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CMA Intermediate · Corporate Accounting and Auditing · Issue, Forfeiture, Rights, Bonus, Sweat Equity, ESOP and Buy-back of Shares

Meridian Ltd (face value Rs 10 per share) has 5,000 options exercised at Rs 60 per share. Fair value of each option at grant was Rs 20 and the ESOP outstanding account holds Rs 1,00,000 for these options. What amount is credited to Securities Premium on exercise?

Securities premium credited is Rs 3,50,000. Cash received of Rs 3,00,000 plus the Rs 1,00,000 transferred from ESOP outstanding gives Rs 4,00,000, from which share capital of Rs 50,000 is deducted, leaving the balance as premium.

  1. ARs 2,50,000
  2. BRs 3,50,000Correct
  3. CRs 3,00,000
  4. DRs 4,00,000

Explanation

Cash received = 5,000 x 60 = Rs 3,00,000. Share capital = 5,000 x 10 = Rs 50,000. ESOP outstanding of Rs 1,00,000 is transferred as well. Securities premium = (3,00,000 + 1,00,000) - 50,000 = Rs 3,50,000. Ignoring the ESOP reserve gives Rs 2,50,000.

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