On April 1, 2025, JB Steels Limited granted share options to its own employees as well as to the employees of XYZ Metal Industries Limited. The…

Expense recognised till surrender date i.e. 1st April 2025 Options granted on 1st April, 2024 = 250 options × 300 employees = 75,000 options. Total grant date fair value = 75,000 × ₹ 120 = 90,00,000 Annual employee compensation expense = 90,00,000 ÷ 3 years = 30,00,000 per year For the year ended 31st March 2025, XYZ would have already recognised, employee compensation expense of 30,00,000 by correspondingly crediting to ESOP Outstanding. Accounting implication of surrender of rights on 1st April 2025 by the employees of XYZ in the existing ESOP issued by XYZ On 1st April, 2025, the ESOPs issued by XYZ is neither modified nor replaced. It is the employees of XYZ who surrender the rights in existing ESOP issued by XYZ and accepted the ESOPs of JBS. Therefore, as per Ind AS 102, this would be treated as a cancellation of the ESOP by XYZ because of no takers of the same. Hence, the balance standing in ESOP Outstanding is transferred to Retained Earnings. Journal Entry on 1st April 2025 i.e. date of cancellation ESOP reserve A/c Dr. 30,00,000 To Retained Earnings 30,00,000 Accounting on 31st March 2026 The ESOP has already been fully cancelled and settled on 1st April 2025. However, XYZ is receiving the services of its employees against the ESOP received from the subsidiary JBS (subsidiary). So XYZ would be booking expense against the employee benefit expenses. But since there is no payment against it, it will be recognised as Retained Earning considering the distribution from subsidiary JBS as follows: Employee Benefit Expenses Dr. ? To Equity/Retained Earnings / Dividend Income from Subsidiary ? In the absence of fair value of the options granted as on 1st April, 2025, no amount has been given in the amount column.