Consolidation of ESOP Trust in the standalone financial statements (SFS), Treatment of investment in own shares for EPS calculation in the SFS and Treatment of ESOP Trust in the financial statements for tax audit purposes
Company A, a listed company, has an ESOP scheme administered through a trust. The ESOP Trust (ESOPT) obtains its funds through a loan from the company, which it utilizes for the purchase of the company's shares. It receives shares from the company by way of fresh allotment. The querist has raised the following issues:
- Whether, in the SFS of company A, loan given to ESOPT should be shown as 'Loans to ESOPT' under 'Assets'or operations of ESOPT should be included in the SFS of the company. If operations of ESOPT are included in SFS of the company, then, how to disclose shares of the company held by ESOPT?
- Treatment of investment by ESOPT in the shares of the company for calculating basic and diluted earnings per share ('EPS') in the SFS of the company, and
- Treatment in the financial statements prepared for tax audit purposes.
The EAC noted that as per SEBI guidelines, for ESOS/ ESPS administered through trust, the accounts of the company will be prepared as if the company itself is administering the ESOS/ ESPS. The EAC was of the view that in SFS, "Loan to ESOPT" will not appear at all. The face value of the shares issued to the trust should be shown as a deduction from share capital and the excess amount should be shown as deduction from securities premium with a detailed note. For calculating EPS, till the shares are issued to employees, treatment of ESOP shares will depend on whether the shares have been purchased from market or have been issued by the company. The EAC confirmed that the same treatment will be followed in the financial statements prepared under section 44AB of the Income-tax Act, 1961.
Source: ICAI Journal