Company X had issued a number of stock options to staff, which was recognised in equity. There was however a shortfall in the number of shares in the Employee Share Trust relative to the number of options. The company was acquired by Company Y, and these options were cash cancelled.
There were 657,952 options with an exercise cost of $3.7m. The company was acquired at a price of $12.08 per share, so these options held a value of $7.9m at acquisition. Therefore, the option holders had a gain of $4.2m, which was paid by Company X.
No cash has been paid yet by Company Y in respect of these options, so I think that a loan between Companies X and Y needs to arise for $7.9m.
The problem is, what accounting journals do I need to post to recognise the removal of these options from Equity, the cash that has been paid to the Option Holders, and the corresponding loan?
I would think that the entries that should be posted are:
Dr. Equity $3.7m
Dr. Loan $7.9m
Cr. Bank $4.2m
Although this obviously doesn't balance. I feel like I'm missing something important. Do we need to assume that the option holders paid for these options as a first step?
Any help would be appreciated, thank you.
There were 657,952 options with an exercise cost of $3.7m. The company was acquired at a price of $12.08 per share, so these options held a value of $7.9m at acquisition. Therefore, the option holders had a gain of $4.2m, which was paid by Company X.
No cash has been paid yet by Company Y in respect of these options, so I think that a loan between Companies X and Y needs to arise for $7.9m.
The problem is, what accounting journals do I need to post to recognise the removal of these options from Equity, the cash that has been paid to the Option Holders, and the corresponding loan?
I would think that the entries that should be posted are:
Dr. Equity $3.7m
Dr. Loan $7.9m
Cr. Bank $4.2m
Although this obviously doesn't balance. I feel like I'm missing something important. Do we need to assume that the option holders paid for these options as a first step?
Any help would be appreciated, thank you.