Share-based Payment Reserve
Also called: ESOP Reserve
The value of share options granted to staff that have not yet been exercised, kept in equity. On the Balance Sheet.
In detail
When a company pays staff with share options or promises shares instead of cash, the cost of that pay must still be recognised as the staff earn it. Each year the fair value of the options vesting is charged to Share-based Payment Expense and credited to this reserve, because no cash and no shares have yet changed hands. When the options are exercised the reserve is moved to Share Capital and Share Premium along with any cash paid; if the options lapse the reserve may be transferred to Retained Earnings. Valuing the options needs an option pricing model and is normally done by the auditor or a consultant. Startups offering ESOPs to keep talent in Kathmandu are the usual users.
Formula
Annual charge = Fair value of options at grant date x Options expected to vest / Vesting period in 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
- 01Keep the option scheme document, grant letters and the fair value working.
- 02Go to Invoicing > Journal Entry > New dated Ashadh end.
- 03Debit Share-based Payment Expense and credit Share-based Payment Reserve for the year's vesting cost.
- 04Submit. The entry below posts.
- 05On exercise, post a Journal Entry: Dr Bank for cash received, Dr this reserve, Cr Share Capital and Share Premium.
- 06Update Invoicing > Shareholder with the new holdings.
When to use it
Post by Journal Entry each year as options vest, with the other side in Share-based Payment Expense. 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 to the operations manager.