BIM44210 - Specific deductions - employee share schemes: Accounting for ESOP trusts, a/c periods starting before 1 Jan 2003 - group schemes, example 4
Example 4 (Trust buys shares in market at options are granted)
Facts:
- 1/1/2000: parent sets up trusts and loans it £10m to buy 5m £1 shares at their market value of £2 each.
- Subsidiary grants options over them to its employees:
-
- options can be exercised between 2003-2005,
- exercise price £1.40 per share,
- performance targets to be met by 31/12/2002.
- Subsidiary contracts to pay the 60p shortfall to the ESOP trust when options are exercised.
- All options are expected to be exercised - subsidiary’s costs expected to be 5m x 60p = £3m.
In subsidiary company accounts
If the subsidiary is not regarded as a sponsoring company under UITF13:
Year 2000 |
Debit Staff Costs [(5m shares x 60p) / 3] = £1m |
Credit provision £1m |
Year 2001 |
Debit Staff Costs £1m |
Credit provision £1m |
Year 2002 |
Debit Staff Costs £1m |
Credit provision £1m |
On exercise |
Debit provision £3m |
Credit Cash £3m |
In parent company accounts
1/1/2000 |
Debit ‘Own shares’ £10m |
Credit Cash £10m |
On exercise |
Debit cash (£2 per share) = £10m |
Credit ‘Own shares’ £10m |
In group accounts (ignoring NICs)
1/1/2000 |
Debit ‘Own shares’ £10m |
Credit Cash £10m |
Year 2000 |
Debit Staff Costs [(5m shares x 60p) / 3] = £1m |
Credit ‘Own shares’ £1m |
Year 2001 |
Debit Staff Costs £1m |
Credit ‘Own shares’ £1m |
Year 2002 |
Debit Staff Costs £1m |
Credit ‘Own shares’ £1m |
On exercise |
Debit Cash [(5m shares x £1.40)] = £7m |
Credit ‘Own shares’ £7m |
