This workout states a company grants some stock options at the end of fiscal year zero. Calculate the stock based compensation expense in fiscal year one to fiscal year three using the information below. Okay, so let's have a look at the information we've been provided.

We have the stock options granted at 900. So 900 options have been granted to employees. The vesting period for those options is three years. So the employees are unable to exercise those options until the three year period has passed.

The intrinsic value of each option on grant dates is 0.2. This is calculated as the difference between the strike price and excise price at grant date. Next, fair value of each option on grant date, we are told it is 1.3. We are only interested in the fair value of options at the grant date. We therefore can ignore this piece of information about the intrinsic value of the options. The excise price could equal the share price at the grant date. We don't care. We are only focused on the fair value. With this in mind, let's use the information to calculate the expense in fiscal year one.

Okay. So the expense is equal to the fair value of the options at grant date, and I'm going to lock these cells, and I want to multiply that by the number of options.

Remember, we amortize this expense across the vesting period, so we need to divide it by the vesting period of three years. But before I do that, I also want to lock this sell and divide it by the vesting period of three years. This gives a stock-based compensation expense of 390. I have locked the cells. That means I can copy these across for fiscal year two and fiscal year three.

The same expense is recognized for all years. We spread the expense over the expected term of the options. This means the company will recognize an expense of 390 in their income statement for the fiscal year one, two, and three. This expense will likely be found under staff costs SG&A.