I am issuing sweat equity to my employees, along with their salary. I dont see a way to record the sweat equity that I am issuing. Sweat Equity would have a vesting period… I also issue shares for hard currency where each share carries certain value. How to setup these Accounts in Manager?
The issue of sweat equity will require an asset account to be created and an equity account for the sweat equity capital. Go to Chart of Accounts and create an asset such as an Intangible asset and an equity account for the capital you will be issuing to employees. When you have determined the appropriate value of the sweat equity, it can be created as a Journal Entry by debiting the asset and crediting the equity account.
You would have to give up equity in order for them to take it. You would credit on each equity account debit other. This would be reported on the w2 for the employee as income.
You can’t just create an asset to give it away.
You could give X% of ur equity into a pool and then create a plan that distributes that equity.
You will have to figure out fairvalue of the equity given. I’m assuming ur incorporated if u will be giving up shares. If you are sole proprieter you must form a partnership.
This is an example of the accounting treatment of sweat equity in India:
Accounting policies.-
(1) Where the sweat equity shares are issued for a non-cash consideration, such non-cash consideration shall be treated in the following manner in the books of account of the company:
(a) where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall be carried to the balance sheet of the company in accordance with the relevant accounting standards; or
(b) where clause (a) is not applicable, it shall be expensed as provided in the relevant accounting standards.
(2) In respect of sweat equity shares issued during accounting period, the accounting value of sweat equity shares shall be treated as another form of compensation to the employee or the director in the financial statement of the company.
• Accounting value of sweat equity –
a) If sweat equity shares are not issued for acquisition of an asset- Value shall be treated as a form of compensation to the employee or the director in the financial statements of the Company.
b) If sweat equity shares are issued for acquisition of an asset- the value of the asset, as determined by the valuation report, shall be carried in the balance sheet as per the Accounting Standards and such amount of the accounting value of the sweat equity shares that is in excess of the value of the asset acquired, as per the valuation report, shall be treated as a form of compensation to the employee or the director in the financial statements of the company
This is from a law firm.
I applaud your reply to people on the forum. They are timely.
Back to the asset. An asset should be created if a depreciable asset(fixed asset) is acquired for sweat equity. Since he is talking payroll should be expensed.
Look foward to your reply,
Jordan
Hi Jordan, thanks for your valuable contribution to the forum. I interpreted the post from jbchan07 to mean they are paying the salaries in cash when it included “I am issuing sweat equity to my employees, along with their salary” and the issue of sweat equity shares is the non-cash consideration for “my assumption only, because of tech start up companies using Manager” the acquisition of an amortizable intangible asset. Hopefully, jbchan07 now has enough information, but issues of a technical nature such as the issue of Sweat Equity Shares should be done by a professionally qualified accountant that can ensure corporate laws, taxation reporting and general purpose reporting requirements, if applicable are complied with.
If it is a new JV then can you not set up share capital with the major shareholder and minor sweat equit showing as 2 different lines under owners equity