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ESOP gives an employee the option to buy a certain number of shares of the company at a pre-decided price, which usually is a discounted price. An option is first granted to an employee and after a specific period (when exercised) vests with the employee. This period is referred to as the vesting period.
ESOP – Accounting Treatment
ESOP’s are a part of the remuneration of employees. It is recognized as employee compensation expenses over the requisite service period with a corresponding credit to Employee stock option outstanding account which is part of shareholder equity. The accounting value is determined by finding either fair value of the option or intrinsic value of the option.
