Understanding and Calculating Stock Appreciation Rights Expense for Companies

Question 11 On 1 January 2018, Tucan grants 5 executives 500 stock appreciation rights ("SAR"), whereby each executive will receive in cash the value of the SARs if Tucan's share price increases by 10% over a two-year service period. The present value of each SAR is as follows: 800 at the grant date, 900 at 31 December 2018 and 1,000 at 31 December 2019. Given the value of each SAR at the end of 2018, what is the cumulative expense on 31 December? 1,000,000 1,125,000 3,000,000

The cumulative expense related to the stock appreciation rights (SARs) granted to Tucan's executives at the end of 2018 would be based on the fair value of the SARs at each reporting date. According to the information provided, the present value of each SAR was 900 at the end of 2018 (31 December 2018). Since the cumulative expense up to a given date reflects the total expense recognized from the grant date to that date, the expense recognized for the year-end 2018 would be based on the 900 per SAR.

However, the question asks for the cumulative expense on 31 December 2018, which would be the sum of the fair values of the SARs at that time, multiplied by the number of SARs granted (500 * 5 = 2,500 SARs). Multiplying the fair value of 900 per SAR by the total number of SARs (2,500) would result in a cumulative expense of 2,250,000 (900 * 2,500).

Therefore, the cumulative expense recognized on 31 December 2018 would be 2,250,000.

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