Employees Stock wane D Option Plan rnd er Plan or Employees Stock Options Plan; it Rgemployees)pf a company may-own shares of the company with which they are working. It iS“considered as a mechanism through which ownership and spirit of participative employment can be encouraged among the employees. Providing stock ommeshippan 3s based on the premise that the employees can’t be motivated through salaries ‘As per Section 2(37) of the Companies Act, 2013 “employees’ stock option” means the option given to the flirectors, officers or employeesJof a company or of its holding company or sisidary company or companies, if any, which gives such directors, officers or employees, itor ESOP stands for Employees Stock Ownership is a scheme through whicl the to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price. According to Section 62 (1) (b) of the Companies Act, 2013, a company may offer shares to its employees under a scheme of employees’ stock option, subject to the special resolution passed by the company and subject to such conditions as may be prescribed. Note : Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 may be referred for details on issue of ESOP. Pim ployees to whoni ESOPs may be Issued For the purpose of the Section 62(1) (b) and Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014, “Employee” means — @) A permanent employee of the company who has been working in India or outside Indidvor ° (©) A director of the company, whether a whole time director or not but excluding an ‘ independent director; or (An employee as defined in clause (a) or (b) of a subsidiary, or of holding company of the company or of an asoclate comme? include- . € yromoter group; or (® Anemployee who is a promoter ora person belonging fone PROM Tay i) A director who either himself or throu selaive Treputstanding equity corporate, directly or indirectly, holds more than shares of the company. in India or outside India, SS but does not Scanned with CamScannergree cord d opittons Z es Dow», 3.2 Corporate Accounting - a brty OLD eared 32 Which Company Canltesie ESOP. According to Section 62(1) (b) of Companies Act, 2013 and hate 12 of the Companies, Capital and Debentures) Rules, 2014, a Company, other than a listed company, shall shares to its employees under a scheme of employees’ stock option, unlesst comp! certain requirements provided in the act. i 3.3 Objective/Importance of ESOP ESOP is one of the ways by which a company may réward jts employees by granting an option ( i. a chance) to buy shares of the company, at a future date, at the predete rice, which is generally lower than the market price. For example, ifthe option is avaiainy buy shares of 10 at & 16 (exercise price) within a period of 3 years, when the market rice yg © 20, then the employees may opt the option and eam a profit of € 4 per share. On the ob hand, if after one year market price falls to & 13 then they may choose the option ToTapse— “Wdeveloped counties Employees’ Stock Option Plan is seen as an important tool fy human resource development. Following points highlights the importance and rationale of SOP, (2) The employees’ stock option plan can be used to keep plan participants; i officers or employees of the company, focussed on compan Tes pation 0 with share price appreciation. wn @) ESOP may be considered as ‘Employees Stock Ownership Plans’ which helps \ increasing performance, trust and sense of ownership among employees. It helpsb) ‘Greate long-term wealth in the hands of employees. @) ESOP contributes to the motivation of employees; helps in retaining workforce aul Provides easier financing. AIT these lead to improved efficiency, productivity al profits, a ~ (3) ESOP is a modem way of motivating employees as against the age old method compensating the employees with salaries and cash bonus, it can be used for multge Purposes ~ as a talent retention tool, as an incentive or as a remuneration mechanis# (@) This scheme may be useful for companies at the growing stage to attract and rl good employees. cm Giawee |] 34 Limitations of ESOP | @ ESOP becomes an obligation for the company in thé long run. (ii) Issue of ESOPs leads to a negative effect on the Earning per Share. -. t dl (iii) Issue of further equity shares of the company by’ way of ESOP leads to dilution control. ( a lies wi ] 35 Important Terms Associated wi ESOP”! H ESOP gives an employee the option to buy a fixed number of shares of the comp=" stated price, during a specified period, often ata discount in comparison to the market prc the date of grant. Employees typically have to wait for a certain duration known as the ei period before they can exercise the right to purchase the shares. The holder of the OP! Scanned with CamScannerEmployess Stock Option Plan 33, ses his Ti hen the stock’s market price ri . rises his right w! market price rises high . oy si his occurs, the option holder earns profits by ah siren fhe option exercise price, ee, Foiwing terminolgies al help us in wnderstendy eae aves at below market 1. Grant : Grant is afioceed by which an ¢, : is = = an option fo the employees to ifscribe to ine Se ToEgAY It means giving specify the number of options given, the time of vesting, etc. a - The grant shall ) 2. Vesting : Vesting means the process by wh: right to ay ly f is of the specified conditions, PPIY for the issue of sha 3 Option btion means azight but not an ligation kranted to emp : for the shares of the company at a pre-determined prise oes 10 subscribe red. Normally, it the shares on the date of grant. ... Grant Date : It is the date on which the plan is announced and options are granted. Grant date is usually the frst day OF the offense Sit a oR are pranted, emalneae Sane offering perio =u id. This is sometimes called the ient date. i oe pot Vesting Period : Vesting period is‘also-known as wait Np ero we 4 dts that period for which an Employe is eGGer ea fro ee are company) until they are capable of fully exercising their rights. In berwees ne vesting period employee doesn’ hares. Vesting period can bE a Single Ue peridd ora Series of tine periods, e.g., an employee may become entitled to have 1,000 sptions vested in him at the end of 3 years or of the 1,000 options granted to him, have 200 options vested in him at intervals of 12 months each. Adeyyaru rte its flee ’ Vesting Date ; ILissthe date when the employee satisfies all the specified conditions and becomes tate receive the share’. Vesting Conditions : These are the conditi to become eligible to get shares under FS the specifi Participate in this s is which must be fulfilled by an employee eme, e.g. an entployee must serve for e. in’ whi ise the Exercise Period ; It is the period within’ which the employees must exercise option by vai ‘the exerci amor Joyee shalll not be allowed to il the company again allows the employee to exercise the plan - Exercise Price : It is the fixed price at which the owner of an o| tion (i. employees) 7 Purchase the security offered. In ther words, this is the a vs . Vy ay the employees will exercise the option. It is also known as ‘Strike Pri Same y He to TL Exercise : Exercise may be defined as an activity of converting the options granted an employee into shares by making payment of the requited exere’s* pe von in Hak 2 Market Price : Market Price of a share on a given date means ie fete in the stock exchange on which it is listed. ice and the exeivise price alue of Options : It is the difference between the market price and the exersise PEGS of the shares, Scanned with CamScanner34 . Corporate Accounting Wate t value Value of Options xercise Price of Shares — Market Price of Shares Less E Or Value of Options = Number of Option « (Market Price of the Shares Less Exercise, of the Shares). ee Number of Expenses to be booked every year by a company = wore Excercise Grant | —> vest | —> Recieving the right Earning the right Excercising the right [36 ‘Treatment of Employee Stock Option Plan’ When we account for employee stock options, following accounts come into existence (a) Employee Compensation Expense Account : It is the difference between the ma price of the share at the date of grant of the option under ESOP over the exercise pi of the option. It forms part of the compensation expense account and is taken int profit and loss account. ter —Sretrenee PP wa DAES Gime () The accounting value of loss as measured above should be accounted as employtt compensation/remuneration and has to be amortised on a straight-line basis over the ve - (ii) Here employee compensation means, aj i i ;, aggregate of accounting value of the options # Branted under employees stock option scheme during the aaenting period. (b) Employee Stock Options Outstanding Account : It is a part of the shareholé equity and is transitional in nature since it i it y 2 3 is transferred to Share Capital A Securities Premium Account or to General Reserves, - Accounting Entries 1, At the end of accounting period (for accounting the expense) Employee Compensation Expense A/c , Dr. To Employee Stock Option Outstanding A/e : Note: © ste dao nt ona sen aren he mast pce ote Einployee Compensation Expense = Market Pree esate ee Price the above entry ‘Employee Stock Option Outstanding Account’ is credited. The te" will be done at the end ofthe performance perion ea a issued, issue of Scanned with CamScanner(0) . For transferring Employ the year) Profit and Loss A/c To Employee Bank A/c a ce Stock Option PIE MEP To Equity Share Capital A/c ‘To Securities Premium A/c . For cancellation of Employee Stock Option Outstanding on failure of some of the - employees in exercisin| Employee Stock Option. Compensation Expense A/c . At the time of keri JoF the exercise the option! Employes Stock Option Plan 35 ‘The credit balance of Empioyee Stock Option Outstanding A/e’ is shown andl the head ‘Reserve and Surplus” in the Company's Balance Shee t yee Compensation Expense to Profit and Loss (at the end of Dr. the employees: [if all the employees 1. (No. of Shares Exercised x Exercise Price) 1. (with amount Credited to Employee Stock Option Outstanding A/c) #F (Nominal Value of Shares) (with the amount of Securities Premium) g their option, i.e. Lapse of Option : Outstanding A/e Dr. To General Reserve A/c Note : The above entry is also passed zohen, at the end of and estimates the excess Cc ‘every accounting period company reviews the options ‘ompensation Expenses. Illustration 1 : [Vesting Period is Less Than One Year] Secular Ltd. has its share cay granted 20,000 Employees’ Stock share. The options were ex pital dividend into equity shares of 10 each. On 01.04.2019 it Option at ® 50 per share, when market price was € 130 per ercised between 15.12.2019 and 31.03.2020. The employees exercised their options for 16,000 shares only, and the remaining options lapsed. The company closes tSbo0k on 31st March every year. Show journal entries as it would appear in the company’s books up to 31.03.2020. ~*~ Solution : Journal Entries in the Books of Secular Ltd. ae Particulars a LE] DR@] ch@ rth 01 67 Mar3t [Bank A/c (16,000 «%50) ame Maced Cage HOM TT 800,000 Employees’ Compensation Expertes Ale (16,000 80) Dr. 12,80,000 (0 Equity Share Capital A/c (16,000 = 10) 1,60,000 To Securities Premium A/c (16,000 « 120 ) 19,20,000 yy Rt shares allotted to employees under ESOP) ote: Value of Options = %(130 - 50) =% 80 i. fair value of options = 16,000 x8 80 =%12,80,000 xuustration 2: [All the Employees Exercised their Option in Full] a ani tots Zid has its share capital dividend into equity shares of ® 10 each. On. 108 ae) ton 4 “ *mployees to subscribe 20,000 equity shares. The exercise price fo —- Scanned with CamScanner- ~ fi - (e Me ebane cope TEEN uy Every You fic ese? Sole Eonployee for 29 pore cen a PG ey, £30 ohare, whereas the market price was € 125 per share. The vesting period is 3 <2) Pe mum exercise period is one year. Pass required entries if all the employees =a their options in due time. Note : The company closes its books on 31st March every year. i Solution : Here, is required tob Date of Grant of Option - 01.04.2016 (No entry is req # passed on this ay Vesting Period - 01.04.2016 to 31.03.2019 Exercise Period - 01.04.2019 to 31.03.2020 : : Market Price -¥ 125 per share ; Face Value - 10; Option Price - %50 Securities Premium - %(125 - 10) 115; Option Discount —%(125- 50) = 75 Total Employee Compensation Expense ~ 20,000 « & 75 = & 15,00,000; to be amon over a period of three years on straight line basis. Journal Entries in the Books of X Ltd. Date Particulars = LF De® 2017 = liGho4o Mar.31 | Employee Compensation Expense Afe 222° 28 "Der} [=] 500.000 To Employee Stock Option Outstanding A/c 3 me 5,000 (Being 1/3rd of Employee Conrpensation Expense © 15,00,000) recognised in respect of ESOP on Straight line basis) Profit and Loss A/c Dr. 5,00,000 To Employee Compensation Expense A/c | 500.0) 7 (Being Employee Compensation Expense transferred to Profit and Loss Ale) 2018 . Mar.31 | Employee Compensation Expense A/c Dr.| FU, 5,00,000 To Employee Stock Option Outstanding A/c 5,00, (Being 1/3rd of Employee Ci tic ised i - ESOP on Straight fines) een Eapenee etanbed i ese Profit and Loss A/c Dr. 500,000 ! To Employee Compensation Ex; 4 ) f pense A/c Bt 5,0 = (Being Employee Compensation Expense transferred to Profit and Loss Alc) Mar.31 | Employee Compensation Ex; ‘pense A/c Di 5,00,000 To Employee Stock Opti yr. 5,00, manne yee diec Option Outstanding Afe 5,000 ESOP on Sean ne ae Expense Tecognised in respect of | Profitand Loss Aje | ‘To Employee Compensation Expense A/c PEL | $0000 (Being Enployse Compensation Expense transfered to Pro 2020 ie he it and Loss A/c) $ Mar.31 | Bank A/e (20,000'%¢50),0 | Mle *\*S2 X50 Employee Stock Option Outstandi Dr.| | 10,00,000 To Equity Share Capital A/c (20,000 £10) Dr. | 15,00,000 To Securities Premium A/c (20,000 x (Being option exercised in full on the due date) eEsor Me wR 200% 125, To 2 OB9x0 20/99 XWS Scanned with CamScanner @115)Employes Stock Option Plan 37 stustration 3: [All the employees have not exercised their option] td. has its share capital dividend into equity shares of & 10 each. i "i to its 2,000 employees to subscribe 20,000 equity shares. The canbe, i gat 08 $50 per share, whereas the : market Price was & 125 per share. The vesting peri od ores ars; the maximum exercise period is one year. The employees exercised their ot a is3 4199 shares only on 31st August, 2020 and the remaining options lapsed. Thi mpany for 160 yoks on 3ist March every year. arnri tat its bo’ ne required entries to record the above transactions. solution : Journal Entries in the Books of Y Ltd. “ae Particulars LET DOL @ st Employee Compensation Expense A/c” SD 5,00)000 7 ‘To Employee Stock Option Outstanding A/c os 5,00,000 (Being 113rd of Employee Compensation Expense ("15,00,000) recognised es in respect of ESOP on straight line basis) Profit and Loss A/cDr. 5,00,000 ‘To Employee Compensation Expense A/c 5,00,000 (Being Employee Compensation Expense transferred to Profit and Loss Alc) 219 Mar.31 | Employee Compensation Expense A/c Dr. 5,00,000 To Employee Stock Option Outstanding A/c 5,00,000 (Being 1/3rd of Employee Compensation Expense recognised in respect of ESOP on straight line basis) Profit and Loss A/c Dr. 5,00,000 To Employee Compensation Expense A/c 5,00,000 (Being Employee Compensation Expense transferred to Profit and Loss Alc) 2020 Maz.31 | Employee Compensation Expense A/c Dr. 5,00,000 To Employee Stock Option Outstanding A/c 5,00,000 (Being 1/3rd of Employee Compensation Expense recognised in respect of ESOP on straight line basis) Profit and Loss A/c Dr. 5,00,000 To Employee Compensation Expense A/c (Being E; va Con ration ie a erred to Profit and Loss Alc) ea ‘ug 31 [Bank A/c (16,000 * & 50) De | aa Employee Stock Option Outstanding A/c Dr. ee | 4,60,000 To Equity Share Capital A/c (16,000 « @ 10) 18,40,000 a Securities Premium A/c (16,000 x 2115) 3,00,000 ‘0 General Reserve A/c (4,000 x75) ‘ (Being ‘option ceed BF Mote ‘shares on the due date. Employee Sto Option Outstanding Alc with respect to 4,000 shares, ic. option lapse [tansferred to General Reserve) ______—- 5999 __| ug 3 Alternative entry for the above en dated 31.08.2020 s,0ve00 Bank A/c (16,000 x & 50) . Dr.| | 12,00,000 ;ployee Stock Option Outstanding A/c Scanned with CamScanner38 Corporate Accounting se rion Outstan CEnmplaye Stck Option Oxtstantng “0 160, To Equity Share Capital A/c (16,000 z = wag ‘To Securities Premium A/c (16,000%® 115) 4 a9 option : (Being option exercised for 16,000 shares on the 2ue17 ” lapsed) Note : 8[15,00,000 + 20,000) x 16,000 = Dr 3,00,000 Employee Stock Option Outstanding A/c 5.04 To General Reserve VE, gi apc 0 4000 shares i.e. option lapsed transferred to Note: sce - 850 j . Face Value - © 10; Option Price ‘Market Price —% 125 per share; Face A on Discount #2550) = 75 Securities Premium - %(125 - 10)=© a Pe er Ais oe SE erry || Employee Compensation Exper oftvee year 00 straighe line basis, ie. 5,00,000 per year. : yyees have not exercised their option] Illustration : 4 [All the emplo} tal divided into equity shares of € 10 each. On 01.04.2017} its share cay 10 eacl gated i S00. saployest tosubscribe 20,000 equity shares. Exercise price for stock option 50 per share, whereas the market price was € 125 per share. The vesting period is 24 yea, the maximum exercise period is one year. The employees exercised their- options for 18.) shares only on 30.09.2020 and the remaining options lapsed. Pass required entries to recni the above transactions, if company closes its books on 31st March every year. Solution : Here, Date of grant of option - 01.04.2017 (No entry is required to be passed on this date) Vesting Period — 01.04.2017 to 30.09.2019 Exercise Period - 30.09.2019 to 30.09.2020 Market Price € 125 per share; Face Value 10; Option Price %50 Securities Premium (125 - 10) = 115; Option Discount %(125 — 50) = 75 ‘ol loyee Com) sati - al i aperiodof2 year Le € 6000 & S000 od Fa ao Be amet os Journal Entries in the Books of SCARY Ltd. Date Di Particulars Tor OL ae Mar.31 | Employee Compensation Ex ‘pense A/c 7 To Employee Stock Option Outstanding A/c Dr e008 000 (Being USrd of Employee Compensation Expense (15,00,000) recogni i” in respect of ESOP on Straight line basis) — Profit and Loss A/c 5 To Employee Compensation Ex; * 600,000 (Being Employee Compensation Expense tosis Profit é 6 oe oft and Loss Ale) Mar.31 | Employee Compensation Expense A/c To Employee Stock Option Outstanding A/e Dr. 6,00,000, nd 6,00: Scanned with CamScannerrr sep-3l 2020 Mar. 31 | | | | | | Employess Stock Option Plan (Being USrd of Employee Compensation Expense recognised in respect, of ESOP om straight line basis) 7 Profit and Loss A/c : = ‘To Employee Compensation Expense A/c (Being Employee Compensation Expense transferred to Profit and Loss Alc) ‘Employee Compensation Expense A/c To Employee Stock Option Outstanding A/c (Being USrd of Employee Compensation Expense recognised in respect of ESOP on straight line bass, Profit and Loss A/e Dr. To Employee Compensation Expense A/c Bank A/c (18,000 x 50) Dr. Employee Stock Option Outstanding A/c (2,000 « 75) Dr. To Equity Share Capital A/c (18,000 x € 10) To Securities Premium A/c (18,000 x = 115) To General Reserve A/c (2,000, & 75) (Being option exercised for 18,000 shares on the due date. Employee Stock Option Outstanding Alc with respect to 2,000 shares, ie. option lapsed transferred to General Reserve) Alternative entry for the above entry dated 31.09.2020 Bank A/c (18,000 x € 50) Dr. Employee Stock Option Outstanding A/c (18,000 x75) Dr. To Equity Share Capital A/c (18,000 x= 10) To Securities Premium A/c (18,000 x 115) (Being option exercised for 18,000 stares on the due date and 2,000 option lapsed ) Note : %[15,00,000 + 20,000) x 18,000 = 13,50,000) Employee Stock Option Outstanding A/c (2,000 x75) Dr. To General Reserve A/c (Employee Stock Option Outstanding Ale with respect to 2,000 shares, i.e. option lapsed transferred to General Reserve) 6,00,000 3,00,000 3,00,000 9,00,000 15,00,000 9,00,000 13,50,000 150,000 39 6,00,000 3,00,000 3,00,000 1,80,000 20,70,000 1,50,000 1,80,000 20,70,000 1,50,000 pri Illustration 5 : [All the Employees have not exercised their option] A company grants 1,000 Employees Stock Option on 01.04.2016 at ® 50, when the market ice is 170. The vesting period is 2 ¥%4 yéars and the maximum exercise period is 1-year. 300 invested options lapse on 31.03.2018. 600 options exercised on 30.06.2019. 100 vested options lapse at the end of exercise period. Pass journal entries. Solution ; aa Journal Entries in the Books of ....... Ltd. 7 De@) Ce@ OF Particulars Mar-31| Employee Compensation Expense A/c Dr. al To Employee Stock Option Outstanding A/c 4 (Being 1/3rd of Employee Compensation Expense recognised in respect of| ESOP on straight line be Scanned with CamScannerCorporate Accounting 3.10 | oot a 4 48,000 Mar.31 | Profit and Loss A/c ak Dr. « | To Employee Compensation Expense A/° ‘on } (Being Employee Corapensation Expense transferred 0 Profit and Loss Ale) | 2018 | a 48,000 | ‘Mar.31 | Employee Compensation Expense Ale, ing Ale Dr. « | ‘Stock Option Outstan i. 0 roe ahaa Expense recognised in respect of | (Being 1/3rd of Employee Compensa ESOP on straight line basis) 2018 Dr. 48,000 Mar. 31 | Profit and Loss A/c isto A aad ‘To Employee Compensation Expense ‘ (Bein: mor Compensation Expense transferred to Profitand Loss. Alc) | ‘Employee Stock Option Outstanding A/c Dr. 12,000 To General Reserve A/c 1200 (Being excess of Employees Compensation Expenses Ale transferred 10 General Reserve on lapse of 300. unvested options) [Refer working notes) 2019 Jun.30 | Bank A/c (600 x % 50) Dr. 30,000 Employee Stock Option Outstanding A/c (600 x 120) Dr. 72,000 6,000 >» ‘To Equity Share Capital A/c (600 = € 10) To Securities Premium A/c (600 x € 160) 96,000 (Being option exercised for 600 shares) Employee Stock Option Outstanding A/c (100 *€ 120) Dr. To General Reserve A/c (Employee Stock Option Outstanding Alc with respect tu 100 shares, i.e. option lapsed transferred to General Reserve) Working Notes : Intrinsic/Fair Value of Options per Share = %(170 - 50) = 120 Securities Premium = (170 - % 10) =% 160 Vesting Period is 01.04.2016 to 30.09.2018, i.e. 2 % years. Exercise period is 30.09.2018 to 30.09.2019, ie. 1 year. ‘Number of shares vesting under the scheme = 1,000 share Total Employee Compensati Fete Emp lepce Compensation Expense - 1000 «& 120 = 1,20,000 to be amortised over a period! 12,000 12,000 Ist year 2016-17 2nd year 2017-18 anion 3rd year 2018-19 (1/2 year) oe aa Caleulation of amount to be transferred to General Reserve Account on 31.03.2018 @ Cumulative balance of employees stock opti ow ce of en iption outstanding on 31.03. (48,000 + 48,000) Less : Value of active options after lapse of 300 options aso ef re fate z i ex! -03.2018 = 700 x % 120 ar Scanned with CamScannerEmployess Stock Option Plan 3.1 @ between Sweat Equity and ESOP Sweat Equity ae eat Equityisgrantofsharesatadiscount | ESOP is the grant of options T ewyithout monetary considerations. share ot ‘pies je Rens Jo purchare: predetermined pri Employee ined price given to Sweat Equity can be issued to the promoters of the Company. | <7 | Minimum lock in period for Sweat Equity Shares is 3 years. Under ESOP shares cannot be issued tothe promoters. Under this scheme an option to purchase shares is given to the directors, officers or employees of a company. There is no provision of any lock in period for shares under ESOP, but such restrictions may be imposed through the scheme itself, oh Tesue of Sweat Equity is governed by Section 54 of Companies Act, 2013, read with Rule 8 of Companies (Share Capital and Debenture) Rules, 2014. Issue of ESOP is governed by Section 62(1) (b) of the Companies Act, 2013, read with Rule 12 of the Companies (Share Capital and Debenture) Rules, 2014." Fring and ‘Valuation Guidelines (a)Pricing Guidelines are defined for Sweat Equity Shares. (b) The sweat equity shares to be issued shall be valued at a price determined by a registered valuer at the fair price giving justification for such valuation. No Pricing/valuation guidelines defined. are ‘Restriction on Quentu of Issue The company shall not issue sweat equity shares for more than 15% of the existing paid-up equity share capital in a year or shares of the issue value of 5 crore, whichever is higher. There is no such restriction in the case of ESOPs Restriction en Timing of Issue ‘As per Sec. 54(1) sweat equity shares can be issued only if the company has completed ‘not less than 1 year’ of its life, at the date of such issue, from the date on which the company had commenced business. There is no such restriction on issue of shares under ESOP. 38 Employees Stock Purchase Scheme (Plan) ESPS/ESPP Under this scheme a company offers its shares to its employees as a part of a public issue or wise, A company may decide to issue a different number of shares to different categories Smployees, Following journal entry is passed to record ESPS : Bank Ale Employee Compensation Expense A/c To Share Capital A/c To Securities Premium A/c ote; e+ Employee Compensation Expense is also cl losed by transferring the balance to profit ant ir Hic ferred as the accounting value of op" ref e count at heed ft Dr. [No. of Shares * Issue Price] | Dr. [No. of Shares (Market Price Less Issue price)] [No. of Shares » Face Value] (Market Price Less Face Value)] IN OE ions. This account is Scanned with CamScanner3.12 Corporate Accounting Employee Stock Purchase Plan (ESPP) and (ESOP) Employees’ Stock Option Plan are different concepts. Employee Stock Purchase Plan means a plan under which the com offers shares to employees as part of a public issue or otherwise. Tlustration 6: pany On Ist September, 2019, Krishna Ltd. issued 800 equity shares under ESPP @ & 60 when the market price was 110. Record necessary journal entry assuming that the nominal value of shares is © 10. Solution : Journal Entry in the Books of Krishna Ltd. Date ‘Particulars LE| Dr @| c.@ 2019 Sep. 1 | Bank A/c (800 = & 60) Dr. 48,000 Employee Compensation Expense A/c [800 %(110 Less 60) Dr. 40,000 | To Equity Share Capital A/c (800 x = 10) 8,000 To Securities Premium A/c [800 x %(110 Less 10)] (For issue of 800 equity shares under ESPP at a price of 60 each when 80,000 market price is € 110) Scanned with CamScanner