{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/718/40/#40-derecognition","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"718","topic_title":"Compensation—Stock Compensation","subtopic":"718-40","subtopic_title":"Employee Stock Ownership Plans","section":{"number":"40","label":"40 Derecognition","anchor":"40-derecognition","is_sec":false,"groups":[{"block":"Leveraged Employee Stock Ownership Plans","heading":"Plan Termination","paragraphs":[{"citation":"718-40-40-1","para":"40-1","html":"
This Section may contain summaries or references to specific tax code or other regulations that existed at the time that the standard was issued. The Financial Accounting Standards Board (FASB) does not monitor such code or regulations and assumes no responsibility for the current accuracy of the summaries or references. Users must evaluate such code or regulations to determine consistency of the current code or regulation with that presented.
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Upon termination of a leveraged employee stock ownership plan, either in whole or in part, all outstanding debt related to the shares being terminated shall be repaid or refinanced. An employee stock ownership plan may repay the debt using an employer contribution to the plan, dividends on employee stock ownership plan shares, the proceeds from selling suspense shares to the employer or to another party, or some combination of these. The tax law limits the shares employers may reacquire to the number of shares with a fair value equal to the applicable unpaid debt and requires that the remaining shares, if any, shall be allocated to participants.
","snippet":"Upon termination of a leveraged employee stock ownership plan, either in whole or in part, all outstanding debt related to the shares being terminated shall be repaid or refinanced. An employee stock ownership plan may r…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fab675fce09a93e993613330b8f3cb20b68a7cfcc6fda34514010ca94f18da25","downloaded_from":"2026-09-10T01:05:38.429Z","last_downloaded_at":"2026-09-10T01:05:38.429Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480550","source_sha256":"c7627b63418b498230f3e7b441372b04a6175328eb07d20fd713c927baade139"}},{"citation":"718-40-40-3","para":"40-3","html":"
If the employer makes a contribution to the employee stock ownership plan or pays dividends on unallocated shares that are used by the employee stock ownership plan to repay the debt, the employer shall charge the debt and accrued interest payable when the employee stock ownership plan makes the payment to the outside lender. Similarly, an employer sponsoring an employee stock ownership plan with an indirect loan shall report loan repayments as reductions of the debt and accrued interest payable.
","snippet":"If the employer makes a contribution to the employee stock ownership plan or pays dividends on unallocated shares that are used by the employee stock ownership plan to repay the debt, the employer shall charge the debt a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1e5f6f30caf0ee243008cabc046d39b0c38f7ac980f2b8f34164b5e2f43721fb","downloaded_from":"2026-09-10T01:05:38.429Z","last_downloaded_at":"2026-09-10T01:05:38.429Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480550","source_sha256":"c7627b63418b498230f3e7b441372b04a6175328eb07d20fd713c927baade139"}},{"citation":"718-40-40-4","para":"40-4","html":"
If the employee stock ownership plan sells the suspense shares and uses the proceeds to repay the debt, the employer shall report the release of the suspense shares as a credit to unearned employee stock ownership plan shares based on the cost of the shares to the employee stock ownership plan, charge debt, and accrued interest payable, and recognize the difference in paid-in capital.
","snippet":"If the employee stock ownership plan sells the suspense shares and uses the proceeds to repay the debt, the employer shall report the release of the suspense shares as a credit to unearned employee stock ownership plan s…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:29d9f8d0c7e713fabafa2993398048f171d7533c42492acdd12704893a934b2a","downloaded_from":"2026-09-10T01:05:38.429Z","last_downloaded_at":"2026-09-10T01:05:38.429Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480550","source_sha256":"c7627b63418b498230f3e7b441372b04a6175328eb07d20fd713c927baade139"}},{"citation":"718-40-40-5","para":"40-5","html":"
However, if there is a difference between the amount paid to an outside lender and the net carrying amount of the debt, paragraph 470-50-40-2 requires that difference to be included in the employer's income when the debt is extinguished.
","snippet":"However, if there is a difference between the amount paid to an outside lender and the net carrying amount of the debt, paragraph 470-50-40-2 requires that difference to be included in the employer's income when the debt…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f19e3da569aebdc6588ede642a8d98d8d5cfc8a3e43675554dc17bdad4b06119","downloaded_from":"2026-09-10T01:05:38.429Z","last_downloaded_at":"2026-09-10T01:05:38.429Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480550","source_sha256":"c7627b63418b498230f3e7b441372b04a6175328eb07d20fd713c927baade139"}},{"citation":"718-40-40-6","para":"40-6","html":"
If an employer reacquires the suspense shares from the employee stock ownership plan, the purchase of the shares shall be accounted for as a treasury stock transaction. The treasury stock shall be reported at the fair value of the shares at the reacquisition date. Unearned employee stock ownership plan shares shall be credited for the cost of the shares, and the difference shall be recognized in additional paid-in capital.
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If the fair value of the suspense shares on the termination date is more than the unpaid debt balance, the release of the remaining suspense shares to participants shall be charged to compensation in accordance with paragraphs
718-40-25-11 through 25-15
. That is, compensation cost shall equal the fair value of the shares at the date the employee stock ownership plan debt is extinguished, because that is when the shares are committed to be released.
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