Information about Share Option

Advanced financial accounting

Table of Contents
Question 1........................................................................................................................................4
Introduction..................................................................................................................................4
Conclusion...................................................................................................................................6
Question 2........................................................................................................................................7
References........................................................................................................................................8

QUESTION 1
Memorandum
Date: 12 April 2019
To: The Board of Directors of Foxton Ltd
From: Linda May, Chief Accountant Officer
Subject: Information about Share Option
Introduction
The objective of this memorandum is to describe the requirement of option, their features, rights
and obligation of parties, and many other related aspects. The prerequisite for classification,
recognition, and measurement criteria of option under AASB 9 Financial Instrument is also
stated in the given memorandum.
Option
The option is the contract made between the two parties, in which buyer of the option has a right
to exercise the contract and seller of the option has an obligation to perform the contract. In this
technique, the buyer of the option, sell/or purchase the underlying security at a specified price,
which can be exercised on or before the date of expiry (Bayraktar and Zhou, 2017). The buyer
and seller of option are known as the holder of option and writer of option respectively. This type
of contract has features of both, highly standardized as well as highly flexible. Highly
standardized options are traded only on the recognized stock exchange, and on the other hand,
parties can privately enter into a contract, through over the counter, thus it is highly flexible as