award | Service elapsed | Cumulative cost | Unrecognized cost |
|---|---|---|---|
| RSU tranche 1 | 100.0% | $120,000 | — |
| RSU tranche 2 | 50.0% | 60,000 | 60,000 |
| RSU tranche 3 | 33.3% | 40,000 | 80,000 |
| Modified options | 33.3% | 106,667 | 213,333 |
| Cash-settled SARs | 50.0% | 22,000 | 22,000 |
| Performance units | gated off | — | — |
| Total | $348,667 | $375,333 |
The cumulative cost is $326,667 in the equity-classified rail and $22,000 in the liability rail. Those amounts agree to the $348,667 total but remain separate because later measurement and settlement differ.
Keep book compensation and tax deduction evidence separate
The supplied reporting-date tax-deduction basis is $360,000, not the book compensation total. At a 25-percent enacted rate it supports a $90,000 deferred tax asset. The difference between book and tax rails is expected; replacing one with the other would hide the future settlement comparison.
No award settles this period, so there is no actual tax deduction, DTA reversal, or settlement excess or deficiency. The release file must still retain those zero rows so a later exercise cannot bypass the control.
Forfeiture transfer check
Assume 1,000 otherwise identical service-condition units leave before vesting. Under an elected estimate-based policy, revise expected units and record the cumulative catch-up supported by the updated estimate. Under an elected policy to account for forfeitures as they occur, remove the forfeited units when the forfeiture occurs. Do not switch between those policies because one produces a preferred quarter. Failure of Linden Peak's market target, by contrast, is not a service forfeiture and does not reverse an equity award's cost solely for the market miss after requisite service.
What this verifies
The schedule verifies arithmetic under supplied scope, classification, fair value, condition, service, modification, and tax conclusions. It does not perform valuation, decide whether an instrument is equity or a liability, establish probability, interpret tax law, or determine whether an award is in Topic 718.
Quantitative companions
Choose from 2 ways to work with this calculation.
Verified calculation · share based compensation analysis
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- actual tax deduction on settled awards
- 0
- deferred tax asset reversed on settlement
- 0
- enacted tax rate
- 0.25
- opening deferred tax asset
- 0
- tax deduction basis at reporting date
- 360,000
- tranches
- 6 fields
Inspect data
{
"cash_settled_sars": {
"classification": "liability",
"condition_type": "service",
"expected_to_vest_fraction": 1,
"grant_date_fair_value_per_unit": 4,
"modification_incremental_fair_value_per_unit": 0,
"opening_recognized_compensation_cost": 0,
"performance_condition_probable": true,
"reporting_date_fair_value_per_unit": 5.5,
"service_fraction_elapsed": 0.5,
"units": 8000
},
"modified_options": {
"classification": "equity",
"condition_type": "market",
"expected_to_vest_fraction": 1,
"grant_date_fair_value_per_unit": 6,
"modification_incremental_fair_value_per_unit": 0.4,
"opening_recognized_compensation_cost": 0,
"performance_condition_probable": true,
"reporting_date_fair_value_per_unit": null,
"service_fraction_elapsed": 0.3333333333333333,
"units": 50000
},
"performance_units": {
"classification": "equity",
"condition_type": "performance",
"expected_to_vest_fraction": 1,
"grant_date_fair_value_per_unit": 10,
"modification_incremental_fair_value_per_unit": 0,
"opening_recognized_compensation_cost": 0,
"performance_condition_probable": false,
"reporting_date_fair_value_per_unit": null,
"service_fraction_elapsed": 0.5,
"units": 5000
},
"rsu_year_one": {
"classification": "equity",
"condition_type": "service",
"expected_to_vest_fraction": 1,
"grant_date_fair_value_per_unit": 12,
"modification_incremental_fair_value_per_unit": 0,
"opening_recognized_compensation_cost": 0,
"performance_condition_probable": true,
"reporting_date_fair_value_per_unit": null,
"service_fraction_elapsed": 1,
"units": 10000
},
"rsu_year_three": {
"classification": "equity",
"condition_type": "service",
"expected_to_vest_fraction": 1,
"grant_date_fair_value_per_unit": 12,
"modification_incremental_fair_value_per_unit": 0,
"opening_recognized_compensation_cost": 0,
"performance_condition_probable": true,
"reporting_date_fair_value_per_unit": null,
"service_fraction_elapsed": 0.3333333333333333,
"units": 10000
},
"rsu_year_two": {
"classification": "equity",
"condition_type": "service",
"expected_to_vest_fraction": 1,
"grant_date_fair_value_per_unit": 12,
"modification_incremental_fair_value_per_unit": 0,
"opening_recognized_compensation_cost": 0,
"performance_condition_probable": true,
"reporting_date_fair_value_per_unit": null,
"service_fraction_elapsed": 0.5,
"units": 10000
}
}Recomputed result
| Measure | Value |
|---|---|
| cumulative compensation cost | 348,666.6667 |
| current compensation cost | 348,666.6667 |
| deferred tax benefit | 90,000 |
| ending deferred tax asset | 90,000 |
| equity classified cumulative cost | 326,666.6667 |
| liability classified cumulative cost | 22,000 |
| total measurement basis | 724,000 |
| unrecognized compensation cost | 375,333.3333 |