Ind as 102 - Share Based Payments

(Corresponding ---ICAI GN on accounting of Employee

Share Based Payments.)

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DEFINITION OF SBP - TRANSACTIONS

• SBP transactions are those transactions:

In which entity receives goods and services, &

Make payment in the form of

Equity Instruments or

Cash equivalent to fair value of equity Shares.

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 OBJECTIVE

•Accounting & Disclosure of Shared-Based

Payment Transaction.

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 SCOPE

This Standard applies to share-based payment

transactions in which an entity acquires or
receives goods or services.
 Goods includes:
1. inventories,
2. consumables,
3. property,
4. plant and equipment,
5. intangible assets and
6. other non-financial assets.

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SCOPE EXCLUSIONS…. (CONT…)

Does not apply to:

Business combinations (Ind AS 103)

Financial instrument transactions (Ind AS 32)

Grants to all shareholders(including Employee) – A Right Issue

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Process of ESOP
ENTITY
(ESOP Scheme)

GRANT DATE
(Vesting Period for
fulfilling vesting
conditions)
VESTING Date
(Exercise period)

ESOP EXERCISE DATE

(Shares Issued)
 IMPORTANT TERMS

Grant Date: The date at which the Entity and the

other Party agree to the Terms and Conditions of
the Arrangement.

Example:
In February 2008, the company offered options to new staff,
subject to shareholder approval. The awards were approved by the
shareholders on 18 June 2008. The grant date is 18 June 2008,
when the approval was obtained.

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 IMPORTANT TERMS…. Cont…

Intrinsic Value : Fair Value of shares less Issue Price/

exercise price.

Example:
A share option with an exercise price of Rs15, on
a share with a fair value of Rs20, has an intrinsic
value of Rs5.

 Vesting Period: Period during which all the vesting

conditions are to be satisfied.

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 IMPORTANT TERMS
• Measurement Date: The date at which the fair value of the
equity instruments granted is measured.

Measurement Date

For Transactions With For transactions Other

Employees than Employees

The Date on which Entity

Grant Date Obtains Goods And
Services
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IMPORTANT TERMS…….cont…
Vesting Conditions: The Conditions that needs to be
Satisfied by the Counterparty so that they get a Right to
receive Cash or Equity Instruments of the Entity.

Vesting Conditions

Performance Conditions Service Conditions

Market Conditions

Non- Market Conditions

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EXAMPLES OF MARKET AND NON-
MARKET VESTING CONDITIONS

Market Non market

 Achieve minimum share price

 Exceed EPS target

 Outperform share price index

 Exceed sales target

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TREATMENT OF VESTING CONDITION WHILE
CALCULATING FAIR VALUE

IS THE VESTING CONDITION MARKET BASED

YES NO

Include in determining the Fair

Ignore in
Value on the Grant Date and
determining Fair value &
Do not Revise Vesting Estimate
revise vesting estimate
in each period
Example:EXAMPLE OF SBP TRANSACTION.docx

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 GRADED VESTING

In many cases, share-based payment transactions have one grant

date and different vesting periods. An entity must separately
determine the fair value of each award with a different vesting
period and recognize the expense over the vesting period.

Example:Example of GRADED VESTING.docx

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 RECOGNITION
• When to recognize?
when the company obtains the goods or when the services are
received.

• How to recognize?
Increase in equity if the goods or services were received in an
equity-settled SBP
Or
As a liability if the goods or services were acquired in a cash-
settled SBP

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 RECOGNITION (CONT….)

•When the goods or services received or

acquired in a share-based payment transaction
do not qualify for recognition as assets, they
shall be recognised as expenses. For e.g.:
Goods purchased for Research Phase.

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RECOGNISING EXPENSE FOR AN AWARD WITH
MULTIPLE VESTING CONDITIONS
SCENARIO SERVICE MARKET NON-MARKET IND-AS 102
CONDITION CONDITION PERFORMANCE EXPENSE?
MET? MET? CONDITIONS MET?
1 YES YES YES YES

2 YES NO YES YES

3 YES YES NO NO

4 YES NO NO NO

5 NO YES YES NO

6 NO NO YES NO

7 NO YES NO NO

8 NO NO NO NO

As a result, an entity recognises cost for goods and services received

when all service and non-market vesting conditions are met, regardless
of whether the market conditions or non vesting conditions are met.

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 TREATMENT OF NON-VESTING
CONDITIONS
 An entity shall take into account all non-
vesting conditions when estimating the
fair value of the equity instruments
granted.

Eg. Lock-in Period.

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TYPES OF SHARE BASED PAYMENTS

A. EQUITY SETTLED SBP

B. CASH SETTLED SBP

C. CHOICE OF SETTLEMENT OF SBP

 A. EQUITY SETTLED SBP
• For equity settled awards Ind AS 102 requires that an entity measures the
fair value of goods & services received and recognises a corresponding
increase in equity except in case of SBP to employees.

Measurement of SBP
Counterparty Measurement Basis Date

EMPLOYEE Fair value of equity instruments Grant date

awarded

NON-EMPLOYEE Fair value of goods or services Date when goods or

received services are received
 B. CASH-SETTLED SBP

• Measure the goods or services acquired and the

liability incurred at the fair value.
• Remeasure the fair value of the liability at the end of
each reporting period.

• Recognise any changes in fair value in profit or loss

for the period.

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 C. CHOICE OF SETTLEMENT OF
SBP

 If an entity has granted the counterparty the right to choose

whether a share-based payment transaction is settled in cash or
by issuing equity instruments, the entity has granted a
compound financial instrument, which includes a debt
component (the right to demand payment in cash) and an equity
component (the right to demand settlement in equity
instruments rather than in cash).

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 ACCOUNTING TREATMENT OF
CHOICE OF SETTLEMENT
• For the debt component  As in cash-settled share-based
payment transactions.

• For any equity component  As in equity-settled share-based

payment transactions.

• At the date of settlement, the entity shall remeasure the liability to

its fair value. If the entity issues equity instruments on settlement
rather than paying cash, the liability shall be transferred directly
to equity, as the consideration for the equity instruments issued.

• If the entity pays in cash on settlement rather than issuing equity

instruments, that payment shall be applied to settle the liability in
full. Any equity component previously recognized shall remain
within equity.
• Example : Choice of settlement.docx

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ACCOUNITNG TREATMENT OF CHOICE OF
SETTLEMENT OF SBP

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MODIFICATIONS IN SBP ARRANGEMENT

If an entity modifies an award, it must recognise ,

at a minimum, cost of the original award as if the
award was not modified.

If modification increases the fair value  recognise

that additional cost spread over the period from the
modification date until the vesting of modified
options

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MODIFICATIONS IN SBP ARRANGEMENT
Is the modification beneficial
Yes No
Ignore the Modification
- Fair Value
+ Fair Value
Amortise the incremental Less Likely
fair value to vest
+ Options over vesting period

Most likely to Revise

vest vesting estimates

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 SBP TRANSACTIONS AMONG
GROUP ENTITIES
 For share-based payment transactions among group
entities, in its separate or individual financial
statements, the entity receiving the goods or services
shall measure the goods or services received as either
an equity-settled or
a cash-settled share-based payment transaction
by assessing:
◦ the nature of the awards granted,
◦ its own rights and obligations.

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SBP TRANSACTIONS AMONG GROUP:
EQUITY OR CASH
• The entity receiving the goods or services shall treat SBP as
an equity-settled when:
(a) the awards granted are its own equity instruments, or
(b) the entity has no obligation to settle the share-based payment
transaction.

• The entity settling a SBP payment transaction when another

entity in the group receives the goods or services shall
recognise the transaction as an equity-settled only if it is settled
in the entity’s own equity instruments.
 EXAMPLE OF SBP TRANSACTIONS
AMONG GROUP ENTITY:
• A parent grants 200 share options to each of 100 employees of its subsidiary,
conditional upon the completion of two years’ service with the subsidiary. The fair
value of the share options on grant date is Rs.30 each. At grant date, the subsidiary
estimates that 80 per cent of the employees will complete the two-year service
period. At the end of the vesting period, 81 employees complete the required two
years of service.
• Answer: In the Books of Subsidiary

• Year 1
Dr Remuneration expense (200 × 100 × Rs.30 × 0.8/2) Rs.240,000
Cr Equity (Contribution from the parent) Rs.240,000
• Year 2
Dr Remuneration expense(200 × 100 × Rs.30 × 0.81 – 240,000) Rs.246,000
Cr Equity (Contribution from the parent) Rs.246,000

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 DISCLOSURE
Disclose information that enable users to
understand :
• the nature and extent of share-based payment
arrangements that existed during the period;
• how the fair value of the goods or services
received, or equity instruments granted, during
the period was determined; and
• the effect on the entity’s profit or loss for the
period and its financial position.

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 FIRST TIME ADOPTION 101

• A first-time adopter is encouraged, but not required, to apply

Ind AS 102 Share-based payment to equity instruments that
vested before date of transition to Ind AS.
• However, if a first-time adopter elects to apply Ind AS102 to
such equity instruments, it may do so only if the entity has
disclosed publicly the fair value of those equity instruments,
determined at the measurement date.
• Impact Analysis: It means ESOP’s granted and is under
vesting period should be fair valued as on the transition date
and the differential cost, if any, is recognized in retained
earnings.
 TOPIC Indian GAAP IND AS
Scope The ICAI GN is limited in scope as Ind AS 102 applies to both
it covers accounting only for employee & non-employee
employee share based share based payments
payments, whereas non-
employee SBP are shown in
other accounting standards
Measure The guidance note permits the For equity settled share based
ment use of either the intrinsic transactions with non-
value method or the fair employees, goods & services
value method for determining received and the
the costs of benefits arising corresponding increase in
from employee share based equity is measured at the fair
compensation plans. The value of the goods &
guidance note recommends services received. In case of
the use of the fair value equity settled transactions with
method. employees, grant date fair
value of the equity instrument
should be used.
THANK YOU

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