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Editorial Board on Accounts and Audit
  • ESOP

    by Chirag on Wednesday, November 13, 2019 at 11:58 PM

    X Ltd announced ESOP for each of its 400 employees on 1.4.16.It grants 200 stock options to each employee at Exercise price Rs30 per share subject to condition of continuous employment for 2 years.Fair Value of option is Rs12 on grant date. No.of employees expected to satisfy service condition in 1st & 2nd year is 360 & 320 respectively. Note- 30 employee left the company in 1st year & 340 employees have actually completed 2 year vesting period. Query- EMPLOYEE COMPENSATION EXP EACH YR

    Replied byEditorial Board Friday, November 22, 2019 at 07:53 PM

    Assuming that the employees who leave during the year are not eligible for the ESOPs, the answer would be as follows:-

    1. On the date of grant (i.e. at the end of 2nd year), the estimate expense would be 320 x 200 x 12 = Rs. 768,000. This amount shall be apportioned over two years. Estimated number of 360 employees is not relevant as it is presumed that only those employee who complete the vesting period shall be eligible for the ESOPs. Therefore, employees expected to complete the entire duration, i.e. 320 employees, are considered. Any quarterly reporting should be done considering that Rs. 768,000 need to be amortised over a period of 2 years.
    2. By the end of year 1, the actual expense to be recorded for the complete year shall be based on the actual number 320 x 200 x 12 = 768,000/2 = 384,000. Make adjustments for the amount already reported quarterly. However, a better estimate for the number of employees can be that re-estimate the number of employees at the end of year 2 considering that the actual number of employees at the end of year 1 are 370 instead of the estimated 360. If there is any attrition rate expected for the next year then the number of employees of 370 be reduced by that attrition rate to arrive at the revised number of employees at the end of year 2.
    3. By the end of year 2, the total expense to be recorded over the two year period should be based on the actual number of employees 340 x 200 x 12 = 816,000. Amount of Rs. 384,000 has already been recorded in the year 1. The remaining amount to be recorded in the year 2 shall be Rs. 816,000 – 384,000 = Rs. 432,000.

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