20 December 2010
i hv some query for diluted eps due to employee stock option
if company has issued shares to its employees for than fair value of shares than cash received by company resulting into liquidity of company than comapny should invest the same in its business the net profit increases due to the investments than what will be effect of diluted eps of the company?
e.g. company had 500000 equity shares outstanding on 1-1-2001.net profit for 2001 was rs.1200000 average fair value per share during 2001 was rs.20 company has given share option to its employees of 100000 shares at option price of rs.15/- than profit due to rs.1500000/- what should the effect of the same??
20 December 2010
Dear Mayank, As per Para 7 of AS 20 "Examples of potential equity shares are: (a) Not relevant to your case (b) Not relevant to your case (c) options including employee stock option plans under which employees of an enterprise are entitled to receive equity shares as part of their remuneration and other similar plans; and d)Not Relevant Again As in Your Case once the shares are actually issued (i.e. no more an ESOP) then they desert their Potential Equity Shares status and thus irrespective of what consideration it was Issued for , Diluted EPS SHALL NOT BE COMPUTED.
21 December 2010
but shares issued to employee less than fair value is one type of bonus issued to him hence no. of shares will increase but there is no increase in earnings of the company hence in my view diluted eps should be calculate because it affects the earnigs of outside shreholders.
CAclubindia
