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  • Sebi Grade A 2020

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    Avinash Love
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    The document discusses employee stock option plans (ESOPs) and important related terms. It defines an ESOP as an option given to employees to purchase company shares at a future date at a concessional price. It lists and explains key terms like grant, vesting period, option, exercise period, exercise price, intrinsic value, and fair value. It notes ESOPs can be equity-settled, cash-settled, or offer a cash alternative. It provides a sample journal entry for an ESOP transaction.

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    The document discusses employee stock option plans (ESOPs) and important related terms. It defines an ESOP as an option given to employees to purchase company shares at a future date at a concessional price. It lists and explains key terms like grant, vesting period, option, exercise period, exercise price, intrinsic value, and fair value. It notes ESOPs can be equity-settled, cash-settled, or offer a cash alternative. It provides a sample journal entry for an ESOP transaction.

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    31 views12 pages

    Sebi Grade A 2020

    Uploaded by

    Avinash Love
    The document discusses employee stock option plans (ESOPs) and important related terms. It defines an ESOP as an option given to employees to purchase company shares at a future date at a concessional price. It lists and explains key terms like grant, vesting period, option, exercise period, exercise price, intrinsic value, and fair value. It notes ESOPs can be equity-settled, cash-settled, or offer a cash alternative. It provides a sample journal entry for an ESOP transaction.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    SEBI GRADE A 2020

    SEBI GRADE A 2020


    Commerce and Accounts
    Employee Stock Option Plan

    www.crackgradeb.com
    SEBI GRADE A 2020
    WHAT IS EMPLOYEE STOCK OPTION PLAN (ESOP) ?

    An option given to directors, officers or


    permanent employees of a company to
    purchase or subscribe the securities
    offered by the company at a future
    date, at a concessional price generally.
    SEBI GRADE A 2020
    IMPORTANT TERMS TO BE REMEMBERED
    1. Grant: Grant means issue of option to the employees under ESOS.

    2. Vesting: It is the process by which the employee is given the right to apply for shares of the
    company against the option granted to him in pursuance of employee stock option scheme.

    3. Vesting Period: It is the time period between grant date and the date on which all the
    specified vesting conditions of an employee share based payment plan are to be satisfied.

    4. Option: Option means a right but not an obligation granted to an employee for a specified
    period of time in pursuance of ESOS to purchase or subscribe to the shares of the company
    at a pre-determined price.
    SEBI GRADE A 2020
    IMPORTANT TERMS TO BE REMEMBERED
    5. Exercise Period: It is the time period after vesting within which the employee should exercise his
    right to apply for shares against the option vested in him in pursuance of the ESOS.

    6. Exercise Price: It is the price payable by the employee for exercising the option granted to him
    in pursuance of ESOS.

    7. Intrinsic Value: It is the excess of the market price of the share under ESOS over the exercise
    price of the option (including up-front payment, if any). {Market Price – Exercise Price}

    8. Fair Value: It is the amount for which stock option granted or a share offered for purchase
    could be exchanged between knowledgeable, willing parties in an arm's length transaction
    SEBI GRADE A 2020
    IMPORTANT TERMS TO BE REMEMBERED
    Under the Companies Act 2013, there shall be a minimum period of one year between grant
    of options and vesting of options, hence the exercise period cannot be less than one year from
    the date of grant of option.

    For accounting purposes, employee share-based payment plans are classified into the
    following categories:

    → Equity-settled: Under these plans, the employees receive shares.


    → Cash-settled: Under these plans, the employees receive cash based on the price (or value)
    of the enterprise's shares.
    → Employee share-based payment plans with cash alternatives: Under these plans, either the
    enterprise or the employee has a choice of whether the enterprise settles the payment in
    cash or by issue of shares.
    SEBI GRADE A 2020
    QUESTION TO PRACTICE
    A Company has its share capital divided into shares of 10 each. On
    1st April, 20X1 it granted 10,000 employees' stock options at 40,
    when the market price was 130. The options were to be exercised
    between 15th March, 20X2 and 31st March, 20X2. The employees
    exercised their options for 9,500 shares only; the remaining options
    lapsed. The company closes its books on 31st March every year.
    Show Journal Entries.
    SEBI GRADE A 2020
    SOLUTION
    Particulars Dr. Cr.
    15th March 20X2
    to 31st March
    Bank A/C (9,500 x 40) Dr.
    20X2
    3,80,000
    Employee compensation expense A/C
    [9,500 x (130-40) Dr. 8,55,000
    To Equity share capital A/c (9,500 x 10) 95,000
    To Securities premium A/C [9,500 x (130-10)] 11,40,000
    (Being allotment to employees of 9,500 equity shares of 10 each at
    a premium of 120 per share in exercise of stock options by
    employees)

    31st March 20X2 Profit and Loss A/C Dr. 8,55,000


    To Employee compensation expense A/C 8,55,000
    (Being transfer of employee compensation expense to profit and loss
    account)
    SEBI GRADE A 2020
    MULTIPLE CHOICE QUESTIONS
    1. For accounting purposes, employee share-based payment plans are classified as
    (a) Equity settled and cash settled.
    (b) Liability settled and cash settled.
    (c) Equity settled, cash settled and employees share based payment plans with cash
    alternatives.

    2. Under the Companies Act 2013, there shall be a minimum period of


    (a) two years between grant of options and vesting of option
    (b). one year between grant of options and vesting of option
    (c) six months between grant of options and vesting of option.
    SEBI GRADE A 2020
    MULTIPLE CHOICE QUESTIONS
    3. The excess of the market price of the share under ESOS over the exercise price
    of the option is
    (a) Exercise Price
    (b) Intrinsic Value
    (c) Fair value

    4. Which amount would be recognized for Share based payment?


    (a) Fair value of Share prices/ value
    (b) Amount as per agreement
    (c) Fair value of goods/ services received unless it is not reliably measurable then
    fair value of share prices would be used
    OUR STAR PERFORMERS in RBI GRADE B/SEBI GRADE A/IRDA AM/NABARD

    Mr. Nilay (AIR-2 NABARD GRADE B 2019) Mr. Prashant (AIR-2 NABARD GRADE B 2019)

    Mr. Akshay [AIR-1 (OBC)] Mr. Praveen (AIR-21) Mr. Rashmiranjan (AIR-57)
    Mr. Anuvesh (AIR-32)

    Mr. Kushagra
    Mr. Udit www.crackgradeb.com Mr. Yahwanth
    0ur courses
    RBI Grade B
    SEBI Grade A
    IRDA Assistant Manager

    NABARD Grade A & B


    FSSAI Technical Officer and Central Food Safety Officer

    UPSC EPFO ENFORCEMENT OFFICER EXAM

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    Happy
    Learning
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