Ch.4 SHARE BASED PAYMENTS(Guidance Note No.18 & IFRS 2)

1) OBJECTIVE: Share Based Payments (SBP) is a part of remuneration package of many companies today. The main objective is to pass on benefits to the employees for services provided by them to the company. Other objectives are as follows:a) Higher employees participation b) To give share in the growth of the company c) To create scene of ownership d) To attract, retain and motivate best talent of the company

2) FORMS OF SBP:a) ESOP (Employees Stock Option Plan): is a right given to employee but not obligation to

purchase shares at a fixed price.

b) ESPP (Employees Stock Purchase Plan): is a right given to employee to purchase shares at a stated price generally at the time of public issue.

c) SAR (Stock Appreciation Right): is a right given to employee to receive cash or shares equal to market value of shares at stated price.

3) CATEGARIES FOR FINANCIAL REPORTING:a) Equity Settled Plans:

Under this category F.R. is to be applied when settlement is only through equity shares. {ESOP/ESPP/SAR if only Equity}

b) Cash Settled Plans: Under this category F.R. is to be applied when amount paid to employee is settled in cash only. {SAR if in only CASH}

c) Equity/Cash Settled Plans:Under this category F.R. is suggested when payment is to be made either in the form of issue of Share or in the form of Cash.

4) METHODS OF ACCOUNTING (Value to be recorded ):a) Fair Value:

“Fair value is the amount for which stock option granted could be exchanged between knowledgeable and willing parties in an arm’s length transaction”

b) Intrinsic Value:I.V. in case of listed companies is difference between quoted market price and exercise price. In case of unlisted companies I.V. is difference between market price as per independent valuer and exercise price. I.V. is allowed but with a fair value disclosure in the Financial Statement.

5) TRANSFER OF SHARES (Whether all transfers are SBP)When shares are transferred or stock options are granted to the employees of the enterprise for the services rendered by following enterprise are considered as SBP.a) Enterprise in employees are working b) By the shareholder of the enterprise c) Parent of the enterprise d) Enterprise in the same group

Following transferred are excluded from SBP a) Transaction in the capacity of S.H.b) Transferring right to employee on the same terms and condition as applicable to investors

Accounting Entries for Vesting Period 1) Employees Compensation Expenses A/c……………………Dr.

To Employees Stock Option Outstanding A/c (Being entry is based on best available estimate and best possible allocation)

2) Profit & Loss A/c …………………………Dr. To Employees Compensation Expenses A/c

Accounting Entries for Exercise Period 1) Bank A/c………………………………………………………Dr

Employees Stock Option Outstanding A/c……………………Dr To ESC (Face Value) To Security Premium

Accounting Entries for Lapse Period1) Employees Stock Option Outstanding A/c……………………Dr

To General Reserve A/c