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Suraj Narayanan

Suraj Narayanan

CA Inter

3K+

21-Jun-20 13:23

17

Advanced Accounting- ESOP

In Illustration 5 of Employee Stock Option Plan (pertaining to P Ltd), when the options lapsed, we immediately transfered the amount that was already credited in ESOP Account for the options lapsed on 1.12.12 to the General Reserve. Instead of that, can we internally adjust the amount to be transferred in the subsequent years (I have done that working in the attached working note) just like how we solved the following problem i.e. Illustration 6 (pertaining to Choice Ltd)?

Attachments

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Answers (7)

Saran Vadivel

Saran Vadivel

CA Inter

2K+

21-Jun-20 17:13

No bro! I think it wont be right! At the end of 3rd year expenses that should have been charged is â?¹2L for 4000options! We have already provided 240000! So we must bring that down by 40000 by cr. it to Gen.Res! And the next two years 80k and 80k!! What we must keep in mind is for each yr how much must be charged and did we charge it!! Hope this clarifies

Saran Vadivel

Saran Vadivel

CA Inter

2K+

21-Jun-20 17:16

If we go by ur notes, for 3rd yr we would have charged 240k+40k which is 80k greater than actuals!! I beleive my point is right bcoz the net effect is nothing but release of 40k from esop outstanding ac to gen reserves

Attachments

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Suraj Narayanan

Suraj Narayanan

CA Inter

3K+

21-Jun-20 17:45

Saran Vadivel

Saran Vadivel

CA Inter

2K+

21-Jun-20 17:13


No bro! I think it wont be right! At the end of 3rd year expenses that should have been charged is â?¹2L for 4000options! We have already provided 240000! So we must bring that down by 40000 by cr. it to Gen.Res! And the next two years 80k and 80k!! What we must keep in mind is for each yr how much must be charged and did we charge it!! Hope this clarifies

What my logic is (and the same was what happened in the following question) is that we require 360000 in the ESOP Outstanding Account at year end. We have already credited 240000. Instead of making an adjustment that brings the balance down to 120000 and then makes us add 80000 per annum for 3 years which gives 360000, why can't we retain the same 240000 and subsequently add 40000 per annum for 3 years which will also give us 360000

Saran Vadivel

Saran Vadivel

CA Inter

2K+

21-Jun-20 18:07

You should not becoz u will be overestimating the expenses for 3rd yr by 4K! It should be 2L only!

Saran Vadivel

Saran Vadivel

CA Inter

2K+

21-Jun-20 18:08

Im sorry 40k- overestimation will happen

Suraj Lakhotia

Suraj Lakhotia

Admin

22-Jun-20 16:07

Two approaches are possible. 1 - Which is done in class 2 - Check the balance in ESO Outstanding Account vs what is required. The excess may be transferred to General Reserve.