Illustration 1

The particulars in respect of stock options granted by CHIRANJEEVI ltd are available:

Grant date April 1 2006

No of employees covered 525

No of options granted per employee 100

Vesting condition: continuous employment for 3 years

Nominal value per share 100

Exercise price per share 125

M.P per share on grant date 149

Vesting date March 31 2009

Exercise date March 31 2010

Fair value of an option on grant date 30

Position on 31/03/07

a) Estimated annual rate of departure 2%

b) No of employees left = 15

Position on 31/03/08

a. Estimated annual rate of departure 3%

b. No of employees left 10

Position on 31/03/09

a. No of employees left 8

b. No of employees entitled to exercise the option =492

Position as on 31/03/10

A. No of employees exercising the option= 480

B. No of employees not exercising the option= 12

Compute the expenses to be recognise in each year by

1. Fair value method.

2. Intrinsic value method & show imp accounts in books of the company by both of the methods.
Illustration 2 (Variation In Vesting Period)

The following particulars in respect of stock options granted by NAGARJUNA ltd are available

Grant date - april 1 2006

Number of lemployees covered 500

Number options granted per employee 100

Fair value of option per share on grant date (Rs.) 25

The vesting period shall be determined as below:

a. If the company earns Rs. 120 crore or above after taxes in 2006-07, the options will vest on 31/03/07

b. If condition (a) is not satisfied but the company earns Rs. 250 crores or above after taxes in aggregate in 2006-07and
2007-08, the options will vest on 31/03/08.

c. If conditions (a) and (b) are not satisfied but the company earns Rs. 400 crores or above after taxes in aggregate in
2006-07, 2007-08 and 2008-09, the options will vest on 31/03/09.

Position on 31/03/07

a.The company earned Rs. 115 crore after taxes in 2006-07

b. The company expects to earn Rs. 140 crores in 2007-08 after taxes

c. Expected vesting date: March 31, 2008

d. Number of (employees expected to be entitled to option 474

Position on 31/03/08

a. The company earned Rs. 130 crore after taxes in 2007-08

b. The company expects to earn Rs. 160 crores in 2008-09 after taxes

c. Expected vesting date: March 31, 2009

d. Number of employees expected to be entitled to option 465

Position on 31/03/09

a. The company earned Rs. 165 crore after taxes in 2008-09

b. Number of employees on whom the option actually vested 450

Compute expenses to recognise in each year.

Illustration 3

 The following particulars in respect of stock options granted by a company are available:

Grant date - april 1 2006

Number of employees covered 50

Number options granted per employee 1000

Fair value of option per share on grant date (Rs.) 9

 The options will vest to employees serving continuously for 3 years from grant date, provided the share price is Rs.
70 or above at the end of 2008-09

 The estimates of number of employees satisfying the condition of continuous employment were 48 on 31/03/07,
47 on31/03/08.

 The number of employees actually satisfying the condition of continuous employment was 45.

 The share price at the end of 2008-09 was Rs. 68

Compute expenses to recognise in each year and show important accounts in books of the company.

Imustration4 variation in vesting period

 JR NTR ltd grants 100 stock to each of its 1000 employees on 1.4.2005 for Rs.20, depending upon the
employees at the time of vesting of options.

 The market price of the share is Rs.50.

 These options will vest at the end of year 1 if the earning of Choice Ltd. increase 16%, or it will vest at the end of
the year 2 if the average earnings of two years increase by 13% or lastly it will vest at the end of the third year if the
average earnings of 3 years will increase by 10%,

 5000 unvested options lapsed on 31.3.2006. 4,000 unvested options lapsed on 31.3.2007 and finally 3,500
unvested options lapsed on 31.3.2008.

 Following is the earning of Choice Ltd.:

  Year ended on  Earning in %

 31.3.06  14

 31.3.07  10

 31.3.08  7

 850 employees exercised their vested options within a year and remaining options were unexercised at the end of
the contractual life.

Pass Journal entries for the above

llustration 5 - (Graded Vesting)

The following particulars in respect of stock options granted by KAJOL ltd are available:

Grant date april 1 2006

Number of employees covered 400

Number options granted per employee 60

Nominal value per share (Rs.) 100

Exercise price per share (Rs.) 125

Shares offered were put in three groups.

Group 1 was for 20% of shares offered with vesting period one-year,

Group II was for 40% of shares offered with vesting period two years

Group III was for 40% of shares offered with vesting period three-years.

Fair value of option per share on grant date was Rs. 10 for Group l, Rs. 12.50 for Group ll and Rs. 14 for Group III.

Position on 31/03/07

a. Number of employees left 40

b. Estimate of number of employees to leave in 2007-08 36

c. Estimate of number of employees to leave in 2008-09 34

d. Number of employees exercising options in Group I 350

Position on 31/03/08

a. Number of employees left 35

b. Estimate of number of employees to leave in 2008-09 30

c. Number of employees exercising options in Group II 319

Position on 31/03/09

a. Number of employees left 28

b. Number of employees at the end of last vesting period- 297

c. Number of employees exercising options in Group III - 295

Options not exercised immediately on vesting, were forfeited.

Compute expenses to recognise in each year and show important accounts in books of the company by fair value
methods.

illustration 6 -(Employees Stock Purchase Plans) (ESPP)

▪ On April 1, 2006, NTR ltd offered 100 shares to each of its 500 employees at Rs. 40 per share.

▪ The employees are given a month to decide whether or not to accept the offer.

▪ The shares issued under the plan shall be subject to lock-in on transfers for three years from grant date.

▪ The market price of shares of the company on the grant date is Rs. 50 per share.

▪ Due to post-vesting restrictions on transfer, the fair value of shares issued under the plan is estimated at Rs 48 per
share.

▪ On April 30, 2006, 400 employees accepted the offer and paid Rs. 40 per share purchased.

▪ Nominal value of each share is Rs. 10.

Record the issue of shares in book of the company under the aforesaid plan.

Illustration 7 modification

Particulars of stock option of RAMCHARAN ltd

Grant date april 1 2006

Number of employees covered 600

Number options granted per employee 60

Vesting condition: Continuous employment for 3 years

Nominal value per share (Rs.) 100

Exercise price per share (Rs) 125

Vesting date march 31 2009

Exercise Date march 31 2010

Fair valus of option per share on grant date 14

Position on 31/03/07

a. Number of employees left 30

b. Estimate of number of employees to leave in 2007-08 and 2008-09 = 70

c. Exercise price was reduced to Rs. 120

d. Fair value of original position on 31/03/07 Rs. 13

e. Fair value of option at reduced exercise price on 31/03/07 Rs. 15

f. Vesting date for modified option was March 31, 2009

Position on 31/03/08

a. Number of employees left 35

b. Estimate of number of employees to leave in 2008-09 30

Position on 31/03/09

a. Number of employees left 28

b. Number of employees entitled to exercise option 507

Position on 31/03/10

a. Number of employees exercising the option 500

b. Number of employees not exercising the option 7

Compute the amount of expense the company should recognise in each of the years 2006-07, 2007-08 and 2008-09
and

show important accounts in books of the company

Iustration 8(Cancellation and Settlement During Vesting Period)

The following particulars in respect of stock options granted by SURYA ltd are available:
Grant date April 1,2006

Number of employees covered 300

Number options granted per employee 50

Vesting condition Continuous employment for 4 years

Nominal value per share (Rs) 100

Exercise price per share (Rs.) 125

Vesting date mar 31 2010

Exercise Date mar 31 2011

▪ Fair value of option per share on grant date (Rs) 12

▪ The above stock option was cancelled on 31/03/09 on payment of Re 1 80 per option and was replaced by a new
stock option granted on 01/04/09 .

▪ The fair value of canceled option on 0104/09 was Rs 14.55 per share

▪ The particulars of new stock option are given below :

Grant date : April 1,.2009

Number of employees covered 300

Number options granted per employee 60

Vesting condition Continuous employment for 3 years

Nominal value per share (Rs) 100

Exercise price per share (Rs) 120

Vesting date mar 31 2012

Exercise date mar 31 2013

Fair value of option per share on grant date (Rs) 15.75

▪ There were no departures of employees during the period from 2006-07 to 2012-13

▪ Cormpute the amount cf expense the cormpany should recognise in each of the years from 2006-07 to 2011-12
and show important accounts in books of the company

Illustration 9(Dilution of EPS due to ESOP Granted)

▪ The following particulars in respect of stock options granted by SRUTHI HASAN ltd are available:

▪ Grant date April 1,2006

▪ Number of employees covered 600

▪ Number options granted per employee 100

▪ Vesting condition Continuous employment for 3 years

▪ nominal value per share (Rs.) 10

▪ Exercise price per share (Rs.) 45

▪ Vesting date mar 31 2009

▪ Exercise date march 31 2010

▪ Fair value of option per share on grant date (Rs) 15

▪ No of shares 4,00,000

Position as on 31/03/07

▪ Number of employees expected to satisfy service conditions 540

▪ Number of employees left 15

▪ Profit before amortisation of ESOP costRs. 11.90 lakh

▪ Fair value per share rs60

Position as on 31/03/08

a. number of employees expected to satisty service condition 552

b. Number of employees left 24

c. Profit before amortisation of ESOP cost Rs 12.62 lakh

d. Fair value price per share = 68

Position as on 31/03/09

a. no of employees left =11

b. No of employees entitled to exercise option =550

c. Profit before amortisation of ESOP cost= 13.73 lakhs

d. Fair value per share= 72

Postion as on 31/03/10

a. no of employees exercising the option =550

b. Show employees compensation a/c, ESOP o/s a/c from 2006-07 to 2009-10

c. Compute basic and diluted EPS for the years 2006-07 to 2008-09
llustration 10 (Stock Appreciation Rights)

 A VIJAY DEVARAKONDA ltd announced a Stock Appreciation Right on 01/04/06 for each of its 525 employees.

 The scheme gives the employees the right to claim cash payment equivalent to ecess on market price of
company’s share on exercise date over the exercise price Rs. 125 per share in respect of 100 shares subject to
condition of continuous employment for 3 years.

 The SAR is exercisable after 31/03/09 but before 30/06/09.

 The fair value of SAR was Rs. 21 in 2006-07, Rs. 23 in 2007-08 and Rs 24 in 2008-09.

 In 2006-07 the company estimates that 2% of the employees shall leave the company annually. This was revised to
3% in 2007-08

 Actually 15 employees left the company in 2006-07, 10 lefth 2007-08 and 8 left in 2008-09. The SAR therefore
actually vested to 492 employees.

 On 30/06/09, when the SAR was exercised, the intrinsic value was Rs. 25 per share

Show Provision for SAR A/c by fair value method

Illustration11 Employee Share- Based Payment Plans with CASH ALTERNATIVES)

 CHEI ltd announced a share-based payment plan for its employees on 01/04/06, subject to a vesting period of 3
years.

 By the plan, the employees can

i. either claim-difference between exercise price Rs. 150 per share and

Market price of those shares on vesting date in respect of 10,000 shares or

ii. can subscribe to 12,000 shares at exercise price Rs. 150 per share, subject to lock in period of 5 years.

 On 01/04/06, fair value of the option, without considering restrictions on transfers was Rs. 30 and that after
considering restrictions on transfer was Rs. 27.
 The fair value estimates, without considering transfer festrictions were Rs. 31.50, Rs. 32.70 and Rs. 34 respectively,
at the end of 2006-07, 2007-08 and 2008-09

Show important accounts in books of the company if employees opt for () cash settlement (i) equity settlement

Illustration12

▪ ABDUL KALAM ltd grants 1,000 employees stock options on 1.4.2004 at Rs.40, when the market price is Rs. 160.

▪ The vesting period is 2 1/2 years and the maximum exercise period is one year.

▪ 300 unvested options lapse on 1.5.2009.

▪ 600 options are exercised on 30.6.2007

▪ 100 vested options lapse at the end of the exercise period.

Pass Journal Entries giving suitable narrations.