P Ltd. granted 400 stock appreciation rights (SAR) each to 75 employees on 1st April 20X1 with a fair value - 200. The terms of the award require…

Journal entries in the books of P Ltd (without modification of service period of stock appreciation rights) Date Particulars Debit Credit 31.03.20X2 Profit and Loss account Dr. 15.75 To Liability against SARs 15.75 (Being expenses liability for stock appreciation rights recognised) 31.03.20X3 Profit and Loss account Dr. 17.25 To Liability for SARs 17.25 (Being expenses liability for stock appreciation rights recognised) 31.03.20X4 Profit and Loss account Dr. 15.38 To Liability for SARs 15.38 (Being expenses liability for stock appreciation rights recognised) 31.03.20X5 Profit and Loss account Dr. 17.02 To Liability for SARs 17.02 (Being expenses liability for stock appreciation rights recognised) Working Notes: Calculation of expenses for issue of stock appreciation rights without modification of service period For the year ended 31st March 20X2 = 210 x 400 awards x 75 employees x 1 year /4 years of service = 15,75,000 For the year ended 31st March 20X3 = 220 x 400 awards x 75 employees x 2 years /4 years of service -15,75,000 previous recognised = 33,00,000 -15,75,000 = 17,25,000 For the year ended 31st March 20X4 = 215 x 400 awards x 75 employees x 3 years/4 years of service -33,00,000 previously recognised = 48,37,500 -33,00,000 = 15,37,500 For the year ended 31st March, 20X5 = 218 x 400 awards x 75 employees x 4 years / 4 years of service - 48,37,500 previously recognised = 65,40,000 - 48,37,500 = 17,02,500 Calculation of expenses for issue of stock appreciation rights with modification of service period For the year ended 31st March 20X2 = 210 x 400 awards x 75 employees x 1 year / 4 years of service = 15,75,000 For the year ended 31st March 20X3 = 220 x 400 awards x 75 employees x 2 years / 3 years of service -15,75,000 previous recognised = 44,00,000 -15,75,000 = 28,25,000 For the year ended 31st March 20X4 = 215 x 400 awards x 75 employees x 3 years/ 3 years of service -44,00,000 previous recognised = 64,50,000 -44,00,000 = 20,50,000.