Share option - accounting treatment

How to include a share option in the accounts of the limited company

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I have a client who has received money from an investor for a share option.  At present no shares have been issued in respect of the share option, the agreement states a number of conditions, if met, the shares will be issued to the investor.  

Can anyone point me to guidance on how this transaction should be accounted for at present?  The cash received has been debited to the bank account, but what is the credit entry?

The transaction appreas to meet the conditions of a liability as per FRS102 para 22.3, so I plan to include the transaction in current liabilities, but has anyone any other suggestions?

I have asked the client to enquire from the investor as to their expected accounting treatment, as I want to avoid any issue with them when the accounts are finalised, however they have come back with the statement "the investment goes under the equity section which is under liabilities" which isn't really that helpful!  The investor is in the USA, so not sure if it's the case of "seperated by a common language", or if their accounting standards treat equity and liabilities the same?

Any ideas?

Replies (4)

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John Toon
By John Toon
07th May 2024 10:59

You don't state what accounting standards you're applying (and this matters) but lets assume its FRS 102 (1a or not is irrelevant).

Share options have to be accounted for at market value - FRS 102 and IFRS are clear on this and how the accounting should happen. If this is an option to an investor it may change the complexion slightly but you need to have the options valued - that's specialist, premium fee, work. You also then need to figure out if the options are being provided in return for a service, in which case you may recognise some additional P&L costs/income. If not, then this is pretty much all dealt with in equity.

Without more info it's impossible to provide the necessary detail to get this right.

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By Alistair K
07th May 2024 11:35

Thanks John, FRS102, as noted in my question.
Yes, I understand the issue with valuation and if the share options are being provided to employee, or to suppliers of goods or services.
In this case the share options are being purchased by an outside investor in exchange for a payment from the investor.
I'd be grateful if you would point me to the specific section in FRS102 which you are referring to

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Replying to Alistair K:
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By Anonymous Accountant
07th May 2024 12:10

Have you looked at section 12 of FRS 102?

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By Alistair K
07th May 2024 13:07

Thanks Anonymous Accountant. Yes I did look at Section 12 and that took me to Section 22.
TBH, as this stage my head is hurting and i'm wondering if anyone really gives a toss, so i'll likely go with my original plan, in the abscence of any clear direction.

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