To reward its employees, the Company had launched a scheme effective 1st April, 20X1, in which the employees will be granted equity shares of the…

CA Final · Financial Reporting · MTP · May 2025
To reward its employees, the Company had launched a scheme effective 1st April, 20X1, in which the employees will be granted equity shares of the Company at below market price subject to certain conditions. Following details are provided: (i) As per the scheme, each employee has an option to purchase 100 equity shares of the Company at 30 per share if the employee does not leave the Company for 3 years from the date of launch of the scheme i.e. 31st March 20X4. (ii) Once 3 years completed by an employee, he/she can exercise the option within 1 year i.e. by 31st March 20X5. (iii) The closing share price on stock exchange as at 1st April, 20X1 is 62 per share with face value of 10 per share. The Company had appointed a registered valuer who derived the price of option at 50 using the Black Scholes model of option pricing. (iv) There are a total of 300 employees eligible for the scheme. As at 31st March, 20X2, 10 employees left the Company and further 14 employees are expected to leave over the next 2 years. During the year 20X2-20X3, a multi-national company entered into the retail industry which is hiring experienced workforce and therefore a high attrition is observed in the retail industry. 110 employees left the Company during the year ended 31st March, 20X3 and further 54 employees are expected to leave in the next one year. As at 31st March, 20X4; only 160 employees are remaining with the Company out of 300. (v) Only 150 employees exercise the option to purchase the equity share during the year ended 31st March 20X5. Provide necessary accounting entries during the life of share based payment scheme to account the scheme implemented by the Company. Provide working notes.

Suggested Answer and Working Notes:

Journal Entries ₹ 31 st March, 20X2 Employee benefits expenses Dr. 4,60,000 To Share based payment reserve (equity) 4,60,000 (Being expenses to the extent of 1/3 of expected vested equity instruments value recognized) Profit and Loss Account Dr. 4,60,000 To Employee benefits expenses 4,60,000 (Being expenses transferred to Profit and Loss Account) 31 st March, 20X3 Share based payment reserve (equity) Dr. 40,000 To Employee benefits expenses 40,000 (2/3 of expected vested equity instruments value) Employee benefits expenses Dr. 40,000 To Profit and Loss Account 40,000 (Being expenses transferred to Profit and Loss Account) 31 st March, 20X4 Employee benefits expenses Dr. 3,80,000 To Share based payment reserve (equity) 3,80,000 (Final vested equity instruments value) Profit and Loss Account Dr. 3,80,000 To Employee benefits expenses 3,80,000 (Being expenses transferred to Profit and Loss Account) 31 st March, 20X5 Share based payment reserve (equity) Dr. 8,00,000 Bank Account (150 x 100 x 30) Dr. 4,50,000 To Share Capital [150 x 100 x 10] 1,50,000 To Securities Premium [150 x 100 x (50+20)] 10,50,000 To Retained Earnings (10 x 100 x 50) 50,000 (Being 150 options exercised and 10 options lapsed) Calculation of employee benefits expenses Year ended 31st March Calculation Expense for Period ₹ Cumulative expense ₹ 20 X2 (300 – 10 - 14) employees x 100 shares x 50 x 1/3 years 4,60,000 4,60,000 20 X3 [{(300 – 10 – 110 – 54) employees x 100 shares x 50 x 2/3 years} - 4,60,000] (40,000) 4,20,000 20 X4 [(160 employees x 100 shares x 50) - 4,20,000] 3,80,000 8,00,000

Topics: Ind AS 102

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic