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    Question

    ESOP grants vest if combined ROE and solvency ratio

    targets are met over 3 years. In Year 2, targets seem unachievable; in Year 3, they are exceeded and options vest. How should expense be recognized?
    A Reverse Year 1–2 expense permanently Correct Answer Incorrect Answer
    B Recognize nothing until vesting Correct Answer Incorrect Answer
    C Recognize cumulative catch-up in Year 3 to reflect actual vesting Correct Answer Incorrect Answer
    D Recognize straight-line ignoring expectations Correct Answer Incorrect Answer
    E Recognize only intrinsic value at exercise Correct Answer Incorrect Answer

    Solution

    For market/non-market vesting conditions, expense reflects best estimate with true-up when vesting outcome is known.

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