Share-based Payment Expense
Also called: ESOP Expense
The yearly cost of share options granted to staff, spread over the vesting period, on the Profit and Loss statement.
In detail
When staff receive share options or shares as part of their pay, the company has a cost even though no cash leaves: the fair value of what was granted, spread over the years the staff must stay to earn it. Each Ashadh end the year's portion is debited here and credited to Share-based Payment Reserve in equity. The expense needs an option valuation, usually prepared by the auditor or a consultant with an option pricing model. It is not deductible for income tax until shares are actually issued, so it creates a deferred tax difference. A company without an option scheme leaves this ledger empty; a startup with an ESOP must post it or staff cost and equity are understated.
Formula
Annual expense = Grant date fair value per option x Options expected to vest / Vesting years
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Share-based Payment Expense | Rs 60,000 | |
| Share-based Payment Reserve | Rs 60,000 |
How to record it in BRAccount
- 01Obtain the option valuation and the vesting schedule for the year.
- 02Go to Invoicing > Journal Entry > New dated Ashadh end.
- 03Debit Share-based Payment Expense and credit Share-based Payment Reserve for the year's charge.
- 04Submit. The entry below posts.
- 05Adjust the next year's charge for options forfeited by leavers.
When to use it
Post by Journal Entry at year end with the other side in Share-based Payment Reserve. Rare for small Nepali companies.
Example from the demo books
Dr Share-based Payment Expense Rs 60,000, Cr Share-based Payment Reserve Rs 60,000 for options vesting in FY 2083-84.