TOPIC 22

INDAS 102 -
SHARE BASED PAYMENT
Quote:
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Index

S.No. Topic Name Page No.

1 SCOPE 22.2

2 NON-APPLICABILITY 22.2

3 TYPES OF SHARE BASED PAYMENTS 22.2

4 HOW TO RECOGNISE SBP TRANSACTIONS 22.3

5 VESTING CONDITIONS 22.4

6 SBP TRANSACTION WITH CASH 22.7

ALTERNATIVES
7 HOW TO DEAL WITH CHANGES? 22.9
(MODIFICATION OR CANCELLATION)
8 GROUP SHARE BASED PAYMENT PLAN 22.11

INDAS 102
 1. SCOPE
This Standard covers:
e
1. Equity settled Share based Payment transactions with Employees;
u
2. Cash Settled Share based Payment transactions with Employees; and
Transactions in which Entity receives or acquires goods or services and either the entity or
u
3.
the supplier of goods or services has a choice of settling the transaction in cash, other
-

assets or equity instruments.

u
2.NON – APPLICABILITY

This Standard is not applicable to the following:

a. Transactions with an employee (or other party) in his/her capacity as a holder of equity
instruments of the entity. (i.e. Right Issue of Equity shares)
b. Transactions in which entity acquires goods as part of the net assets acquired in a business
combination or the contribution of a business in the formation of Joint Venture.

Example:
An entity grants all holders of a particular class of its equity instruments the right to acquire
additional equity instruments of the entity at a price that is less than the fair value of those equity
instruments. An employee receives such a right because he/she is a holder of equity instruments of
that particular class. Whether this transaction is covered under Ind-AS 102?
Answer: No. Granting or exercise of that right is not covered under Ind-AS 102.

-
3.TYPES OF SHARE BASED TRANSACTIONS

Equity Settled Share-based Cash Settled Share-based Share-based Payment

Payment Transactions Payment Transactions Transactions
- with Cash Alternatives
-

Entity
acquires Goods or Services by
Entity receives Goods/Services as Entity or the Counter party has
incurring a Liability to transfer
Consideration for its Own Equity choice to settle in Equity
Cash/other Assets to supplier
Instruments (including Shares Instruments or in
for amounts that are based on
or Share Options) Cash/other Asset
Entity’s or Another
Group Entity Share Price

22.2
INDAS 102
 4. HOW TO RECOGNISE SBP TRANSACTIONS?
A. EQUITY SETTLED SBP - at FAIR VALUE:
· Transactions with suppliers: Fair value of goods or services received. (However if value of
goods or services cannot be estimated reliably then measure their value by reference to the
fair value of the equity instruments granted).
· Transactions with employees: Fair value of equity instruments awarded

Counter party Measurement basis Measurement date Recognition date

- ⑧
Employee Fair value of equity
-

instruments awarded
Grant date Date of services
received
--

-oc
Non- Employee Fair value of goods or Date goods or Date goods or
(Suppliers) services received services received services received

Imp
- Recogni on

Debit Entry Credit Entry

Increase in
Expense Asset (if
Equity
goods/services
qualify as asset)

B. CASH-SETTLED SBP:
· Share Appreciation Rights: employee is entitled to the cash payment in the future based on
the increase of entity's share price over specified period of time from a specified level.
· Cash Settled SBP are recognised as Liability of the Entity since there is an outflow required
in Cash. Similarly, as in the equity-settled share-based payment transaction, the goods or
services received are measured at the fair value of the liability.
· The fair value of the liability has to be remeasured at each reporting date until this liability
is settled and any changes of fair value are recognized in profit or loss.
· Vesting Conditions are treated in the similar manner as in the equity-settled share-based
payment transactions.

Note: There's whole guidance on how to determine the fair value in IND AS 113 –
Fair Value Measurements.

22.3
INDAS 102
 5. VESTING CONDITIONS
Some share-based payment transactions include VESTING CONDITIONS that must be satisfied
before any payment is made.
IND AS 102 recognizes 2 types of Vesting Conditions:
1. Service Conditions:
They require the counter party to complete a specified period of service. A service condition
does not require a performance target to be met.

2. Performance conditions:
They require the counterparty to complete a specified period of services AND specified
performance targets to be met.
A performance condition might include a Market Condition upon which upon which the exercise
price, vesting or exercisability of an equity instrument depends that is related to the market price
of the entity's equity instruments such as attaining a specified share price or a specified amount of
intrinsic value of a share option.

5.1 How to deal with Vesting Conditions?

Here, the principal question is whether vesting condition exists or not.
· NO: If the share-based payment is Vested Immediately, or there are No Vesting Conditions,
then INDAS 102 regards this transaction as granted in return for the supplier's (employee's)
service in the past. Therefore, an entity needs to recognize the services received immediately
in full at the grant date, with the corresponding increase in equity.

· YES: If the share-based payment DOES NOT Vest until the Counterparty Meets some
Vesting Conditions, then INDAS 2 regards this transaction as granted in return for the
supplier's (employee's) service rendered during the Vesting Period.
In this case, an entity should recognize an amount for the goods or services received during the
vesting period based on the best available estimate of the number of equity instruments
expected to Vest.

Example
If an employee remains in service for at least three years from the grant date of the award, the
employee can exercise the options at any time between three and ten years from the grant date of
the award. The fair value of the award at the grant date, ignoring the effect of vesting condition, is
₹6,00,000.
For this award, the vesting period is three years, the exercise period is seven years, and the
life of the option is ten years. The requirement to remain employed is a (vesting) service
condition. The entity recognizes an expense of ₹2,00,000 per year for three years, with a
corresponding increase in equity.

22.4
INDAS 102
 If the employee leaves at the end of year two, the entity reverses the cumulative expense
previously recognised. However, if the employee does not exercise options after the vesting
period, expense previously recognized cannot be reversed.
Consider an alternate scenario. The employee was given an unconditional right to exercise the
option at any time between the grant date and ten years from the grant date of the award. For
this award, the vesting period is nil, the exercise period and the life of the option are ten years.
The entity recognizes an expense of ₹6,00,000 immediately, with a corresponding increase in
equity. Subsequently, the entity cannot reverse this expense even if the employee does not
exercise its options. This is because they are vested from day 1.

A. What if Vesting Conditions not satisfied?

No Amount is recognised for goods or services received on a cumulative basis if the equity
instruments granted do not vest because of such failure. Any amount recognised in the earlier
period is required to be reversed.

B. All Vesting Conditions Satisfied except Market Condition?

Recognition of expenses shall be done, when all other vesting conditions are satisfied
irrespective of whether that Market Condition is satisfied.

EXAMPLE
A company announced Share Based Payment Scheme (ESOP) for its 150 No. of Employees on
1/4/23. Service condition is 3 Years. Exercise price is 80/-
Each employee will be eligible after 3 years service only for 100 no. of shares. FV of option on GD
is 45/-
a) Position as on 31/3/24: -
(i) 8 employees already left the Job
(ii) Estimated Departure rate is 3% P.A. for remaining period
b) Position as on 31/3/25: -
(i) 6 more employees left the job
(ii) Estimated Departure Rate is reduced to 2% P.A.
c) Position as on 31/3/26: -
Option is vested to 129 employees
d) Out of 129 employees, option for 4 employees lapsed
Solution:
1st Year = [(150 - 8) - 3%] X 100 X 45
3 = 2,00,412

Employee Benefit Expense A/c Dr. 2,00,412

To SBP Reserve A/c 2,00,412

22.5
INDAS 102
2nd Year = {(150-8-6)-2%} x 100 x 45 = 5,99,760
Cumulative till 2 years i.e., 31/3/25 = 5,99,760/3 x 2 = 3,99,840
(-) expenses already recognised till last year = 2,00,412
2nd Year Expenses = 1,99,428
Employee Benefit Expense A/c Dr. 1,99,428
To SBP Reserve A/c 1,99,428

3rd Year = 129 x 100 x 45 = 5,80,500

Cumulative for 3 years = 5,80,500
(-) Expenses recognised till 2nd Year = 3,99,840
3rd year Expense = 1,80,660
Employee Benefit Expenses A/c (P&L) Dr. 1,80,660
To SBP Reserve A/c 1,80,660

125 employees:
5,80,500/129 x 125 = 5,62,500
SBP Reserve Converted into Share Capital
Bank A/c (125 x 100 x 80/-) Dr. 10,00,000
SBP Reserve A/c (125 x 100 x 45/-) Dr. 5,62,500
To Share Capital A/c 1,25,000
To Securities Premium A/c 14,37,500

4 employees:
5,80,500/129 x 4 = 18,000
Transfer to General Reserve/Free Rreserve
SBP A/c Dr. 18,000
To General Reserve 18,000

EXAMPLE
Company offers 5000 shares at FV of Option @250/- to Rajat (employee) at a condition of
minimum service period of 3 years.
Solution
1st Year
Employee benefit Expenses A/c (P&L) Dr. 4,16,667
To SBP Reserve A/c (5,000 x 250/3) 4,16,667
2nd Year
Rajat Left the Job
SBP Reserve A/c Dr. 4,16,667
To Employee Benefit Expense A/c (P&L) 4,16,667
(Unvested option is cancelled due to not fulfilling Vesting Condition)

22.6
INDAS 102
 6. SHARE BASED PAYMENT TRANSACTION WITH CASH
ALTERNATIVES

Apply following Steps to recognise the Expense:

Step 1: Calculate Value of Equity Option as on Grant date as under: =7
- - - -

No. of Equity Settled options offered X Fair Value for Equity Option
2250000
- -

(Fair Value for Equity option will be given after considering any restrictions attached to that
-

option)
- - -

-300
-

⑧
Step 2: Calculate Value of Cash Alternative as on Grant date as under:
- -

No. of Options under Cash alternative X Fair Value for Cash Option
- -
- -

a -
0
Step 3: Difference of Step 1 and Step 2 will be Recognised as Expense under Equity Option over
-
-
the Vesting Period as per the Fair Value on Grant date only. (i.e. create SBP Reserve). 330000
- -

Step 4: Amount equal to Step 2 will be Recognised as Expense under Cash Option over the Vesting
- - - -

Period as per the Revised Fair Values as on BS Date. (i.e. create SBP Liability).
Now after the vesting period is over, either Equity Option or Cash option will be exercised as per
the counter party's choice. Apply following treatment as under:
a. If Cash Option is exercised: Transfer the balance of SBP reserve to General Reserve and
make payment through SBP liability, any difference is transferred to P&L.
b. If Equity Option is exercised: Transfer entire portion of SBP Liability to SBP reserve first
and then issue shares by debiting revised balance of SBP Reserve.

Let's discuss the basic example to under above steps

An entity grants to an employee the right to choose either 2,000 shares, i.e., a right to a cash
payment equal to the value of 2,000 shares, or 2,400 shares. The grant is conditional upon the
completion of three years' service. If the employee chooses the share alternative, the shares must
be held for three years after vesting date.
At grant date, the entity 's share price is ₹50 per share. At the end of years 1, 2 and 3, the share
price is ₹52, ₹55 and ₹60 respectively. The entity does not expect to pay dividends in the next
three years. After taking into account the effects of the post-vesting transfer restrictions, the
entity estimates that the grant date fair value of the share alternative is ₹48 per share.
At the end of year 3, the employee chooses:
Scenario 1: The cash alternative
Scenario 2: The equity alternative Application of requirements
The fair value of the equity alternative is ₹1,15,200 (2,400 shares x ₹48). The fair value of the
cash alternative is ₹1,00,000 (2,000 shares x ₹50). Therefore, the fair value of the equity
component of the compound instrument is ₹15,200 (₹1,15,200 - ₹1,00,000).

22.7
INDAS 102
The entity recognises the following amounts:

Year Computation Expense Equity Liability

1 Liability component: (2,000 x ₹52 x 1/3) 34,667 34,667
Equity component: (₹15,200 x 1/3) 5,067 5,067
2 Liability component: (2,000 x 38,666 38,666
₹55 x 2/3) — ₹34,666
Equity component: (₹15,200 x 1/3) 5,067 5,067
3 Liability component: (2,000 46,667 46,667
x ₹60) — ₹73,333
Equity component: (₹15,200 x 1/3) 5,066 5,066
End Scenario 1: cash of ₹1,20,000 paid (1,20,000)
Year 3
Scenario 1 totals 1,35,200 15,200 0
Scenario 2: 2,400 shares issued 1,20,000 (1,20,000)
Scenario 2 totals 1,35,200 1,35,200

22.8
INDAS 102
 7. HOW TO DEAL WITH CHANGES?
Sometimes, an entity might change the terms of the share-based payment transaction.

(a) MODIFICATION:
Modification or Repricing means decline in the exercise price of options, so as to make options more
attractive.
In such case:
n
-
1. Calculate fair value as on the date of Repricing before the effect of modification
2. Calculate fair value on the date of repricing after the effect of modification

⑳
- - - -

3. Calculate incentive due to repricing (2-1)

Such incentive should be written off over- the remaining vesting period.

Note:
Under Modification: If the fair value of the new instrument is greater than the fair value of the
old instrument, then the incremental amount is recognized over the remaining vesting period. (or
immediately if modification happens after the vesting period)
If the fair value of the new instrument is lower than the fair value of the old instrument, the
original fair value of the equity instruments granted should be expensed as if the modification
never occurred.

e
(b) CANCELLATION:
If an entity cancels or settles the equity instruments, then it is recognized as an acceleration of
the vesting period and any remaining unrecognized amount is recognized immediately. In many
cases the when the option is cancelled, Employer has to pay compensation to the employees against
cancellation. In that case, recognise the compensation as liability on the date of cancellation with
Fair Value at the time of Cancellation through SBP reserve and remaining balance of SBP reserve is
transfer to GR. Now, at the time of payment of compensation if actual payment is more or less than
the amount of compensation recognised as liability and difference is transfer to P&L.

Example of modification
Total Share Options = 12,000
Vesting Period = 3 Years
Exercise price per share = 30/-
Market Price per share = 50/-
FV of option as on Grant Date is 24/-
1st Year expenses to be Recognised:
Employee Benefit Expenses A/c Dr. 96,000
To SBP Reserve A/c 96,000
(12,000 x 24)/3 x 1

22.9
INDAS 102
In the beginning of 2nd Year, to make the offer more attractive, entity has reduced Exercise
price to Rs. 18/-
This decision is taken since there is a continuous reduction in MP of company due to which the
overall FV of option is reduced from 24/- to 15/-.
But as soon as the decision to reduce exercise price is taken the FV of option got improved to Rs.
20/-.
FV before modification = 15/-
FV after modification = 20/-
Additional Expenditure = 5/- (Recognition in remaining period)

2nd Year expenses to be Recognised:

((12,000 x 24)/3 x 2) – 96,000 = 96,000
+ Additional expenses (12,000 x 5)/2 x 1 = 30,000
= 1,26,000

3rd Year expenses to be Recognised:

Suppose 11,500 options is actually vested
((11,500 x 24)/3 x 3) – 1,92,000 = 84,000
+ Additional Expenses ((11,500 x 5)/2 x 2) – 30,000) = 27,500
= 1,11,500

22.10
INDAS 102
 8. GROUP SHARE BASED PAYMENT PLAN
SITUATION 1:
Parent issues its own shares for the share-based payment plan issued by its
subsidiary

When Parent Co. (Holding Co.) announces any Stock Option Plans for Employees of Subsidiary co.
against vesting conditions then following accounting treatment is required in the books of both
companies: Emp B.expDr.

I
1. Books of subsidiary Co.
To Bank
a. Subsidiary co. has to recognize “Employees Benefit Expenses”. To other
-
b. If subsidiary co. will compensate holding co. in cash then Bank A/c will be credited eg.

--
-

c. The remaining balance will be transfer to “other equity”.

u
2. Books of Holding Co. (Parent Co.)
a.
A/c
- -
0
That part of Employee expense which is reimbursed by subsidiary will be debited to Bank
-

b. -
That part of Employee expense which is not recoverable is debited to Investment A/c.
c. --
The credit will be given to Equity Share Capital and Premium A/c. Banker.
Invst Dr.
SITUATION 2: ToeS
Subsidiary provides rights to its employees to get equity instruments of its parent TO SP
Subsidiary will account for this arrangement as cash-settled share-based payment plan since it has
an obligation to settle the same in other than its own equity shares.
♦ Parent would consider the payment/ settlement which is being made by its subsidiary as credit
to “Dividend Income” and debit to Expenses (employee related cost).
♦ Subsidiary would debit its retained earnings as “Dividend distribution” and credit Equity (being
share issued).

~
SITUATION 3:sl
Parent settles the transaction by paying cash value for share based payment plan issued by its
subsidiary
Irrespective of the cash which is settled either based on Parent's equity or Subsidiary's equity, it
will be treated as equity-settled share-based payment plan in case of separate financial
statements of subsidiary because the subsidiary does not have any obligation to settle the
payments.

22.11
INDAS 102
 Student Notes:-

22.12
INDAS 102