Golfer @Grade 3 asked a very good question about Focus Media: Why did the second phase of Focus Media’s employee stock ownership plan transfer on January 8, 2021, why did it increase the capital reserve – the equity premium of 27469355.02 yuan?
It happened that I wrote ” Enviable Goose Factory Employee “Welfare” – Talking about Tencent’s Share-based Remuneration ” to study Tencent’s share-based incentives, but Tencent’s annual report did not announce the detailed accounting treatment of its equity-based incentives;
However, Focus has actually disclosed it in detail in its annual report. Let’s try to give an answer to its accounting process; you can also have some references to Tencent’s equity incentive accounting process:
1. Accounting treatment
1. Repurchase of shares (for employee stock ownership plan portion)
Borrow: treasury stock 48,433,000 yuan
Loan: bank deposit 48433000 yuan
From September 3, 2018 to May 9, 2019, Focus repurchased a total of 243,380,554.00 shares through centralized bidding, of which 7,700,000 were used for the incentives of the second phase of the employee stock ownership plan; calculated at an average repurchase price of RMB 6.29 per share , paid a total of 7700000*6.29=48433000 yuan, and increased the corresponding number of treasury shares;
2. Balance sheet date (December 31, 2020)
Borrow: management fee of 75,999,000 yuan
Loan: capital reserve – other capital reserve 75,999,000 yuan
First, let’s look at the following provisions of Focus’s second-phase employee stock ownership plan:
1) “The price of the shares repurchased by the transferee company of this employee stock ownership plan is 0 yuan/share” : it is equivalent to the year-end bonus for employees that is actually an equity incentive plan;
2) “This employee stock ownership plan does not set performance appraisal indicators for the holders”: the award is only a reward for past performance, and there are no new requirements for future performance;
3) “From the date when the employee stock ownership plan is reviewed and approved by the company’s general meeting of shareholders, no matter what happens (including but not limited to the change of the holder’s position, retirement or resignation, etc.), the rights and interests held by the holder will not be changed.”: Even if you leave the company, the awards that have been awarded will not be changed;
It should be said that the conditions given by Focus to these core employees who are rewarded are quite favorable. It can be understood that once awarded, there will be no other constraints later, and the reward will no longer be withdrawn;
It is precisely because of this that Focus believes that the corresponding employee service period has been completed on December 31, 2020, and the full amount obtained in the current period calculated according to the fair value on the grant date is included in the relevant costs (management expenses) in 2020, and an increase in capital is added. product. Specifically, the closing price on December 31, 2020 is 9.87 yuan / share * 7700000 shares = 75999000 yuan.
3. Transfer date (January 8, 2021)
Borrow: 0 yuan in bank deposits
Capital reserve – other capital reserve 75,999,000 yuan
Loan: treasury stock 48,433,000 yuan
Employee stock ownership plan non-transaction transfer stamp tax, handling fee 96644.98 yuan
Capital reserve – share premium of 27469355.02 yuan
On January 8, 2021, Focus transferred 7,700,000 repurchased shares to the employee stock ownership plan securities account;
The borrower should have two items, among which the bank deposit item is 0 because the transfer price is 0 yuan/share, and the capital reserve increased at the end of 20 – other capital reserve of 75999000 yuan needs to be carried forward at this time;
The lender will first carry over 48,433,000 yuan of treasury shares, and then offset the non-transaction transfer stamp tax and handling fee of 96,644.98 yuan for the employee stock ownership plan, and then the difference of 27,469,355.02 yuan will be included in the capital reserve-share premium.
The above is the capital reserve of 27469355.02 yuan – the origin of the equity premium, the debit and the credit are perfectly equal, and there is no difference!
2. Some inspirations
What is the use of studying the above fairly complex accounting treatments?
1. The most important revelation is to clarify the so-called “equity incentive”. Even if the transfer price is 0 yuan per share, it is definitely not “free”; the company has paid the cost (management fee), which must be deducted from the profit of the year. of;
2. The management has some means to reasonably adjust the reported profits: for example, Focus has confirmed the management expenses of 75,999,000 yuan at the end of 2020. But in fact, it is completely legal and reasonable to assume that the management of Focus Group postpones the award date from December 31, 2020 to January 1, 2021 (many companies evaluate and issue 20-year year-end awards at the beginning of 21), and In this case, the management fee of 75,999,000 yuan will be changed to be confirmed in 21 years, the profit in 20 years will increase by 75,999,000 yuan, and the profit in 21 years will decrease by 75,999,000 yuan;
3. According to the restrictions of equity incentives, there are differences in the confirmation methods of management fees:
a) Since there are no other restrictions after the grant, Focus Media confirmed the management fee in full at one time on the grant date;
b) Tencent Holdings will have other restrictions after the grant, such as the requirement to maintain an on-the-job status, etc.; therefore, there will generally be no accounting treatment on the grant date, but the management will be confirmed in installments on each balance sheet date during the waiting period cost.
4. The amount of management fees related to share incentives is proportional to the stock price. For the situation like Tencent that needs to confirm management fees by installments in the next few years after the grant, the management fees of the current year are positively related to the average stock price of the previous years. Therefore, Tencent’s substantial increase in management expenses in 21 years is actually partly related to the high average share price in the past few years.
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$Focus Media(SZ002027)$ $Kweichow Moutai(SH600519)$ $Tencent Holdings(00700)$
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