# ASC 718-40-40: Compensation—Stock Compensation — Employee Stock Ownership Plans — 40 Derecognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/718/40/#40-derecognition) 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. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:05:38.429Z to 2026-09-10T01:05:38.429Z Record version: sha256:c1e0085233a76b8c37e53afe6ebbc46c2f9a81191aaac6913648a02d4e158045 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 718-40-40: 40 Derecognition [Read section](https://asc.understandingaccounting.org/asc/718/40/#40-derecognition) SEC content: no ### Leveraged Employee Stock Ownership Plans #### Plan Termination ##### [718-40-40-1](https://asc.understandingaccounting.org/asc/718/40/#718-40-40-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:05:38.429Z to 2026-09-10T01:05:38.429Z Record version: sha256:73282ef465a224e0dfe8c7a08f5a78e376896e09d29f6eb976a9f820d96c3303 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [718-40-40-2](https://asc.understandingaccounting.org/asc/718/40/#718-40-40-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:05:38.429Z to 2026-09-10T01:05:38.429Z Record version: sha256:fab675fce09a93e993613330b8f3cb20b68a7cfcc6fda34514010ca94f18da25 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Upon termination of a leveraged [employee stock ownership plan](https://asc.understandingaccounting.org/glossary/e/#employee-stock-ownership-plan "An employee stock ownership plan is an employee benefit plan that is described by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 as a stock bonus plan, or combination stock bonus and money purchase pension plan, designed to invest primarily in employer stock. Also called an employee share 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](https://asc.understandingaccounting.org/glossary/s/#suspense-shares "The shares initially held by the employee stock ownership plan in a suspense account are called suspense shares. Suspense shares are shares that have not been released, committed to be released, or allocated to participant accounts. Suspense shares generally collateralize employee stock ownership plan debt.") 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](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") equal to the applicable unpaid debt and requires that the remaining shares, if any, shall be allocated to participants. ##### [718-40-40-3](https://asc.understandingaccounting.org/asc/718/40/#718-40-40-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:05:38.429Z to 2026-09-10T01:05:38.429Z Record version: sha256:1e5f6f30caf0ee243008cabc046d39b0c38f7ac980f2b8f34164b5e2f43721fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/glossary/i/#indirect-loan "An indirect loan is a loan made by the employer to the employee stock ownership plan, with a related outside loan to the employer.") shall report loan repayments as reductions of the debt and accrued interest payable. ##### [718-40-40-4](https://asc.understandingaccounting.org/asc/718/40/#718-40-40-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:05:38.429Z to 2026-09-10T01:05:38.429Z Record version: sha256:29d9f8d0c7e713fabafa2993398048f171d7533c42492acdd12704893a934b2a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [718-40-40-5](https://asc.understandingaccounting.org/asc/718/40/#718-40-40-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:05:38.429Z to 2026-09-10T01:05:38.429Z Record version: sha256:f19e3da569aebdc6588ede642a8d98d8d5cfc8a3e43675554dc17bdad4b06119 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/asc/470/50/#470-50-40-2) requires that difference to be included in the employer's income when the debt is extinguished. ##### [718-40-40-6](https://asc.understandingaccounting.org/asc/718/40/#718-40-40-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:05:38.429Z to 2026-09-10T01:05:38.429Z Record version: sha256:85decfc0520cb7a8d97ecf10771e6d220a9fdd115e8e16bcfcfeebc8e579a476 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [718-40-40-7](https://asc.understandingaccounting.org/asc/718/40/#718-40-40-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:05:38.429Z to 2026-09-10T01:05:38.429Z Record version: sha256:db633c88c66c674729fa0689d3016ba745cd2469bbf165cbefd3a6e1ef7a5bae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/asc/718/40/#718-40-25-11) . 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.