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pavithra doss (student) (234 Points)

25 June 2010

what are share based employee benefits...........

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ramajayam (ARTILCE) (144 Points)
Replied 25 June 2010

4.5 EMPLOYEES STOCK OPTION

The Companies (Amendment) Act 2000 has inserted a new clause (15 A) in section 2 of the

Companies Act, 1956, which states that "employee stock option" means the option given to

the whole-time directors, officers or employees of a company, which gives such directors,

officers or employees the benefit or right to purchase or subscribe at a future date, the

securities offered by the company at a pre-determined price.

Securities and Exchange Board of India issued Employees Stock Option Scheme and

Employee Stock Purchase Scheme Guidelines in 1999 under section 11 of the Securities and

Exchange Board of India Act, 1992.

Accounting for employees stock option plan (ESOPs): Before proceeding on accounting

treatment of ESOPs, certain words are necessary to be defined which will be covered later on

in the context of accounting entries.

Grant : Grant of the option means giving an option to the employees to subscribe to the shares

of the company.

Vesting : It is the process by which the employee is given the right to apply for shares of the

company against the option granted to him in purchase of employee in pursuance fo ESOS.

Vesting Period : It is the time period during which the vesting of the option granted to the

employee on pursuance of employee stock option scheme (ESOS) takes place.

Option : Option means a right but not an obligation granted to an employee in pursuance of

ESOS to apply for shares of the company at a pre-determined price

ramajayam (ARTILCE) (144 Points)
Replied 25 June 2010

4.5.1 Accounting Policies of ESOS :

(a) In respect of options granted during any accounting period the accounting value of the options

shall be treated as another form of employee compensation in the financial statements of the

company.

(b) The accounting value of options shall be equal to the aggregate, over all employee stock

options granted during the accounting period, of the fair value of the option.

1. Fair value means the option discount, or, if the company so chooses, the value of

the option using the Black Scholes formula or other similar valuation method.2. Option discount means the excess of the market price of the share at the date of

grant of the option under ESOS over the exercise price of the option (including upfront

payment, if any).

the amount shall be amortised on a straight-line basis over the vesting period.

(d) When an unvested option lapses by virtue of the employee not confirming to the vesting

conditions after the accounting value of the option has already been accounted for as

employee compensation, this accounting treatment shall be reversed by a credit to employee

compensation expense equal to the amortized portion of accounting value of the accounting

value of the lapsed options and a credit to deferred employee compensation expense equal to

the unamortized portion.

(e) When a vested option lapses on expiry of the exercise period, after the fair value of the option

has already been accounted for as employee compensation, this accounting treatment shall

be reversed by a credit to employee compensation expense

ramajayam (ARTILCE) (144 Points)
Replied 25 June 2010

for more details plz refer page no 3.124 &3.125 of pcc accounting book

pavithra doss (student) (234 Points)
Replied 25 June 2010

thanks a lot for your timely reply........

1 Like

ramajayam (ARTILCE) (144 Points)
Replied 26 June 2010

welcome

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