Greater Ltd., in order to reward its employees launched a scheme effective from 1st April, 2021, in which employees will be granted equity shares of…

CA Final · Financial Reporting · PYQS · November 2024
Greater Ltd., in order to reward its employees launched a scheme effective from 1st April, 2021, in which employees will be granted equity shares of the company at a price less than the market price subject to satisfaction of certain conditions. Following details are provided to you: (a) According to scheme, each employee has an option to purchase 250 equity shares of the company at 45 per share provided that the employee does not leave the company for 3 years from the date of launch of the scheme i.e. up to 31st March, 2024. (b) Once 3 years are completed by an employee, the employee can exercise the option within 1 year i.e. by 31st March, 2025. (c) The closing share price on stock exchange as at 1st April, 2021 is 91 per share with face value of 10 per share. A registered valuer has been appointed by the company who derived the price of option at 75 using Black Scholes model of option pricing. (d) There are 750 employees eligible for the scheme. As at 31st March, 2022, 25 employees left the company and further 35 employees are expected to leave over the next 2 years. During the year 2022-2023, a foreign based company entered into the market and started hiring experienced employees and therefore retention of existing employees has been problematic and a high attrition rate is observed in the market. 275 employees left the company during the year ended 31st March, 2023 and further 135 employees are expected to leave in the next one year. As at 31st March, 2024, only 400 employees remained with the company out of 750 employees. (e) Out of it only 375 employees exercised the option to purchase the equity shares during the year ended 31st March, 2024. You are required to provide necessary accounting entries during the life of share-based payment scheme to account the scheme implemented by the company.

Suggested Answer and Working Notes:

Journal Entries 31 st March, 2022 ₹ Employee benefits expenses (W.N.1) Dr. 43,12,500 To Share-based payment reserve (equity) 43,12,500 (Being 1/3rd expenses on share-based payment recognised) Profit and Loss A/c Dr. 43,12,500 To Employee benefits expenses 43,12,500 (Being employee benefits expenses transferred to P/L) 31 st March, 2023 ₹ Share-based payment reserve (equity) (W.N.1) Dr. 3,75,000 To Employee benefits expenses (transferred to P/L) 3,75,000 (Being reversal of excess expenses booked on computation of 2/3rd expenses on share-based payment) Employee benefits expenses Dr. 3,75,000 To Profit and Loss A/c 3,75,000 (Being employee benefits expenses transferred to P/L) 31 st March, 2024 ₹ Employee benefits expenses (W.N.3) Dr. 35,62,500 To Share-based payment reserve (equity) 35,62,500 (Being final recognition of expenses on vesting of share-based options) Profit and Loss A/c Dr. 35,62,500 To Employee benefits expenses 35,62,500 (Being employee benefits expenses transferred to P/L) 31 st March, 2025 ₹ Share-based payment reserve (equity) (W.N.4) Dr. 75,00,000 Bank A/c (W.N.4) Dr. 42,18,750 To Share Capital (W.N.4) 9,37,500 To Securities Premium (W.N.4) 1,03,12,500 To Retained Earnings (W.N.4) 4,68,750 (Being accounting on exercise of 375 options and lapse of 25 options) Working Notes: 1. Calculation of Employee Benefit Expenses 31.3.2022 31.3.2023 31.3.2024 No of Employees 750 750 750 Less: Employees left (25) (300) (350) Less: Employees expected (35) (135) No of employees eligible 690 315 400 No of options per employee 250 250 250 Total options expected to vest 172,500 78,750 100,000 Fair value per option 75 75 75 Total FV 12,937,500 5,906,250 7,500,000 Cumulative expenses 1/3 2/3 3/3 4,312,500 3,937,500 7,500,000 Expense already recognised 4,312,500 3,937,500 Expense to be recognised 4,312,500 -375,000 3,562,500 2. For the year ended 31st March, 2025 Bank = 375 employees x 250 options x 45 = 42,18,750 Share capital =375 employees x 250 options x 10 = 9,37,500 Securities Premium = 375 employees x 250 options x ₹(75 + 35) = 1,03,12,500 Retained Earnings = (400-375) employees x 250 options x 75 = 4,68,750

Topics: Ind AS 102

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