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mike in share based payment when wo give share option to employee we
dr expense
cr equity
and spread it over to vesting date
mike why we cr equity we have no cash in so why we cr equity whats logic behind thisThere’s at least three ways that I could interpret your question! Are you querying
(1) why we should credit anything at all, or
(2) why are we accounting for this, or
(3) if we are to account for it, why are we crediting equity and not some different account
You say that no cash has been received. Is it necessary for cash to be involved before we have a recordable event?
In this situation we have the expense of having received a benefit (maybe receivable over a number of years) so we have a debit in the expenses. So now we need a credit.
Why are we crediting Equity? Very, very simply, where else would you suggest? Shares are involved as the means by which we shall settle the transaction. So, credit Equity
Better?
ok you mean the employee will give us service in next years and we pay them and this payment is share based so we spread this expense over service period because the service benefit is consumed in three years is am correct mike
That sounds good to me. It’s an obligation created today but will only become certain at the end of the vesting period.
However, probability of vesting is greater than it not vesting so provision needs to be made. Estimated element that won’t vest is accounted for in the calculations
OK?
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