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Accounting Policies for ESOS

..... I - SCHEDULE I (Clause 13.1) : (a) In respect of options granted during any accounting period, the accounting value of the options shall be treated as another form of employee compensation in the financial statements of the company. [1][(b) The accounting value of options shall be equal to the aggregate, over all employee stock options granted during the accounting period, of the intrinsic value of the option or, if the company so chooses, the fair value of the option.] [2][(c) Where the accounting value is accounted for as employee compensation in accordance with clause (b), the amount shall be amortised as under : (i) Where the scheme does not provide for graded vesting, the amount shall be amortised on a straight-line basis over the vest .....

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..... ee compensation expense. (f) The accounting treatment specified above can be illustrated by the following numerical example: Suppose a company grants 500 options on 1/4/1999 at ₹ 40 when the market price is ₹ 160, the vesting period is two and a half years, the maximum exercise period is one year. Also suppose that 150 unvested options lapse on 1/5/2001, 300 options are exercised on 30/6/2002 and 50 vested options lapse at the end of the exercise period. The accounting value of the option being: 500 x (160-40) = 500 x 120 = 60,000 The accounting entries would be as follows: 1/4/1999 Deferred Employee Compensation 60000 Expense Employee Stock Options Outstanding 60000 (Grant of 500 options at a discount of ₹ 120 each) 31/3/ .....

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..... l/ Share Premium 36000 1/10/2002 Employee Compensation 6000 60000 60000 Deferred Employee Compensation Expense Account Date Particulars Amount (Rs.) Date Particulars Amount (Rs.) 1/4/1999 ESOS Outstanding 60000 31/3/2000 Employee Compensation 24000 31/3/2001 Employee Compensation 24000 1/5/2001 ESOS Outstanding 3600 31/3/2002 Employee Compensation 8400 60000 60000 Employee Stock Options Outstanding will appear in the Balance Sheet as part of Net Worth or Shareholders' Equity. Deferred Employee Compensation will appear in the Balance Sheet as a negative item as part of Net Worth or Shareholders' Equity. ********* [1] Substituted vide circular no. SEBI/PMD/MBD/ESOP/2/2003/30/06 dated June 30, 2003, w. e. f. June 30, 2003. Prior to its .....

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