On 1 st January, 2016, Tulip Ltd. offered 100 shares of ₹10 each to each of its 500 employees at ₹30 per share. The employees were given time up to 31 st March, 2016 to accept the offer. The shares issued under ESOP shal

CS Executive · Company Accounts & Auditing Practices · PYQS · December 2016
On 1 st January, 2016, Tulip Ltd. offered 100 shares of ₹10 each to each of its 500 employees at ₹30 per share. The employees were given time up to 31 st March, 2016 to accept the offer. The shares issued under ESOP shall be subject to lock-in-period of two years from the grant date. Other details provided are as under : (i) The market price of shares of the company on the grant date is ₹50 per share. (ii) Due to post vesting restriction on transfer of shares, the fair market value of shares is estimated at ₹40 per share. (iii) On 31 st March, 2016, 400 employees accepted the offer and paid ₹30 per share. You are required to pass necessary journal entries to record the allotment of shares in the books of the company.

Answer & Explanation:

Journal entries in the books of Tulip Ltd. Date Particulars Dr.(₹) Cr.(₹) 31/03/2016 Bank A/C Dr. 12,00,000 Employee Compensation Exp. A/c Dr. 4,00,000 To Share Capital A/c 4,00,000 To Security Premium A/c 12,00,000 (Being offer accepted for 40,000 shares @ ₹30 per share and difference as premium) Working Note No. of Shares allotted: 400 × 100 = 40,000 shares Option allotment price: ₹30 per share; Cash Received/ Bank credited = 40,000 × 30 = ₹12,00,000 Discount offered: Fair value - Offered value = 40 - 30 = ₹10 per share Expenses to be recognised: 40,000 × 10 = ₹4,00,000 (Discount offered per share x No. of shares) Security Premium = (Amount received + Employees Compensation) - Face value of Issue = (1,200,000 + 4,00,000) - 4,00,000 = 1,200,000

Topics: Company Accounts

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