BIM44190 - Specific deductions - employee share schemes: Accounting for ESOP trusts, a/c periods starting before 1 Jan 2003 - single company schemes, examples 1 & 2

These examples show how employee share awards and share options are accounted for where:

• Example 1 - new shares are to be issued direct to the employees (UITF17),
• Example 2 - an employee share ownership trust is set up after the initial awards have been made (UITF17 and UITF13).

Background facts

• Conditional award of up to 1000 shares; nominal value 10p each.
• Award becomes unconditional and vests in full if performance targets are met over a 3 year period; no consideration payable by employee.
• At award date market value of a share is £5.
• End of Year 1: estimate of % of award likely to be satisfied = 50%.
• End of Year 2: estimate of % of award likely to be satisfied = 80%.
• End of Year 3: actual % of award satisfied = 75%.
• Start of Year 4: 750 new shares issued to employees when market value of a share is £8.

Example 1 - no trust - UITF17

Calculation of award costs at each year end:

At start of Year 4:

• Debit ‘shares to be issued’ £3750.
• Credit share capital £75.
• Credit reserves £3675 (not share premium as no cash paid above nominal value).

Top of page

Example 2 - ESOP trust set up to buy shares in the market after initial awards - UITF17 and UITF13

• During Year 2: Company contributes £6000 to ESOP trust; ESOP trust buys 1000 shares in market for £6000.

Accounting entries (UITF13):

Calculation of award costs at each year end (UITF17 and UITF13):

At start of Year 4:

• ‘Own shares’ still held on company’s balance sheet at cost £1500 (250 x £6 each).