Chapter 16

Ind AS 102 - Share Based Payment

Section I
KB’s 3-Step Procedure – Overall Approach to Ind AS 102:
Step I:

Is it a SBPA (Share Based Payment Arrangement)?

Yes No

Go to Step II Ind AS 102 is N.A.

Step II:

Is it a SBPT (Share Based Payment Transaction)?

Yes No

Go to Step III Ind AS 102 is N.A.

Step III:

Is it within the scope of Ind AS 102?

Yes No

Apply the accounting as per

Ind AS 102 is N.A.
Ind AS 102

Let us now discuss each of these steps in detail.

16.1
16.2 Ind AS 102: Share Based Payment Chapter 16
Step I:
Is it a SBPA (Share Based Payment Arrangement)?
Step A:

Is there a binding agreement between 2 parties #?

Yes No

Go to Step B Ind AS 102 is N.A.

# The 2 parties are:

1. Reporting entity;
2. Counter-party (May be employee or non-employee).
Step B:

Counter-party will receive either of the following:

1. Cash - Based on the future price of equity instruments (shares or options)
2. Equity instruments
3. Equity instruments with cash alternatives - where the option is either with the reporting entity
or the counterparty.

Yes No

Go to Step C Ind AS 102 is N.A.

Step C:

Are there any vesting conditions?

Yes No

Go to Step II Go to Step II

Types of Vesting Conditions – 3 Types:

Service conditions
Requires the counter-
party to complete certain
years of service before
cash/equity
instruments are issued
Performance conditions Non-vesting
conditions
Requires the counterparty to complete certain years of Does not require the
service before cash/equity instruments are issued counterparty to
+ complete any years of
To meet certain targets during this period service
+
Cash/EI are issued
immediately
Chapter 16 Ind AS 102: Share Based Payment 16.3

Performance conditions are of 2 types:

1. Market related – Targets based on MPS
2. Non-market related – Targets are based on other
than MPS i.e.; sales, profit etc.

Step II:
Is it a SBPT (Share Based Payment Transaction)?
Let us see the permutation and combination of transactions which can arise in SBPA:
Say, A Ltd. is a parent company and has a subsidiary B Ltd.
Let us assume B Ltd. is the Reporting entity.
Particulars Entity Entity Entity
Goods/services received by B Ltd. B Ltd. A Ltd.
Obligation incurred by B Ltd. A Ltd. B Ltd.
These are called Group SBPT
(Discussed in detail later)
Note:
Goods includes – Inventory, PPE, IA etc.
Step III:
Is the SBPT within the scope of Ind AS 102?
We can summarize the key concepts in the form of chart below:
S. Particulars Will Ind AS 102 If not, which
No. apply? Ind AS will
apply?
1. An entity issues equity shares to shareholders who are also No 32
employees of the entity – Right Issue [They are acting
in the capacity of
shareholders]
2. In a business combination – Acquirer issues equity shares:
(a) To the shareholders of acquiree company as consideration
(b) To the employees of acquiree company No 103
Note:
Portion related to past services – Ind AS 103 will apply (Part of
consideration transferred) + Yes 103
Portion relating to future services – Ind AS 102 will apply
[Both Ind AS 102 [Covered in
and 103 will Ind AS 103 in
apply] detail]
3. Contract to buy or sell a non-financial item See details in the chart below
Contract to buy or sell a non-financial item:
We can summarize the different permutation and combinations as under:
S. No. Particulars Which Ind AS
will apply?
Intention at the time of Intention on the Balance Quantity of the
entering into contract Sheet date contract – based on
expected usage
1. Physical delivery Physical delivery Yes 102
2. Cash settlement Physical delivery Yes/No 32
16.4 Ind AS 102: Share Based Payment Chapter 16

3. Physical delivery Physical delivery No 32

4. Cash settlement Cash settlement Yes/No 32
Note 1:
Thus, for Ind AS 102 to be applicable we need to meet all 3 conditions.
Note 2:
The above contract will be an executory contract and will also trigger Ind AS 37 if it becomes onerous in nature.
Question 1 [Based on Para no. 6]
Plastic manufacturing company “X” enters into an agreement with company “Y” to purchase 100kg of fiber
which will be settled in cash at an amount equal to 10 Shares of X. However, X can settle the contract at any
time by paying an amount of current share price less market value of fiber. There is intention taking delivery
of such fiber.
How the transaction would be evaluated under Ind AS 102?
Note:
This Question should be read after understanding the scope of Ind AS 32 and 102.
Answer:
Analysis and Conclusion:
A non-financial item which is not intended to use for its expected purchases/sale and could be settled at
net value would be covered as per Ind AS 109 'Financial Instruments'.
Thus, the transaction would not be accounted under Ind AS 102.
Question 2
Entity X acquired entity Y in a business combination as per Ind AS 103. There is an existing share-based plan
in entity Y with a vesting condition for 3 years in which 2 years have already lapsed at the date of such
business acquisition. Entity X agrees to replace the existing award for the employees of combined entity. The
details are as below -
Acquisition date fair value of share-based payment plan ` 300
No. of years to vest after acquisition 1 year
Fair Value of award which replaces existing plan ` 400
Calculate the share-based payment values as per Ind AS 102?
Note:
This Question should be read after understanding the concept of ‘Consideration Transferred’ in Ind AS 103.
Answer:
Step – I:
Computation of Fair value of Replaced Award and Original Award on the date of Acquisition:
Acquisition date fair value of share-based payment plan ` 300
Fair Value of award which replaces existing plan ` 400
Step – II:
Portion which is a part of Consideration Transferred:
Pre-acquisition period =2
Post-acquisition period =1
Total fair value at acquisition date = `300
Value to be considered as a part of Consideration Transferred = `300/3 x 2 = `200
Step – III:
Portion which is a part of Post Business combination period:
[i.e. relates to future services]
Fair value of Replaced Award – Fair Value computed in Step II = `400 - `200 = `200
Chapter 16 Ind AS 102: Share Based Payment 16.5

Section II
Terminology:
Let us take an example to understand the basic terminology for this Ind AS.
Example:
An entity has 100 employees and grants them an option to purchase shares @ 20 per share (Market Price at
that date = ` 30 per share) if they stay with the entity for 3 years of continuous employment. The entity also
gives them 1 year post the 3 years to decide whether they want to exercise the shares or not.
Analysis:
Exercise Price 20 per share
Vesting period 3 years
Vesting condition Service condition – 3 years
Exercise period 1 year
Total period 4 years
Expense will be amortised over 3 years – vesting period
Employer Has an unavoidable obligation – which needs to be accrued over 3
years
Employee Has an option – he may or may not exercise the option to buy shares

Grant date and Measurement date:

We can summarize the key aspects as under:
Grant date Measurement date
Later of the following 2 dates: In case the counterparty is an employee:
1. Date when reporting entity and counter-party Grant date = Measurement date
agree to the terms and conditions of the SBPA In case the counterparty is a non-employee:
2. Date of approval of shareholders if required The date when goods are obtained and services are
received
For accounting – For accounting –
We will see later that we take Fair value of EI on date of We will see later that we take Fair value of goods and
grant services on date of measurement
Example:
New Age Technology Limited has entered into following Share Based payment transactions:
(i) On 1st April, 20X1, New Age Technology Limited decided to grant share options to its employees. The
scheme was approved by the employees on 30th June, 20X1. New Age Technology Limited determined
the fair value of the share options to be the value of the equity shares on 1st April, 20X1.
(ii) On 1st April, 20X1, New Age Technology Limited entered into a contract to purchase IT equipment
from Bombay Software Limited and agreed that the contract will be settled by issuing equity
instruments of New Age Technology Limited. New Age Technology Limited received the IT equipment
on 30th July, 20X1. The share-based payment transaction was measured based on the fair value of 'the
equity instruments as on 1st April, 20X1.
(iii) On 1st April, 20X1, New Age Technology Limited decided to grant the share options to its employees.
The scheme was approved by the employees on 30th June, 20X1. The issue of the share options was
however subject to the same being approved by the shareholders in a general meeting. The scheme was
approved in the general meeting held on 30th September, 20X1. The fair value of the equity instruments
for measuring the share- based payment transaction was taken on 30th September, 20X1.
Identify the grant date and measurement date in all the 3 cases of Share based payment transactions entered into by New
Age Technology Limited, supported by appropriate rationale for the determination?
[MTP April 2021]
16.6 Ind AS 102: Share Based Payment Chapter 16
Answer:
Evaluation Chart:
Scenario Grant date Measurement date Grant date - Reason Measurement date –
Reason
(i) 30th June, 20X1 30th June, 20X1 The date on which the For employees, the
scheme was approved by measurement date is
the employees grant date
(ii) 1st April, 20X1 30th July, 20X1 The date when the entity The date when the
and the counterparty entity obtains the
entered a contract and goods from the
agreed for settlement by counterparty
equity instruments
(iii) 30th September, 30th September, The date when the For employees, the
20X1 20X1 approval by shareholders measurement date is
was obtained grant date

Section III
Accounting – Equity Settled:
Recognition – Applicable to Equity settled and cash settled:
We can summarize the entries as under:
Equity Settlement Cash Settlement
Goods/Services Goods/Services
To SBP Reserve (Other Equity)/ESC To SBP Liability/Cash

There are 2 aspects of the above journal entries:

Debit side Credit side
In case of goods – Generally, we will create an asset. In case it immediately vest – Credit ESC/Cash
In case of services – Generally, we will record as the case may be.
expenses (revenue). In case there is a vesting period – Credit SBP
Note: Reserve/SBP liability.
Whether, an asset or expense will be debited will
depend upon the OTHER IND AS.
Example – Wages for installation of PPE is capitalized
as per Ind AS 16;
Goods consumed for research phase of R&D will be
treated as a revenue expenditure as per Ind AS 38.

Measurement – Applicable to Equity settled only:

We can summarize the concept as under:
Counter -party is an Employee Counter-party is non-employee
FV of EI granted on the Grant date FV of goods and services on the measurement date
See the concept of Grant date and Measurement date discussed above
We can summarize the above concept in the form of KB’s 3-Step Model.
Chapter 16 Ind AS 102: Share Based Payment 16.7
KB’s 3-Step Procedure – Equity Settled:

Step I - Focus on Debit side of the journal entry

Goods Services

Debit Asset Debit Expense

Step II - Focus on Credit side of the journal entry

Vest immediately Vesting period exists

Credit ESC + Credit SBP Reserve

Security premium if any Note: First make an amortisation chart for
expense in Working Note

Sample of Working Note – Annual expense statement:

Particulars Year 1 Year 2 Year 3
No. of employees No. on Grant date No. on Grant date No. on Grant date
- - -
Actual exits of Year 1 Actual exits of Year 1 and 2 Actual exits of Year
- - 1, 2 and 3
Estimated exits for Year Estimated exits for Year 3
2 and 3
No. of shares/options Given Given Given
Fair value of EI on Grant date Given Given Given
Cumulative expense 12 lacs 15 lacs 16 lacs
Annual expense 12 lacs/3 15 lacs x 2/3 16 lacs –
= 4 lacs = 10 lacs – 10 lacs
4 lacs = 6 lacs = 6 lacs

Step III - Focus on the Amount of the journal entry -

See the counter-party

Employee Non-employee

FV of EI FV of Goods/services

Question 3
Indian Inc. issued 995 shares in exchange for purchase of an office building. The title was transferred in the
name of Indian Inc. on February, 20X1 and shares were issued. Fair value of the office building was `2,00,000
and face value of each share of Indian Inc was `100.
Pass the journal entries?
16.8 Ind AS 102: Share Based Payment Chapter 16
Answer:
Journal Entry:
1st February, 20X1 ` `
Office Building 2,00,000
To Share capital (995 x 100) 99,500
To Securities premium (balance) 1,00,500
(Being recognition of purchase of building by issue of shares)
Question 4
Reliance limited hired a maintenance company for its oil fields. The services will be settled by issuing 1,000
shares of Reliance. Period for which the service is to be provided is 1st April, 20X1 to 1st July, 20X1 and fa ir
value of the service was estimated using market value of similar contracts for `1,00,000. Nominal value per
share is `10.
Record the transactions?
Answer:
Computation of Monthly Expense:
Particulars Amount
Fair value of services 1,00,000
No. of months 3
Monthly expense 33,333.33
Journal Entries:
30th April, 20X1 ` `
Repair & Maintenance 33,333.33
To Share based payment reserve (Equity) 33,333.33
(Being recognition of Equity settled SBP using fair value of services rendered)
31st May, 20X1
Repair & Maintenance 33,333.33
To Share based payment reserve (Equity) 33,333.33
(Being recognition of Equity settled SBP using fair value of services rendered)
30th June, 20X1
Repair & Maintenance 33,333.33
To Share based payment reserve (Equity) 33,333.33
(Being recognition of Equity settled SBP using fair value of services rendered)
1st July, 20X1
Share based payment reserve (Equity) 1,00,000
To Equity Shares (1000 x 10) 10,000
To Securities premium (balancing figure) 90,000
Question 5
An entity issued 100 shares each to its 1,000 employees subject to service condition of next 2 years. Grant date
fair value of the share is `195 each. There is an expectation 97% of the employees will remain in service at the
end of 1st year. However, at the end of 2nd year the expected employees to remain in service would be 91%
of the total employees.
Calculate expense for the years 1 & 2?
Chapter 16 Ind AS 102: Share Based Payment 16.9
Answer:
Computation of Annual Expense:
Particulars Year 1 Year 2
No. of Employees 1,000 x 97% 1,000 x 91%
= 970 = 910
Options per employee 100 100
Fair value 195 195
Cumulative Expense 189,15,000 177,45,000
Annual Expense 189,15,000/2 177,45,000 – 94,57,500
= 94,57,500 = 82,87,500
Question 6
ABC Limited granted to its employees, share options with a fair value of `5,00,000 on 1st April, 20X0, if they
remain in the organization upto 31st March, 20X3. On 31st March, 20X1, ABC limited expects only 91% of the
employees to remain in the employment. On 31st March, 20X2, company expects only 89% of the employees
to remain in the employment. However, only 82% of the employees remained in the organization at the end
of March, 20X3 and all of them exercised their options.
Pass the Journal entries?
Answer:
Computation of Annual Expense:
Particulars Year 1 Year 2 Year 3
No. of Employees 5,00,000 # 5,00,000 # 5,00,000 #
Options per employee X X X
Fair value 91% 89% 82%
Cumulative Expense 4,55,000 4,45,000 4,10,000
Annual Expense 4,55,000/3 4,45,000 x 2/3 – 1,51,667 4,10,000 – 4,45,000 x 2/3
= 1,51,667 = 1,45,000 = 1,13,333
# Product of all 3 factors is given.
Journal Entries:
31st March, 20X1
Employee benefits expenses 1,51,667
To Share based payment reserve (Equity) 1,51,667
31st March, 20X2
Employee benefits expenses 1,45,000
To Share based payment reserve (equity) 1,45,000
31st March, 20X3
Employee benefits expenses 1,13,333
To Share based payment reserve (equity) 1,13,333
31st March, 20X3
Share based payment reserve (equity) 4,10,000
To Share Capital 4,10,000
Question 7 [Change in vesting period]
Ankita Holding Inc. grants 100 shares to each of its 500 employees on 1st January, 20X1. The employees
should remain in service during the vesting period. The shares will vest at the end of the
First year if the company's earnings increase by 12%;
16.10 Ind AS 102: Share Based Payment Chapter 16

Second year if the company's earnings increase by more than 20% over the two-year period;
Third year if the entity's earnings increase by more than 22% over the three-year period.
The fair value per share at the grant date is `122. In 20X1, earnings increased by 10%, and 29 employees left
the organization. The company expects that earnings will continue at a similar rate in 20X2 and expects that
the shares will vest at the end of the year 20X2. The company also expects that additional 31 employees will
leave the organization in the year 20X2 and that 440 employees will receive their shares at the end of the year
20X2. At the end of 20X2, company's earnings increased by 18%. Therefore, the shares did not vest. Only 29
employees left the organization during 20X2. Company believes that additional 23 employees will leave in
20X3 and earnings will further increase so that the performance target will be achieved in 20X3. At the end of
the year 20X3, only 21 employees have left the organization. Assume that the company's earnings increased
to desired level and the performance target has been met.
Determine the expense for each year and pass appropriate journal entries?
[MTP March 2018; MTP April 2019]
Answer:
Computation of Annual Expense:
Particulars Year 1 Year 2 Year 3
No. of Employees 440 419 421
(Working Note – I)
Options per employee 100 100 100
Fair value (Note) 122 122 122
Cumulative Expense 53,68,000 51,11,800 51,36,200
Annual Expense 53,68,000/2 51,11,800 x 2/3 – 26,84,000 51,36,200 – 51,11,800 x
= 26,84,000 = 7,23,867 2/3
= 17,28,333
Note:
Since the earnings of the entity is non-market related, hence it will not be considered in fair value calculation
of the shares given. However, the same will be considered while calculating number of shares to be vested.
Working Note - I:
Computation of No. of Employees:
Particulars 20X1 20X2 20X3
Total employees 500 500 500
Employees left (Actual) (29) (58) (79)
Employees expected to leave in the next year (31) (23) -
Year-end - No of employees 440 419 421
Journal Entries:
31st December, 20X1
Employee benefits expenses 26,84,000
To Share based payment reserve (equity) 26,84,000
(Being Equity settled shared based payment expected vesting amount)
31st December, 20X2
Employee benefits expenses 7,23,867
To Share based payment reserve (equity) 7,23,867
(Being Equity settled shared based payment expected vesting amount)
31st December, 20X3
Employee benefits expenses 17,28,333
Chapter 16 Ind AS 102: Share Based Payment 16.11

To Share based payment reserve (equity) 17,28,333

(Being Equity settled shared based payment expected vesting amount)
Share based payment reserve (equity) 51,36,200
To Share Capital 51,36,200
(Being Share capital Issued)
Question 8 [Change in vesting period]
Beetel Holding Inc. grants 100 shares to each of its 300 employees on 1st January, 2015. The employees should
remain in service during the vesting period. The shares will vest at the end of the
First year if the company’s earnings increase by 13%
Second year if the company’s earnings increases by more than 21% over the two-year period.
Third year if the entity’s earning increases by more than 23% over the three-year period.
The fair value per share at the grant date is ` 125.
In 2015, earnings increased by 9% and 20 employees left the organization. The company expects that earnings
will continue at a similar rate in 2016 and expects that the shares will vest at the end of the year 2016. The
company also expects that additional 30 employees will leave the organization in the year 2016 and that 250
employees will receive their shares at the end of the year 2016.
At the end of 2016, company’s earnings increase by 19% Therefore, the shares did not vest. Only 20
employees left the organization during 2016. Company believes that additional 25 employees will leave in
2017 and earnings will further increase so that the performance target will be achieved in 2017.
At the end of the year 2017, only 22 employees have left the organization. Assume that the company’s
earnings increased to desired level and the performance target has been met.
Determine the expense for each year and pass appropriate journal entries.
[June 2019 Examination - 8 Marks]
Answer:
Computation of Annual Expense:
Particulars Year 1 Year 2 Year 3
No. of Employees 250 235 238
(Working Note – I)
Options per employee 100 100 100
Fair value (Note) 125 125 125
Cumulative Expense 31,25,000 29,37,500 29,75,000
Annual Expense 31,25,000/2 29,37,500 x 2/3 – 15,62,500 29,75,000 – 29,37,500 x
= 15,62,500 = 3,95,833 2/3
= 10,16,667
Note:
Since the earnings of the entity is non-market related, hence it will not be considered in fair value calculation
of the shares given. However, the same will be considered while calculating number of shares to be vested.
Working Note - I:
Computation of No. of Employees:
Particulars 20X1 20X2 20X3
Total employees 300 300 300
Employees left (Actual) (20) (40) (62)
Employees expected to leave in the next year (30) (25) Nil
Year-end – No. of employees 250 235 238
16.12 Ind AS 102: Share Based Payment Chapter 16
Journal Entries:
31st December, 2015 `
Employee benefits expenses 15,62,500
To Share based payment reserve (equity) 15,62,500
(Being Equity settled shared based payment expected vesting amount)
31st December, 2016
Employee benefits expenses 3,95,833
To Share based payment reserve (equity) 3,95,833
(Being Equity settled shared based payment expected vesting amount)
31st December, 2017
Employee benefits expenses 10,16,667
To Share based payment reserve (equity) 10,16,667
(Being Equity settled shared based payment expected vesting amount) 29,75,000
Share based payment reserve (equity)
To Share Capital 2,97,5,000
(Being Share capital issued)
Question 9 [Change in vesting period]
G Limited grants 200 shares to each of its 400 employees on 1st January, 2016. The employee should remain in
service during the vesting period so as to be eligible. The shares will vest at the end of the
1st year - If the company's earnings increase by 12%.
2nd year - If the company's earnings increase by more than 20% over the two-year period.
3rd year - If the company's earnings increase by more than 20% over the three-year period.
The fair value per share (non-market related) at the grant date is ` 61. In 2016, earnings increased by 10% and
22 employees left the company. The company expects that earnings will continue at a similar rate in 2017 and
expect that the shares will vest at the end of the year 2017. The company also expects that additional 18
employees will leave the organization in the year 2017 and that 360 employees will receive their shares at the
end of the year 2017. At the end of 2017 company's earnings increased by 18% (over the 2 years period).
Therefore, the shares did not vest. Only 16 employees left the organization during 2017.
The company believes that additional 14 employees will leave in 2020 and earnings will further increase so
that the performance target will be achieved in 2018. At the end of the year 2018, only 9 employees have left
the organization. Assume that the company's earnings increased to desired level and the performance target
has been met.
You are required to determine the expense as per Ind AS for each year (assumed as financial year) and pass appropriate
journal entries.
[November 2018 Examination – 8 Marks ]
Answer:
Computation of Annual Expense:
Particulars 2016 2017 2018
No. of Employees 360 348 353
(Working Note – I)
Options per employee 200 200 200
Fair value (Note) 61 61 61
Cumulative Expense 43,92,000 42,45,600 43,06,600
Annual Expense 43,92,000/2 42,45,600 x 2/3 43,06,600 – 28,30,400
= 21,96,000 = 28,30,400 – 21,96,000 = 14,76,200
= 6,34,400
Chapter 16 Ind AS 102: Share Based Payment 16.13
Note:
Since the earnings of the entity is non-market related, hence it will not be considered in fair value calculation
of the shares given. However, the same will be considered while calculating number of shares to be vested.
Working Note - I:
Computation of No. of Employees:
Particulars 2016 2017 2018
Total employees 400 400 400
Employees left (Actual) (22) (38) # (47) # #
Employees expected to leave in the next year (18) (14) Nil
Year-end - No of employees 360 348 353
# (22 + 16); # # (22 + 16 + 9)
Journal Entries:
31st March, 2016 ` `
Employee benefits expenses A/c 5,49,000
To Share based payment reserve (equity) A/c 5,49,000
(Being Equity settled shared based payment based on conditional vesting
period)
Workings:
Expense for 2016 (Jan to Dec) = 21,96,000
Expense recognized in the financial year 2015-2016:
= 21,96,000 x 3/12 = 5,49,000
Profit and Loss A/c 5,49,000
To Employee benefits expenses A/c 5,49,000
(Being Employee benefits expenses transferred to Profit & Loss A/c)
31st March, 2017
Employee benefits expenses 18,05,600
To Share based payment reserve (equity) 18,05,600
(Being Equity settled shared based payment based on conditional expected
vesting period)
Workings:
Expense for 2017 (Jan to Dec) = 6,34,400
Expense recognized in the financial year 2016-2017:
= (21,96,000 x 9/12) + (6,34,400 x 3/12)
= 16,47,000 + 1,58,600 = 18,05,600
Profit and Loss A/c 18,05,600
To Employee benefits expenses A/c 18,05,600
(Being Employee benefits expenses transferred to Profit and Loss A/c)
31st March, 2018
Employee benefits expenses 8,44,850
To Share based payment reserve (equity) 8,44,850
(Being Equity settled shared based payment based on conditional expected
vesting period)
Workings:
Expense for 2018 (Jan to Dec) = 14,76,200
16.14 Ind AS 102: Share Based Payment Chapter 16

Expense recognized in the financial year 2017-2018:

= (6,34,400 x 9/12) + (14,76,200 x 3/12)
= 4,75,800 + 3,69,050 = 8,44,850
Profit and Loss A/c 8,44,850
To Employee benefits expenses A/c 8,44,850
(Being Employee benefits expenses transferred to Profit and Loss A/c)
31st March, 2019
Employee benefits expenses 11,07,150
To Share based payment reserve (equity) 11,07,150
(Being Equity settled shared based payment based on conditional expected
vesting period)
Workings:
Expense recognized in the financial year 2018-2019:
= (14,76,200 x 9/12) = 11,07,150
Profit and Loss A/c 11,07,150
To Employee benefits expenses A/c 11,07,150
(Being Employee benefits expenses transferred to Profit and Loss A/c)
Share based payment reserve (equity) (353 x 200 x 61) 43,06,600
To Share Capital 43,06,600
(Being Share capital Issued)
Question 10
The following particulars in respect of stock options granted by a company are available:
No. of Employees covered 400 Nominal Value per share ` 100
No. of options per Employee 60 Exercise price per share ` 125
Shares offered were put in three groups. Group 1 was for 20% of shares offered with vesting period one-year.
Group II was for 40% of shares offered with vesting period two- years. Group III was for 40% of shares
offered with vesting period three-years. Fair value of option per share on grant date was ` 10 for Group I,
` 12.50 for Group II and ` 14 for Group III.
Position on 1st Year Position on 2nd Year Position on 3rd Year
- No. of employees left = 40 - Employees left = 35 - Employees left = 28
- Estimate of employees to - Estimate of employees to - Employees exercising Options
leave in Year 2 = 36 leave in Year 3 = 30 in Group III = 295
- Estimate of employees to - Employees exercising
leave in Year 3 = 34 Options in Group II = 319
- Employees exercising
Options in Group I = 350
Options not exercised immediately on vesting, were forfeited.
Compute expenses to recognize in each year and show important accounts in the books of the company.
[RTP November 2022]
Chapter 16 Ind AS 102: Share Based Payment 16.15
Answer:
Working Note – I:
Computation of number of Options – Group wise:
Group I - 20% Group II - 40% Group III - 40%
Vesting in 1 Year Vesting in 2 Years Vesting in 3 Years
= 12 options = 24 options = 24 options
Working Note - II:
Computation of No. of Employees:
Group I Group II Group III

Particulars Year 1 Year 1 Year 2 Year 1 Year 2 Year 3

Total employees 400 400 400 400 400 400
Employees left (Actual) (40) (40) (40 + 35) (40) (40 + 35) (40 +35 +28)
Employees expected to leave in N.A. (36) N.A. (36 +34) (30) N.A.
the next year
Year-end - No of employees 360 324 325 290 295 297

Working Note – III:

Computation of Annual Expense:
Particulars Group I = Group II = 24 Options Group III = 24 Options
12 Options
Year 1 Year 1 Year 2 Year 1 Year 2 Year 3
No. of employees eligible 360 324 325 290 295 297
(W. Note II)
No. of options expected to Vest 12 24 24 24 24 24
Fair Value per option ` 10 ` 12.50 ` 12.50 ` 14 ` 14 ` 14
Total Cumulative expense [A] ` 43,200 ` 97,200 ` 97,500 ` 97,440 ` 99,120 ` 99,792
From beginning till each year [A x 1/2] [A x 2/2] [A x 1/3] [A x 2/3] [A x 3/3]
end:
Cumulative Cost of Options

[A x Completed Years/Total ` 43,200 ` 48,600 ` 97,500 ` 32,480 ` 66,080 ` 99,792

Years]
Less: 0 0 ` 48,600 0 ` 32,480 ` 66,080
Recognized in last years
Expenses to be recognized ` 43,200 ` 48,600 ` 48,900 ` 32,480 ` 33,600 ` 33,712
Employees not exercising 10 325 - 319 297 - 295
ESOP Employees = 6 Employees = 2 Employees
Total Expenses for:
Year 1 ` 43,200 (Group 1) + ` 48,600 (Group 2) + ` 32,480 (Group 3) = ` 1,24,280
Year 2 ` 48,900 (Group 2) + ` 33,600 (Group 3) = ` 82,500
Year 3 ` 33,712 (Group 3 only)
16.16 Ind AS 102: Share Based Payment Chapter 16
Working Note – IV:
Computation of Securities Premium:
Particulars Group I Group II Group III
Year 1 Year 2 Year 3
Exercise Price received per share 125 125 125
FV of the Options 10 12.50 14
Total Consideration received per share 135 137.50 139
Less: Nominal Value per share (100) (100) (100)
Securities Premium per share 35 37.50 39
Let us prepare the ledger account;
Employees Benefit Expenses A/c
Year 1
Particulars ` Particulars `
To Share-based Payment Reserve A/c 1,24,280 By Profit and Loss A/c 1,24,280
1,24,280 1,24,280
Year 2
To Share-based Payment Reserve A/c 82,500 By Profit and Loss A/c 82,500
82,500 82,500
Year 3
To Share-based Payment Reserve A/c 33,712 By Profit and Loss A/c 33,712
33,712 33,712

Share-based Payment Reserve A/c

Year 1
Particulars ` Particulars `
To Retained Earnings 1,200 By Employees Benefit 1,24,280
[(360 - 350) employees x 12 Options x ` 10] Expenses A/c
To Share Capital By Bank A/c
[350 employees x 12 Options x ` 100] 4,20,000 [350 employees x 12 5,25,000
Options x ` 125]
To Securities Premium
[350 employees x 12 Options x ` 35] 1,47,000
To Balance c/d 81,080
6,49,280 6,49,280
Year 2
To Retained Earnings 1,800 By Balance b/d 81,080
[(325 - 319) employees x 24 options x ` 12.50] By Employees Benefit
Expenses A/c 82,500
Chapter 16 Ind AS 102: Share Based Payment 16.17

To Share Capital By Bank A/c

[319 employees x 24 options x ` 100] 7,65,600 [319 employees x 24 9,57,000
Options x ` 125]
To Securities Premium 2,87,100
[319 employees x 24 Options x ` 37.50)
To Balance c/d 66,080
11,20,580 11,20,580
Year 3
To Retained Earnings 672 By Balance b/d 66,080
[(297 - 295) employees x 24 Options x ` 14] By Employees Benefit
Expenses A/c 33,712
To Share Capital By Bank A/c
[295 employees x 24 Options x ` 100] 7,08,000 [295 employees x 24 8,85,000
Options x ` 125]
To Securities Premium
[295 employees x 24 Options x ` 39] 2,76,120
9,84,792 9,84,792

Section IV
Impact of vesting conditions:
We can summarize the key aspects as under:
S. No. Condition Remarks – Is the expense required to be booked?
If the condition is If the condition is not
expected to be met at expected to be met at
each y/e each y/e
1. (a) Service condition Yes No
(b) Performance condition – non-market Yes No
2. (a) Performance condition Yes Yes
- Market
(b) Non-vesting condition Yes Yes

Clarification Chart – In case multiple conditions are present:

S. No. Particulars Remarks – Is the expense required to
be booked?
Service Performance – Non- Performance – If the Non-Market If the Non-Market
market Market condition is condition is not
expected to be met expected to be met
at each y/e at each y/e
1. Exists Does not exist Does not exist Yes No
2. Exists Does not exist Exists Yes No
Market condition is met or not will, it
will not impact the analysis – So,
effectively same as Point 1
16.18 Ind AS 102: Share Based Payment Chapter 16

3. Exists Exists Does not exist Yes No

(If both service (If any one –
and non-market service or non-
conditions are market conditions
met) are not met)
4. Exists Exists Exists -do- -do-
Market condition is met or not will, it
will not impact the analysis – So,
effectively same as Point 3
Note : In the above chart we are assuming service condition will be met.
Let us take some examples on the above concept to elaborate further.
Example – Performance – Non- market related:
A Limited granted 10,000 share options to one of its managers. In order to get the options, the manager has to
work for next 3 years in the organization and reduce the cost of production by 10% over the next 3 years.
Fair value of the option at grant date was `95
Cost reduction achieved-
Year 1 12% Achieved
Year 2 8% Not expected to vest in future
Year 3 10% Achieved
How the expenses would be recorded?
Answer:
It is a non-market related condition.
Hence the target to achieve cost reduction would be taken while estimating the number of options to be
vested.
In simple words, if the condition is not met then the previous expense booked shall be reversed.
Computation of Annual Expense:
Year Options Fair value FV of the options vested
Year 1 10,000 95 3,16,667
[(10,000 x 95)/3]
Year 2 10,000 95 (3,16,667) – Note 1
Year 3 10,000 95 9,50,000 – Note 2
[10,000 x 95]
Note 1:
The condition to achieve 10% cost reduction each was not fulfilled in the year 2 and there was no expectation to vest this
non-market condition in future as well and hence earlier expense amount was reversed in year 2.
Note 2:
Since in the year 3 the non-market condition was again met, hence all such expense will be charged to Profit and Loss.
Example – Performance - Market related:
A Limited has granted 10,000 share options to one of its directors for which he must work for next 3 years
and the price of the share should increase by 20% over next 3 years.
The share price has moved as per below details—
Year 1 22%
Year 2 19%
Year 3 25%
At the grant date, the fair value of the option was `120.
How should we recognize the transaction?