i need a question on employees stock option plan
Employee Stock Option Plan
Meaning: Employee Stock Option is a plan where the company's whole-time directors, officers and employees get an opportunity of purchasing their own company's shares at a predetermined price in future. The price at which these shares are offered is usually lower than the market price. Employee Stock Option Plan is a right and not an obligation. These shares are offered to employees as a part of compensation. However, there is locking period of minimum one year, i.e. shares issued under this scheme cannot be disposed-off within one year from the date of allotment.
Advantages:
Example: On April 01, 2015, Moon Ltd. offered 10,000 shares at Rs 30 per share to its employees, market price being Rs 100 per share. The share capital of the company was divided into shares of Rs 10 each. The option can be exercised till June 30, 2015. The option was exercised for 8,000 shares only and remaining option was lapsed. Pass the necessary Journal entries.
Solution
Meaning: Employee Stock Option is a plan where the company's whole-time directors, officers and employees get an opportunity of purchasing their own company's shares at a predetermined price in future. The price at which these shares are offered is usually lower than the market price. Employee Stock Option Plan is a right and not an obligation. These shares are offered to employees as a part of compensation. However, there is locking period of minimum one year, i.e. shares issued under this scheme cannot be disposed-off within one year from the date of allotment.
Advantages:
- To reduce the employee turnover ratio
- To motivate the employees to work harder
Example: On April 01, 2015, Moon Ltd. offered 10,000 shares at Rs 30 per share to its employees, market price being Rs 100 per share. The share capital of the company was divided into shares of Rs 10 each. The option can be exercised till June 30, 2015. The option was exercised for 8,000 shares only and remaining option was lapsed. Pass the necessary Journal entries.
Solution
| Journal Entry | ||||||
| Date | Particulars | L.F. | Debit Amount Rs |
Credit Amount Rs |
||
| Bank A/c (8,000 × 30) | Dr. | 2,40,000 | ||||
| Employees’ Compensation Expenses A/c (8,000 × 70) | Dr. | 5,60,000 | ||||
| To Share Capital A/c (8,000 × 10) | 80,000 | |||||
| To Securities Premium A/c (8,000 × 90) | 7,20,000 | |||||
| (8,000 shares were subscribed by the employees) | ||||||
| Statement of Profit and Loss | Dr. | 5,60,000 | ||||
| To Employees’ Compensation Expenses A/c | 5,60,000 | |||||
| (Expenses on employees compensation transferred to statement of profit and loss) | ||||||