IND AS 102 SHARE-BASED PAYMENT

IND AS CERTIFICATION COURSE – DAY 19 OF BATCH 5

JUNE 26, 2020

Faculty : CA Anjani Kumar Khetan

Ind AS Certification Course Secretariat, Accounting Standards Board
The Institute of Chartered Accountants of India
New Delhi, India
Disclaimer: The views expressed herein are solely those of the Faculty/Presenter and not that of the ICAI or any of
its committees. The ICAI or the Faculty or Preparer of this material do not accept any responsibility for omission or
inadequacy of the contents in this document and also for loss caused to any person who acts or refrains from
acting in reliance on the contents of this document irrespective of the cause of / reason for the loss.
 Ind AS Course ICAI

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 Ind AS Course ICAI

Ind-AS 102
Share-based Payment
 ASB, ICAI

Setting the Context ….

4
 KEY DISCUSSION POINTS …. ASB, ICAI

1 2 3 4
Objective Key Concepts Types of Types of Conditions
& & SBP &
Scope Definitions Arrangements Their Impact

5 6
General General
Recognition Illustrative Examples Measurement
Principle Principle

7 Settlement or, 8
9 10
Cancellation Modification Group and Re-charge
of to SBPs Arrangements Key Disclosures
SBPs

5
OBJECTIVE OF IND-AS 102 ASB, ICAI

The objective of Ind-AS 102 is to specify the ……

Financial reporting
by an entity
that undertakes a SBP
transaction
so that ..

The entity reflects ….

the effects of these transactions in its:
 Profit & Loss Account; and
 Balance Sheet

6
 ASB, ICAI

Share-based Payment
Arrangement vs. Transaction

7
 WHAT IS SHARE-BASED ARRANGEMENT ?
ASB, ICAI

 A share-based payment arrangement (SBA) is an agreement:

between an entity and another party (viz. supplier, employee or, anyone else) that entitles the other party:
o
1 to receive cash (or, other assets) based on the value of equity instruments of the entity
(or another group entity);
OR
o
2 to receive equity instruments of the entity (or, another group entity)

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8
 WHAT IS SHARE-BASED TRANSACTION ?
ASB, ICAI

A share-based payment (SBP) transaction is… a A transaction in which:

transaction in which: o an entity incurs an obligation to settle transaction with
o an entity receives goods / services OR supplier**
o
from a supplier **
of such goods & services
o in a share-based payment (SBP) arrangement
o when another group entity receives those goods or
o in a share-based payment (SBP) arrangement
services

lies d-
App In
02
AS 1

o the
A S 10 2 applies t
Ind- pay or
nti ty th at needs to on
e obligati
** Including an employee settle the
9
 COMMON TYPES OF …
…. SHARE-BASED PAYMENT
ASB, ICAI
TRANSACTIONS
1
2

SBP
arrangements * and not, Option per se

between

employers 4 3
and employees

10
 TYPES OF SBP ARRANGEMENTS …… ASB, ICAI

Three Basic Types of Share-based Payment Arrangements ….

Equity Settled Cash Settled SBP with Settlement Alternatives

Entity receives goods/services Entity receives goods/services Either the entity or the counterparty
as consideration for by incurring a liability to transfer has a choice
cash or other assets to the supplier to settle in
equity instruments
for amounts, that are (a) equity instruments OR
of the entity (or of other group entity) based on the price (or value) of the (b) in cash OR
entity’s shares (or, those of
(c) other assets
another group entity)
Settled by issuing Settled by transferring Transactions with an option of
Equity Instruments (a) Cash or (b) Other Either, Cash
Based on the price / Assets
value Or, Equity Settlement
of the entity’s equity instruments

Accounting requirements differ significantly for each type of SBA Detailed

later
Accounting requirements differ significantly for employees and non-employees 11
EMPLOYEE VS. NON-EMPLOYEE …
…. SHARE-BASED PAYMENT
ASB, ICAI
TRANSACTIONS

Different Accounting …..

Similar Measurement Requirements

Recognition Principles Differ

Detailed
later
12
 ASB, ICAI

Scope of Ind-AS 102

13
 IN THE SCOPE OF IND-AS 102
ASB, ICAI

Ind-AS 102 covers…. all SBP transactions including the following …………
Equity-settled SBPs & Cash-settled SBPs

e.g. 1 3
Grants
Grants to:
to: Employees’
Employees’Share
Share Purchase
Purchase Plan
Plan (ESPP)
(ESPP)
•• Employee;
Employee; and
and
A plan under which, employees pay
•• Others
Others providing
providing similar
similar services
services a specific %age of their salary to the entity, to
e.g. non-executive directors buy shares at a discount

2 4
Grants
Grants to
to non-employees
non-employees Certain
Certain SBP
SBP Plans
Plans –– that
that are
are settled
settled by
by
e.g. Consultants, suppliers etc. aa Group
Group Entity
Entity (or,
(or, an
an external shareholder) of
external shareholder) of
the
the same
same Group
Group

14
 OUTSIDE THE SCOPE OF IND-AS 102
Ind-AS 102 does not cover the following …………
1 2
Transaction with
shareholders as a whole
(when the shareholders act solely
in the capacity of shareholders)
 Rights Shares issued by an entity to
existing equity holders at a price
lower than Fair Value of…..
those equity instruments – will
be outside the scope of Ind-AS 102
 For instance, assume that an entity
issues right shares to all its
shareholders (including EE-
shareholders). In this case, since the
employees are receiving such shares in
the capacity of shareholders (and not
as EEs), this transaction will
3 Commodity contracts – that can be
Equity instruments, issued
as
consideration in a
BC & Joint Arrangement
 For instance, assume that CT Corp buys a
business from an individual (Mr. Ravi) to
whom equity instruments are being issued
 After the acquisition, Ravi will also work as
an employee of the combined entity
 In this case, if equity shares are issued as part
of purchase consideration for the BC, then
the equity instrument so issued will not be
covered under Ind AS 102
 However, if the equity instrument is issued to
Ravi for accepting employment in new
company, then it will be covered within Ind
ASB, ICAI
settled
either in Cash OR in Other FIs
&
are accounted for as Financial
Instruments (not, for own use)
 Contracts for purchase and sale of goods/ services which are
entered for:
o settling in net amounts; or
o to keep it for speculation purposes
will be covered under Ind-AS 109 (Financial
Instruments)
These will not be covered under Ind-AS 102
15
 ASB, ICAI

Timeline of a….
Share Option Award

16
 TIMELINE OF A SHARE OPTION AWARD
ASB, ICAI

Vesting Period Vesting Period - the period during which

all the specified vesting conditions
are to be satisfied

Year 1 Year 2 Year 3

Time
Grant Vesting Exercise
Date Date Date

Grant date – is the date at

which the entity and Vesting date – is the date Exercise date is the
the counterparty have a when the vesting conditions date when
shared understanding for SBP entitlement SBP awards are
of the terms and conditions are satisfied exercised
of the arrangement

17
 ASB, ICAI

Types of SBP Arrangements

18
 TYPES OF SHARE-BASED PAYMENT
ARRANGEMENTS – THREE BASIC TYPES ….. ASB, ICAI

Share-based Payments

1Equity-settled SBPs 2 3
Cash-settled SBPs SBPs with Cash Alternatives
(like shares, options or,
(like share appreciation rights)
warrants)
Entity receives goods/services Entity receives goods/services Either the entity or the counterparty
as consideration for by incurring a liability to transfer has a choice
cash or other assets to the supplier to settle in
equity instruments
for amounts, that are (a) equity instruments OR
of the entity (or of other group entity) based on the price (or value) of the (b) in cash OR
entity’s shares (or, those of
(c) other assets
another group entity)
Settled by issuing Settled by transferring Transactions with an option of
Equity Instruments (a) Cash or (b) Other Either, Cash
Assets Or, Equity Settlement
Based on the price / value
of the entity’s equity instruments

Accounting requirements differ significantly for each type of SBA

Accounting requirements differ significantly for employees and non-employees 19
TYPES OF SHARE-BASED PAYMENT
ARRANGEMENTS – THREE BASIC TYPES ….. ASB, ICAI

1 Cash-settled share-based payments are classified as liability

2 Share-based payments with cash alternative option to employees (and not entity) is also classified as
liability

 If the employee has choice of settlement, then the share-based payment award is regarded as compound
3
instrument (thereby requiring splitting of the liability and the equity components)
Note that …..
While splitting the two components – as above:
 the liability component is measured first (using the cash settled measurement principles); and
 the balance left-over is the Equity-component

Equity component is recognized if the “fair value of the equity alternative” exceeds the fair value of the cash
alternative
Detailed
later
20
CASH-BASED SBPS – ADDITIONAL INSIGHTS ..
ASB, ICAI

SBP arrangement with cash alternative at the choice of the entity

(Additional Insights)
4
Note that the classification of such SBP transactions (where the entity has the choice of cash alternative) …
depends on various factors including the following:

(a) the intent of the entity (b) Past practices (c) the ability to settle in equity etc.

5
If the entity’s stated intent is to settle the SBP arrangement in shares, then the transaction would likely be
classified as an equity-settled SBP arrangement

6
However, if the entity is a private entity OR has a past practice of settling in cash, then the
transaction would likely be classified as cash-settled SBP arrangement

21
 ASB, ICAI

Classification of SBP Arrangements

Illustrative Examples

22
 CLASSIFICATION OF SBP
ASB, ICAI

Consider a scenario wherein:

 On 1st Jan 20x1 (Year 1) HPL Limited granted 100 options to its employees with a 3-year service
condition and a $10 strike price
 On 31st Dec 20x4 (Year 4), the share price is $20
 Employees have the option to:
o Either Pay $1000 and receive 100 shares worth $2000; or
o Or, Receive 50 shares for no consideration by forfeiting all the 100 options

Should HPL Limited classify this SBP arrangement as equity-settled or, cash-settled?

Equity- settl ed SBP

In the above case:
 HPL Limited has granted to its employees an option that allows the employees to receive a varying
amount of equity instruments, based on whether or not they choose to pay the strike price to the
company
 As the arrangement is settled only in shares, it is an equity-settled SBP arrangement

23
 CLASSIFICATION OF SBP
ASB, ICAI

Consider a scenario wherein:

 On 1st Jan 20x1 (Year 1) CT Corp granted 100 options to its employees with a 3-year service
condition and a $10 strike price
 After 3 years, the entity (and not, the employees) has the option to:
o Either issue shares on exercise of the options
o Or, to pay cash (equivalent to …. “excess of share price over $10” multiplied by 100)

How should the company classify this SBP arrangement?

In this case ….. rnative
SBP with cash alte

 CT Corp has granted to its employees share options, but has kept the choice of settlement to itself
o This is because the entity can choose to settle the transaction EITHER by issuing shares OR by giving
cash as per the above formula
 Accordingly, this is a SBP arrangement with cash alternative at the choice of the entity

24
 CLASSIFICATION OF SBP
ASB, ICAI

Knowledge Check – Have you got right?

Is it a SBP under
Nature of Transaction Ind-AS Explanation
102?
CT Corp grants 1000 equity shares to 10 of its employees,  o It is an Equity-settled SBP
provided they remain in service for the next 3 years
ABSPL grants Rs. 50,000 to each of its employees - which is X  The amount is fixed now and it will be paid to the EEs even if the
based on current equity share price market rate of its share goes up/down from the current level
CT Corp has agreed to provide bonus to its employees - purely  o Since the benefit is with reference to the equity share price of the
based on price of its own equity share. entity, it will be covered under Ind-AS 102

25
 ASB, ICAI

Key Concepts & Definitions

26
 GRANT DATE ASB, ICAI

 the date, on which the Company and the counterparty (Incl. EE)
Grant Date =  agree to, and have shared understanding of, the T&C of the SBP arrangement

On the grant date, the entity ….

confers on the counterparty …. the right to:
(a) cash (b) other assets or (c) equity instruments of the entity
provided the specified vesting conditions, if any, are met

If that agreement is subject to an approval process (for example, by shareholders),

Grant Date is = the date, when that approval is obtained

 In practice, it is not always clear when a mutual understanding of the award (and, therefore, grant date)
has occurred
Practical
 Issues of interpretation can arise on the following:
Issues o how precise the shared understanding of the terms and conditions of the award must be; and
o exactly what level of communication between the Company and the counterparty is sufficient to ensure
the appropriate degree of the 'shared understanding’
 EXERCISE PRICE ASB, ICAI

 Price payable by the EE

Exercise Price =  On exercising the options granted to him
 In pursuance of the ESOP Plan
 ASB, ICAI

General Recognition Principle

for SBP

29
GENERAL RECOGNITION PRINCIPLE ASB, ICAI

When to recognize a SBP Transaction?

A SBP transaction is recognized when the entity obtains the goods or services
GENERAL RECOGNITION PRINCIPLE ASB, ICAI

How to recognize a SBP Transaction?

The SBP transaction is recognized:
in Equity (if equity-settled) or as a Liability (if cash-settled)

o Debit Asset or Expense (for goods or services obtained); and

o Corresponding Increase in Equity – recognized

o Liability recognized – for the obligation to pay cash

o Liability re-measured – to fair value @ each reporting period
o FV gain or loss on re-measurement – to PNL
GENERAL RECOGNITION PRINCIPLE ASB, ICAI

Expense Recognition for SBP - @ at Point in Time OR Over a period of time?

Expense recognition – at a Point in Time vs. Over a Period of Time

 Ind-AS 102 contains specific requirements on how to account for:

o Equity-settled SBPs (say, shares, share options, warrants etc.)
o Cash-settled SBPs (say, share appreciation rights)
o SBPs with cash alternative (viz. choice between equity and cash-settled SBPs)
 Depends on who has choice (the entity or, the counterparty); or
 Who is the counterparty (employee or, a non-employee)
 ASB, ICAI

General Measurement Principle

for SBP

33
GENERAL MEASUREMENT PRINCIPLE …
… UNDER IND-AS 102
ASB, ICAI

General Measurement Principles

Equity-settled Share- Cash-settled

based Payments Share-based Payments

Non-employees Employees

Goods/services are
Goods/services are measured Goods/services are measured
measured Goods/services are measured
directly, indirectly,
at the intrinsic value @
based on fair value of by reference to fair value of of the equity
goods/services received equity instruments granted instruments Grant date fair
value of the liability*
(at measurement date) (at the grant date) (Liability is re-measured)

If If
not reliably measurable not reliably measurable
(only in rare cases) (only in rare cases)
* Liability is measured by applying Option Pricing Models and is re-measured at each reporting period, until settled
 ASB, ICAI

Vesting & Non-vesting Conditions

under Ind-AS 102

35
 VARIOUS TYPES OF CONDITIONS ASB, ICAI

Various types of Conditions under Ind-AS 102 – an overview

1 Vesting Conditions 2 Non Vesting Conditions

 Vesting conditions … are conditions that must be satisfied before a counterparty  Non Vesting conditions ……
becomes entitled to a SBP award
o are not service-related
 Vesting conditions … are service-related conditions &
& o They do not determine …..
 Determine whether the entity receives the services… that entitle the whether the entity
counterparty to the SBP
receives the services …….
 Vesting condition could be either be a service condition or, a performance that entitle the
condition counterparty …..
o Service condition could be …… to the SBP
with or without a performance condition
o Performance Condition could be:
Market Performance Condition or, Non-market Performance
Condition The nature of the condition affects the timing of when the expense is recognized and
in some cases, the measurement of the expense
 VESTING AND NON-VESTING CONDITIONS
- AN OVERVIEW …….
ASB, ICAI

Various Conditions envisaged under Ind-AS 102

3
Vesting Condition* Non-vesting Condition**

1 2
Service Conditions that
Performance Condition$ Conditions that
Condition neither entity nor Conditions that
counterparty counterparty entity
2b can can can
2a
Market Non-market choose to choose to meet choose to meet
Performance Performance meet
Condition Condition

 Not reflected in grant-date fair value  Reflected in grant-date fair value

 True-up is done for failure to satisfy the conditions  No true-up is done for failure to satisfy the conditions

$ A performance condition is a vesting condition that requires the EE-counterparty to (a) complete a service condition AND (b) meet specified
performance targets
* Vesting Conditions are conditions ** Non-vesting conditions are all those requirements that don’t represent …..
that determine – whether the entity
receives the services that entitles (a) service conditions OR (b) performance conditions
the counterparty to SBP
– but which must be met in order for the counterparty to receive the SBP
 VESTING AND NON-VESTING CONDITIONS
- FURTHER INSIGHTS …….
ASB, ICAI

s
Illustration

e.g.

e.g.

e.g.

e.g. e.g. e.g.

 ASB, ICAI

Treatment / Impact of
Various Conditions under Ind-AS
102

39
TREATMENT (OR, IMPACT) OF …
VARIOUS CONDITIONS …..
ASB, ICAI

Service Condition Not considered

in estimating fair value of individual instrument,
A
Non-market but are considered in estimating
Performance Condition number of instruments expected to vest

Non-vesting Condition
Are considered
B in estimating fair value of individual instrument
Market (Inputs to valuation model)
Performance Condition

Conditions impact timing of expense recognition and measurement

 TREATMENT (OR, IMPACT) OF …
VARIOUS CONDITIONS …..
ASB, ICAI

Whether
Whether impacts
impacts Whether
Whether adjustment
adjustment to
to expense
expense
FV
FV @@ Grant
Grant Date?
Date? allowed up to Vesting Date?
allowed up to Vesting Date?

Service Condition
A No Yes
Non-market
Performance Condition

Non-vesting Condition
B Market
Yes No
Performance Condition

Conditions impact timing of expense recognition and measurement

 TREATMENT (OR, IMPACT) OF …
VARIOUS CONDITIONS …..
ASB, ICAI

Insights
Additional
* $

$
Non-vesting conditions
* are all those
Vesting Conditions requirements that don’t
are conditions represent (a) service
that conditions OR (b)
determine – whether performance conditions
the entity receives the – but which must be met
services that entitles
the
counterparty to SBP in order for
the counterparty to
** #receive the SBP
Is Is

considered considered
for estimating for
number of estimating
awards that are fair value of
expected the equity
 ASB, ICAI

Accounting for
Various Types of SBPs

43
 EQUITY SETTLED SBPS – SUMMARY OF
ACCOUNTING REQUIREMENTS …..
ASB, ICAI

Accounting requirements for Equity-settled SBPs …

Subsequent
Subsequent
Initial
Initial Measurement
Measurement Recognition
Recognition
Counterparty
Counterparty Measurement
Measurement
Measurement
Measurement Date
Date Basis
Basis Date
Date Basis
Basis and
and Date
Date
FV of
Employees Grant Date Equity Instruments
awarded Date of receipt
No
of
Re-
Goods /
Date of receipt measurement
FV of Services
Non-employees of
Goods / Services received
Goods / Services

Different
for
-EEs
EEs & Non
CASH SETTLED SBPS – SUMMARY OF
ACCOUNTING REQUIREMENTS …..
ASB, ICAI

Accounting requirements for Cash-settled SBPs …

Subsequent
Subsequent
Initial
Initial Measurement
Measurement Recognition
Recognition
Counterparty
Counterparty Measurement
Measurement
Measurement
Measurement Date
Date Basis
Basis Date
Date Basis
Basis and
and Date
Date
Re-measurement of
Employees Grant Date Fair Value
Date of receipt
@ each Reporting
of
FV of Liability Period
Date of receipt
of Goods / Services Movement in
Non-employees FV of Liability
Goods / Services to P/L
Same
Different for
-EEs
for
-EEs EEs & Non
EEs & Non
ACCOUNTING FOR ….
….. VARIOUS TYPES OF SBPS
ASB, ICAI

Accounting for Equity-settled SBPs with Non-employees – an overview

A Measured directly @ Fair value of … goods and services received
o If the fair value of goods and services cannot be estimated reliably, measure @ fair value of equity
instrument
o If the fair value of the equity instrument granted cannot be estimated reliably (only in very rare cases), then the
….. equity instruments are measured @ their intrinsic value
B Measured @ the date the goods or services are obtained
o As opposed to “grant date”
o Means … “Daily”  if services are rendered
o Simplification method: “Regular Intervals”

C Expense is recognized immediately unless:

o Goods or services qualify for capitalisation as asset (e.g. inventory); or
o Vesting conditions exist (in which case expense is recognized when services are rendered over the vesting period)
 ASB, ICAI

Equity-settled SBPs

47
 ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Accounting for Equity Settled SBPs …..

No Vesting Conditions Exist Vesting Conditions Exist

Recognize immediately Recognize

 Fair Value of goods or services or the equity instrument  Fair Value ….
(as the case is)
over
 With a corresponding credit to Equity the vesting period

At grant date:
Subsequent Periods:
 service conditions and non-market conditions are
considered to arrive at the number of instruments that are
expected to vest; and
 If vesting condition is a market condition, then the
possibility of forfeiture is taken into consideration for
grant date fair value
 Perform true-up or true-down of expense – due to change in estimates
for service conditions
 FV of the award is not re-visited
 No true-up for change in estimates regarding market conditions
 No reversal for forfeiture (due to failure to satisfy a market condition)
 But true-up for forfeiture for other vesting conditions
ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Determination of Total Expected Charge in respect of Equity Settled SBP

Percentage of
Total Grant date
Total value at options
number of fair value of
grant date expected to
options each option
vest

Management assumptions can affect the result significantly

 ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Equity-settled SBPs
Subsequent
Subsequent
Initial
Initial Measurement
Measurement Recognition
Recognition
Counterparty
Counterparty Measurement
Measurement
Measurement
Measurement Date
Date Basis
Basis Date
Date Basis
Basis and
and Date
Date
FV of
Employees Grant Date Equity Instruments
awarded Date of receipt
No
of
Re-
Goods /
Date of receipt measurement
FV of Services
Non-employees of
Goods / Services received
Goods / Services

Different
for
-EEs
EEs & Non
ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Illustration 1 Equity Settled SBP - Only Service Condition …….

Assume that:
• CT Corp granted 100 share options to each of its 1000 employees subject to 3 year of service condition from the grant date
of 1st April 2015
• Accordingly, the vesting date is 31st March 2018
• The exercise period is 6 months (viz. till 30th Sep 2018)
• Fair value of each option on the date of grant is Rs. 24
• Based on the past experience, the entity expected that 90% of the employees will complete the vesting condition
• However, as on 31st March 2017, it revised the estimate to 88%
• Finally, as at 31st March 2018, only 85% of the employees was found eligible
• By the 30th September 2018, 80% of share options were exercised
• Note that:
o Exercise price of the option is Rs. 80 per share
o Face value of each equity share of the entity is Rs. 10
o Market price of share as on 31st March 2018 is Rs. 120
Given the above:
Show accounting entries (assuming that CT Corp closes its accounts every 31st March)
ext slide ….
Solution on the n
ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Solution Equity Settled SBP - Only Service Condition …….

The information in the earlier slide is summarized as follows:

1st April 2015 31st March 2016 31st March 2017 31st March 2018 30th Sep 2018
Grant Date Vesting Date Exercise Date

100 options Expectancy = 90% Expectancy = 88% Expectancy = 85% Exercise = 80%
1000 EEs
Expectancy = 90%
FV (Option) = Rs. 24
Period = 3 Years
EP = Rs. 80

xt slide ….
Contd. on the ne
ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Solution Equity Settled SBP - Only Service Condition …….

Accordingly, cumulative P&L charge for each of the years will be as follows:
Net P&L Charge
Year 1 (31stst March 2016) (100 * 1000 * 90%) * Rs. 24 * (1/3) = Rs. 720,000 Rs. 720,000
Year 2 (31stst March 2017) (100 * 1000 * 88%) * Rs. 24 * (2/3) = Rs. 14,08,000 Rs. 688,000
Year 3 (31stst March 2018) (100 * 1000 * 85%) * Rs. 24 * (3/3) = Rs. 20,40,000 Rs. 632,000

Total P&L Charge over three year period ending 31stst March 2018 Rs. 20,40,000

As at 30th Sep 2018:

80% of the vested options have been exercised = 68,000 Being (100 * 1000 * 85%) * 80%
20% of the vested options have lapsed = 17,000 Being (100 * 1000 * 85%) * 20%

For 68,000 options exercised, cash proceeds received = Rs. 54,40,000 (68000 * Rs. 80 of EP)

xt slide ….
Contd. on the ne
 ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Solution Equity Settled SBP - Only Service Condition …….

Accordingly, the following JE would be recorded:
(a) For 80% of the options exercised by 30thth Sep 2018:
Debit Bank A/c 54,40,000
Debit Share Option Suspense A/c (80% of total amount of Rs. 20.40 lacs) 16,32,000
Credit Share Capital A/c (68000 shares/options 8 Rs. 10) 680,000
Credit Share Premium A/c (being EP 80 + FV of option 24 – Face Value of Share 10) 63,92,000

to:
ll alw ays be a ba la
lan ingg figure and is equal
nccin
Share Premiu m wi
s Face Valu aree )
luee of Each Shar
V of Op tio n mi
m nu
in us
ice plus F
se Price
rciise
( Exerc FV

(b) For 20% of the options that lapsed on 30thth Sep 2018:
Debit Share Option Suspense A/c (20% of total amount of Rs. 20.40 lacs) 408,000
Credit General Reserve A/c (no longer required) 408,000
ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Illustration 2 Equity Settled SBP - Vesting & Market Performance Conditions …

 Assume that XBRL Limited has granted 100 options to its employees on 1st Jan 20X1
 The following vesting conditions apply to the above grant of 100 options:
o Service condition : 3-years of continued employment
o Performance condition (being a market condition) : Share price hitting a specified level
 Assume further that:
o All employees remain in service over the vesting period of the option
o Grant date fair value of each option is $3.50 (excluding market conditions)
o The estimated discount for market-based performance condition is $0.50 and hence grant date fair value of
each option is $3.00 (being $3.50 less $0.50)
o The best estimate on 1st Jan 20X1 is that the performance condition will be met
o However, at the end of 20X2 the best estimate changes and now the company believes that the market
condition will not be met (because the target share price will not be reached), though all the service conditions are
expected to be met
How the Company should deal with the service condition and the performance condition (being a … market
performance condition)?
ext slide ….
Solution on the n
ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Solution Equity Settled SBP - Vesting & Market Performance Conditions …

 In this case:
• as on 1st Jan 20X1 – based on the company estimate and expectation - the
total compensation cost for these 100 options granted is $300 (being 100 * $3)
• The employee service cost of $300 will continue to be recognized – despite change in expectation
that the market condition will not be met (as long as services are provided)
• This is because changes in estimates related to market conditions are NOT required
to be adjusted (i.e. NOT to be trued-up or trued-down)
• Accordingly, the expense recognition will be as follows:
Expense Recognized:
Year 20X1 $100
Year 20X2 $100
Year 20X3 $100
Total $300
ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Illustration 3 Equity Settled SBP - Vesting & Non-Market Performance Conditions …

 Assume that XBRL Limited has granted 100 options to its employees on 1st Jan 20X1
 The following vesting conditions apply to the above grant of 100 options:
o Service condition : 3-years of continued employment
o Performance condition (being a non market condition) : Revenue target to be met
 Assume further that:
o All employees remain in service over the vesting period of the option
o Grant date fair value of each option is $3.50 (excluding market conditions)
o The best estimate on 1st Jan 20X1 is that the performance condition will be met
o However, at the end of 20X2 the best estimate changes and now the company believes that only 50% of the
employees will be able to meet the (non-market) performance condition, though all the service conditions are
expected to be met
o The expectation at the end of year 20X2 turns out to the reality
How the Company should deal with the service condition and the performance condition (being a …
non-market performance condition)?

ext slide ….
Solution on the n
ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Solution Equity Settled SBP - Vesting & Non-Market Performance Conditions …

 In this case:
 Grant date fair value of each option is $3.50
 Accordingly, as on 1st Jan 20X1 – based on the company estimate and expectation - the total
compensation cost for these 100 options granted is $350 (being 100 * $3.50)
 The total cost of $350 is required to be allocated over the service period, based on best estimate of
the outcome
 The employee service cost also need to be adjusted for any potential forfeiture – to reflect the change in
estimate related to meeting non-market condition (that the revenue target will not be met)
 Accordingly, the expense recognition will be as follows:
Year Expected Total Amount - to be charged (based Amount Expense for
Cum. Compensation Cost on estimate at period-end) already charged-off the
to be charged in prior period (s) current year
20X1 350 117 (350 / 3) * 1 0 117
20X2 350 117 (175 / 3) * 2 117 0
175
20X3 175 175 (175 / 3) * 3 117 58
ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS
ASB, ICAI

Conclusion on Illustrations 2 & 3 ….

 A change in the expectation – as to whether or not a performance condition will be met:
o is ignored  for market conditions;
o but is recognised  for non-market conditions condition
 This is reflected in the expense recognition result, in the last two illustrations – as follows:
Expense Recognized:
Market Condition Non-market condition
Year 20X1 100 117
Year 20X2 100 0
Year 20X3 100 58
Total 300 175
 ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS WITH NON EMPLOYEES
ASB, ICAI

Illustration 4 Equity Settled SBP with Non Employees … (Purchase of Goods)

 Assume that XBRL Limited issued 995 shares in exchange for purchase of an office building
 The title was transferred in the name of the entity on 1 st March 20X1 and shares were issued the same
day
 Fair value of the office building was  Rs. 200,000
 Face Value of the share of XBRL Limited was  Rs. 100 per equity share
Given the above, what would be the JE for the SBP transaction in the books of XBRL Limited?
In this case …..
 XBRL Limited will record the JE, on the basis of ….. FV of office building acquired
 Accordingly, XBRL Limited will record the following journal entry on 1 st March 20x1 :
Debit Office Building 200,000 (Being FV of the building)
Credit Share Capital A/c 99,500 (Being 995 shares * Rs. 100 Face Value per share)
Credit Share Premium A/c 100,500 (Balancing Figure)
 ACCOUNTING FOR ….
….. EQUITY SETTLED SBPS WITH NON EMPLOYEES
ASB, ICAI

Illustration 5 Equity Settled SBP with Non Employees … (Purchase of Services)

 Assume that XBRL Limited hired a maintenance company for its oil fields – under which the service provider will
provide services for 3-month period
 The consideration for the services is settled by issuing 1,000 shares of the entity at the end of Month 3
 The fair value of the services was estimated to be Rs. 100,000 (using market value of similar contracts)
 Nominal Value of the share of XBRL Limited is  Rs. 10 per equity share
Given the above, what would be the JE for the SBP transaction in the books of XBRL Limited?
In this case …..
 The JE will be recorded on the basis of ….. FV of the services (allocated equally over the 3-month period)
 Accordingly, XBRL Limited will record the following journal entry:
Month 1 Month 2 Month 3
Debit Repairs & Maintenance (in PNL) 33,333 33,333 33,334 (Being FV of services)
Credit SBP Reserve A/c – Equity (BS) 33,333 33,333 33,334 (Credit to SBP Reserve A/c)

Debit SBP Reserve A/c - Equity (BS) - - 100,000 (Being FV of services)

Credit Equity Share Capital A/c - - 10,000 (10000 shares @ FV of Rs 10)
Credit Share Premium A/c - - 90,000 (Balancing figure)
 ASB, ICAI

Cash-settled SBPs

62
 ACCOUNTING FOR ….
….. VARIOUS TYPES OF SBPS
ASB, ICAI

Accounting for Cash Settled SBPs …..

Cash-settled transactions For these SBP awards, measure …..

results in (a) the goods /
Payment is based on price
payment of cash of the Cash-settled transactions services and
(or, other assets) equity instrument results in (b)
a liability the liability incurred
(e.g. change in share price)
to the counterparty @ FV of the liability

nt ddaattee
Grant
Re-measure the
measuremen entt y Requirement to
itiiaall
(viz. init FV of the liabilit re-measure
at each repo rt ing date,
measuremen ent) overrides
until settlement
is allocated
over Re-measurement is “No true-up
itions”
iod recognized in for market cond
the vesting per Profit and Loss A/c
 ACCOUNTING FOR ….
….. VARIOUS TYPES OF SBPS
ASB, ICAI

Cash-settled SBPs
Subsequent
Subsequent
Initial
Initial Measurement
Measurement Recognition
Recognition
Counterparty
Counterparty Measurement
Measurement
Measurement
Measurement Date
Date Basis
Basis Date
Date Basis
Basis and
and Date
Date
Re-measurement of
Employees Grant Date Fair Value
Date of receipt
@ each Reporting
of
FV of Liability Period
Date of receipt
of Goods / Services Movement in
Non-employees FV of Liability
Goods / Services to P/L
Same
Different for
-EEs
for
-EEs EEs & Non
EEs & Non
ACCOUNTING FOR ….
….. VARIOUS TYPES OF SBPS
ASB, ICAI

Determination of Total Expected Charge in respect of Cash Settled SBP

Total number Percentage of

Fair value
of
Total value at SARs
of
grant date Share
Appreciation expected
each SAR
Rights (SAR) to vest

FV is re-measured at each reporting date

(in case of cash settled SBP)
ACCOUNTING FOR ….
….. VARIOUS TYPES OF SBPS
ASB, ICAI

Illustration 1 Cash Settled SBPs – Only Service Condition

 1st April 20X0 Assume that XYZ issued 10,000 Share Appreciation Rights (SARs) that vest immediately to its EEs and
using an option pricing model, the fair value of each SAR was estimated to be Rs. 95
 The SARs will be settled in cash and can be exercised any time up to 31st March, 20X3
 As at 31st March, 20X1 - it is expected that:
(a) 95% of total employees will exercise the option,
(b) 92% of total employees will exercise the option at the end of next year; and
(c) finally 89% will be vested only at the end of the 3rd year
 Fair Values at the end of each period have been given below:
Period Fair Value (in INR)
Year 1-end (31st March 20X1) 112
Year 2-end (31st March 20X2) 109
Year 3-end (31st March 20X3) 114

Show the relevant journal entries

xt slide
Solution on the ne
….
ACCOUNTING FOR ….
….. VARIOUS TYPES OF SBPS
ASB, ICAI

Solution Cash Settled SBPs – Only Service Condition

 Given the information on the earlier slide, given below is the table showing year-wise expense to be recognized
by the entity in respect of the cash-settled share-based payment awards:
Fair Value Total No . %age SAR Expense - to be
Cumulative Expense
Sl # Period of of expected recognized
to be recognized
each SAR SAR to vest fo r the year
Co l 2 Col. 3 Col. 4 Col. 5 Col. 6 = (3 * 4 * 5) Col. 7
1 Grant date 95 10,000 100% 9,50,000 9,50,00 0
2 Year-end 1 (31st March 20X1) 112 10,000 95% 10,64,000 1,14,00 0
3 Year-end 2 (31st March 20X2) 109 10,000 92% 10,02,800 (61,200 )
4 Year-end 3 (31st March 20X3) 114 10,000 89% 10,14,600 11,80 0

Total 1 0,14,600

 The relevant JEs will be as follows: 1st April 20X0 31-03-20X1 31-3-20X2 31-3-20X3
Debit EE Benefit Expense A/c 9,50,000 114,000 (61,200) 11,800
Credit Share-based payment liability 950,000 114,000 (61,200) 11,800

& On 31-3-20X3 Debit Share-based payment liability 10,14,600

Credit Bank 10,14,600
ACCOUNTING FOR ….
….. VARIOUS TYPES OF SBPS
ASB, ICAI

Illustration 2 Cash Settled SBPs (With Vesting and Market Performance Conditions)
 1st Jan 20X1 Assume that Axis Inc. has granted 100 share-appreciation rights (SARs) to its EEs
 The following vesting conditions apply to the above grant:
o Service condition: 3-years of continued employment; and
o A market-based performance condition (viz. target share price of $10 at vesting date)
 Assume further that:
o The company’s best estimate is that the all employees will remain in service over the vesting period
o Grant date fair value of each share appreciation right is $3 (including adjustment for market conditions)
o All service conditions and market conditions are met and that the vested benefits are settled in cash at the
end of year 20X4
o The subsequent estimate of the fair value and intrinsic value are as follows:
Subsequent estimates of: Fair Value (in $) Intrinsic Value (in $) Year 1-end
4.00 1.50
Year 2-end 4.25 3.00
Year 3-end 4.50 4.25
Settlement Date 4.00 4.00
Show the accounting parameters for the above cash-settled SBP
xt slide
Solution on the ne
ACCOUNTING FOR ….
….. VARIOUS TYPES OF SBPS
ASB, ICAI

Solution Cash Settled SBPs (With Vesting and Market Performance Conditions)
The following table gives the key accounting parameters associated with the cash-settled SBP in question
Original Re-measurement Current Year Cumulative
Grant Date FV Total Charge Charge
Col 1 Col. 2 Col. 3 = (1+2)
Expense recognition:
Year 20X1 100 * 33 ** 133 133

Year 20X2 100 * 50 @ 150 283

Year 20X3 (Vesting Date) 100 * 67 & 167 450

Year 20X4 (Settlement Date) 0 (50) # (50) 400

Total 300 100 400

* Being 1/3 of (100 SAR * $3) ** Being ($4 – $3) x 100 awards x 1/3
@ Being ($4.25 – $3) x 100 awards x 2/3 less $33

& Being ($4.50 – $3) x 100 awards x 3/3 less $33 less $50
# Being ($4 – $4.50) x 100 awards
ACCOUNTING FOR ….
….. VARIOUS TYPES OF SBPS
ASB, ICAI

Illustration 3 Cash Settled SBPs (Change in Estimates)

• Assume that an entity grants 100 cash-settled awards to each of its 500 employees
• Vesting is conditional upon the employees continue to remain employed with the entity for the next 3
years
• Under the award, cash is payable at the end of 3 years based on:
the share price of the entity’s shares on such date
• By the end of 1st year, 35 employees leave and the entity estimates that 60 additional employees will
leave during the next two years (in year 2 and year 3) and that the award will vest for
405 employees. The share price at year-end 1 is $14.40
• During the 2nd year, 40 employees leave and the entity estimates that 25 additional employees will leave
during year 3 (i.e., the award will vest for 400 employees). The share price at year-end 2 is $15.50
• During the 3rd year, 22 employees leave - so that the award vests for 403 employees.
The share price at year-end 3 is $18.20
How should the entity recognize the compensation expense under Ind-AS 102 ?
xt slide
Solution on the ne
ACCOUNTING FOR ….
….. VARIOUS TYPES OF SBPS
ASB, ICAI

Solution Cash Settled SBPs (Change in Estimates)

The entity should recognize the expense for this award – as shown in the following table:

Year Calculation of liability Cumulative Expense already Expense

Liability recorded for the year
Year 1 405 Employees * 100 Awards * $14.40 * 1/3 $194,400 Nil $194,400
(500 EEs less 35 less 60)

Year 2 400 Employees * 100 Awards * $15.50 * 2/3 $413,333 $194,400 $218,933@
(500 EEs less 35 less 40 less 25)

Year 3 403 Employees * 100 Awards * $18.20 * 3/3 $733,460 $413,333 $320,127$$
(500 EEs less 35 less 40 less 22)

@ = $413,333 less 194,400

$$ = $733,460 less (194,400 + 218,933)

 ASB, ICAI

SBPs with Cash Alternative

72
 SBP WITH CASH ALTERNATIVE … ASB, ICAI

Accounting for SBPs with Cash Alternatives Counterparty has the settlement choice …

Treated as Compound Financial Instrument,

(thereby requiring splitting of liability and equity components)

Fair value of Fair value of

liability component * equity component **
Is taken as Balance is

Fair value of
Generally Residual value
ca s h - cash alternative
settled
accounting
applies Cash-settled Equity-settled

 Debt portion – accounted for as cash settled

* Counterparty’s right to demand settlement in cash
** Counterpart’s right to demand settlement in equity instrument  Equity portion – accounted for as equity settled
 SBP WITH CASH ALTERNATIVE … ASB, ICAI

Accounting for SBPs with Cash Alternatives Employer (or, Entity) has the settlement choice …

Employer (or, Entity) has present obligation to settle in cash?

Yes No

Cash-settled Equity-settled

lly
Genera
s on
depend Present obligation, when settlement in equity
entity’s has no commercial substance
n
intentio OR
based on past practice / stated policy
 SBP WITH CASH ALTERNATIVE … ASB, ICAI

Illustration 1 Share-based Payment with Cash Alternative …….

Assume that:
 On 1st Jan 20X1, CT Corp gives options to its Key Managerial Personnel (Employee - KMPs) to take:
o either cash equivalent to 1,000 shares
or
o 1500 equity shares of the entity
 The minimum service requirement is 2 years and the shares being taken must be retained for 3 years
 Fair Value of the Shares* is as follows:
o Grant date fair value of equity shares on 1 st Jan 20x1 Rs. 113
o Fair value of equity shares on 31 Dec 20x1
st
Rs. 120
o Fair value of equity shares on 31 Dec 20x2
st
Rs. 132
o Fair value of share alternative (with restrictions) Rs. 102
 The employees exercise their cash option at the end of year 20x2 (viz. at 31st Dec 20x2)

Given the above: Show the accounting entries in the books of CT Corp (considering 31st Dec – as its year-end date)

ext slide ….
* and not, fair value of the share option per se Solution on the n
SBP WITH CASH ALTERNATIVE … ASB, ICAI

Solution Share-based Payment with Cash Alternative …….

Given the information in the earlier slide, the relevant workings are shown in the following table:
1 st Jan 3 1 st Dec 3 1 st Dec
Sl # Details To tal
2 0 x1 2 0 x1 2 0 x2
1 Equity Alternative (with restriction) 1,53,000
Being 1500 * 102

Split 2 Cash Alternative 1,13,000

Accounting Being 1000 * 113
3 Hence, Equity Option = (1 - 2) 40,000
Being (153k - 113k)

4 Cash Option (Cumulative expense) 60,000 1,32,000

Using Year-end fair values Being 1000 * 120 * 50% Being 1000 * 132 * 100%

5 Equity Option (Cumulative expense) 20,000 40,000

Being 50% * 40k above Being 100% * 40k above

6 Expense fo r the period:

- Cash Option = 4 above 60,000 72,000 1 ,3 2 ,0 00
= 4 above = 4 above less already recorded

- Equity Option = 5 above 20,000 20,000 4 0,0 0 0

= 5 above = 5 above less already recorded

To tal 8 0,0 0 0 9 2 ,00 0 1 ,7 2 ,0 00

 SBP WITH CASH ALTERNATIVE … ASB, ICAI

Solution Share-based Payment with Cash Alternative …….

Accordingly, the journal entries will be as follows:

31-12-20X1 31-12-20X2
Debit EE Benefit Expense A/c 80,000 92,000
Credit Share-based payment reserve (Equity) 20,000 20,000
Credit Share-based payment liability 60,000 72,000

& On 31-12-20X2 Debit Share-based payment liability 1,32,000

Credit Bank 1,32,000
 ASB, ICAI

Equity-settled SBP with EEs

Graded Vesting

78
GRADED VESTING ASB, ICAI

Key
Key requirements
requirements under
under “Graded
“Graded Vesting”
Vesting”

In
In case
case of
of …
… Graded
Graded Vesting
Vesting ….
….

Each tranche
Is considered to be a With & Different
separate award different fair value Vesting Periods

Graded Vesting leads to…. front-loading of recognition ……….

 GRADED VESTING ASB, ICAI

Illustration
Illustration on
on Graded
Graded Vesting
Vesting
• On 1st Jan 2010, the Board of Directors of CT Corp approved granting 3,000 stock options to
a select group of senior employees
• The requisite service period is three years, with 33% of the options vesting each calendar year in
2010, 2011 and 2012 (viz. options are subject to graded vesting *)
• The entity used Black-Scholes-Merton option-pricing model to calculate fair value, which was
determined to be $10 on the grant date
• No forfeitures are assumed
How should CT Corp account for the compensation expense (assuming the straight-line election has been made)
in year 2010, 2011 and 2012?
xt slide ….
Solution on the ne

* Graded vesting is a scenario, in which portions of the share-based payment award - vest at different dates throughout the vesting period
GRADED VESTING ASB, ICAI

Solution
Solution (Graded
(Graded Vesting)
Vesting)
• In this case, CT Corp would recognize $30,000 of compensation expense - calculated as:
3000 options * $10 * 0% forfeiture rate
• The entity would allocate the expense to three tranches equally - since there are three vesting periods
• Each tranche is, then, allocated equally - over its vesting period as follows: g
Front loadin
Total
Year Compensation expense 2010 2011 2012
100%, 0%, 0% 2010 $10,000 $10,000 Nil Nil
50%, 50%, 0% 2011 $10,000 $5,000 $5,000 Nil
33%, 33%,
33% 2012 $10,000 $3,333 $3,333 $3,333
Total $30,000 $18,333 $8,333 $3,333
Note that:
(1) 2010 tranche is 100% expensed in 2010  since it is wholly vested at the end of year one
(2) 2011 tranche is 50% expensed in 2010 and 2011  since it vests in two years
(3) 2012 tranche is 33% expensed in 2010, 2011 and 2012  since it vests in three years
 ASB, ICAI

Modification to SBP

82
 MODIFICATION TO SBP ASB, ICAI

Accounting for modification to SBP Arrangements …..

A
A modification
modification to
to aa share-based
share-based payment
payment arrangement
arrangement can
can either
either increase
increase or
or decrease
decrease the
the
Fair
Fair Value
Value of
of the
the equity
equity instrument
instrument

Expense
Expense recognition
recognition in
in case
case of
of modification
modification to
to SBP
SBP will
will be
be as
as follows:
follows:

Modification
Modification decreases
decreases Modification
Modification increases
increases
the
the FV
FV of
of the
the equity
equity instrument
instrument the
the FV
FV of
of the
the equity
equity instrument
instrument

Recognition
Recognition isis based
based on
on ….
…. Recognition
Recognition isis sum
sum of
of the
the following
following ….
….
Original
Original grant
grant date
date fair
fair value
value (Original
(Original grant
grant date
date Fair Value ++ Incremental
Fair Value Incremental Fair
Fair Value)
Value)

Such modifications are IGNORED Wherein…. Incremental Fair Value is =

(FV of modified equity instrument less FV of original equity
instrument)
MODIFICATION TO SBP ASB, ICAI

Accounting for Beneficial Modification to Equity-settled SBPs …..

Increase Increase
in Other
in
Beneficial Modifications
fair value of SBP number of options

Recognise
Recognise Apply
incremental fair value
fair value of additional options, Modification grant-date method
@ modification date
measured @ modification date using
over
FV of new equity instruments – determined Modified vesting conditions
modified vesting period @ the date of modification

e.g. If modification of vesting conditions is

beneficial to the EE, then the new vesting
conditions are to be considered – for
MODIFICATION TO SBP ASB, ICAI

Accounting for Non-beneficial Modification to Equity-settled SBPs …..

Decrease Decrease Other

in in Non-beneficial
fair value of SBP number of options Modifications

Apply
Cancellation Accounting
IGNORE IGNORE
for those cancelled
 MODIFICATION TO SBP ASB, ICAI

Illustration 1 Modification to SBP

Consider the following information in respect of share options granted by CT Corp to its employees:
 The entity granted share options to employees in return for 4-years of service
 The fair value of the entire grant – on the grant date - was calculated to be $8 million
 It was expected that all the employees would provide the full four year service
 Accordingly, after 2-years of the grant  Cumulative expense for the grant = $4 million
 In Year 3, the entity modified the share option contract
 The modification resulted in an increase in the fair value of $1 million
In this case …..

CT Corp will:
 Expense a further $5 million over the remaining 2-year vesting period (viz. Year 3 and Year 4)
 Accordingly, an expense of $2.5 million will be recorded in each of Years 3 and Year 4
 MODIFICATION TO SBP ASB, ICAI
Illustration 2 Modification of vesting terms ….. that are improbable of achievement
 Assume that CT Corp granted 1,000 share options to certain sales employees on 1st Jan 2008
 The share options vest at the end of three years (i.e. it was a cliff vesting, thereby meaning the entire award vests at the end of
the vesting period)
 However, the vesting is conditional upon selling 150,000 dartboard units over the 3-year service period
 The company is expensing the cost of the options on a straight-line basis over the 3-year period
@ $5,000 per year (Being 1,000 options x $15 ÷ 3 = $5,000)
 On 1st Jan 2009, CT Corp’s management believes that the original sales target of 150,000 units will not be
met because only 30,000 dartboard units were sold in 2008 and that there has been a general economic
business decline
 Accordingly, the Management modifies the sales target to 100,000 units, which it believes is achievable
 No other terms or conditions of the grant are modified
 The fair value of each option at 1st Jan 2009 is $8
How should CT Corp account for the compensation expense under Ind-AS in 2008, 2009 and 2010?
ext slide ….
Solution on the n
MODIFICATION TO SBP ASB, ICAI

Solution Modification of vesting terms ….. that are improbable of achievement

• In this case, there is a modification to the vesting terms

• Accordingly, there is a potential case for re-measurement of the fair value of the grant
@ the modification date
• However, under Ind-AS 102 CT Corp must recognize, at a minimum, the original amount of the
expense under the award, even if the modification reduces the fair value of the award
• Accordingly, in this example, CT Corp would continue to recognize the ...
original expense of $15,000 (as $5,000 per year, for each of the three years)
 MODIFICATION TO SBP ASB, ICAI

Illustration 3 Modification of vesting terms ….. from improbable to probable

• On 1st Feb 2006, CT Corp Inc. granted 5,000 at-the-money share options to one of its Vice Presidents with a
condition that the awards will vest only if the market share of Product A increases 20% by 31 st Jan
2007
• On 1st Sep 2006 - the market share has increased only 12% and accordingly the 20% goal is not expected to
be achieved
• On that date, the entity modifies the performance condition to require only a 15% increase in the market
share, which is expected to be achieved
• The fair value of each option at grant date is $50 and $30 on the date of modification
What amount of cumulative compensation would be recognized for the modified award under Ind-AS
assuming the revised market share target is achieved?

xt slide ….
Solution on the ne
 MODIFICATION TO SBP ASB, ICAI

Solution Modification of vesting terms ….. that are improbable of achievement

• In this case, there is a modification to the vesting terms/conditions (by substituting a condition that is
expected to be achieved - for a condition - that was not expected to be achieved)
• This is because a service condition / performance condition has been changed in such a way that
affects the estimate of whether the award will vest or not
• However, under Ind-AS 102:
Grant-date fair value remains the “floor” for expense recognition
• Hence, the decrease in fair value of the award (from $50 to $30) will be ignored and the cost will
continue to be recognized based on the original fair value of $50 per option
• Accordingly, in this example, CT Corp would recognize $250,000 (being 5000 options @ $50 each), as
cumulative compensation, provided the modified target is achieved
 ASB, ICAI

Cancellation, Settlement or Replacement

of
SBP Awards

91
 CANCELLATION, SETTLEMENT OR REPLACEMENT OF SBP
ASB, ICAI

Cancellation,
Cancellation, Settlement
Settlement and
and Replacement
Replacement of
of SBP
SBP Awards
Awards
Cancellation
Cancellation OR Settlement
Settlement Replacement
Replacement

 Is accounted for as accelerated vesting*  Replacements awards need to be identified as such by

employer on the date the new award is granted
 Hence, recognise immediately…
o the amount  Apply principles of ……
o that otherwise would have been recognized modification accounting …..
o over the remainder of vesting period  If new equity instruments are granted in lieu of old equity
 Payment made to the EE on cancellation or, settlement is
& instruments (as replacement), these are accounted for as
deducted from Equity$; and modification
 Payment made to the EEs in excess of …………  Impact of beneficial modification – is accounted for
“FV measured @ the date of re-purchase” – is recognized as by considering incremental FV and impact of any
expense in the PNL non-beneficial modification is IGNORED
ier ….
Detailed earl

* provided the cancellation is on account of …. “reasons other than forfeiture due to vesting conditions, not satisfied”
& not exceeding …. “FV of the equity instrument on the date of cancellation” $ thereby effectively accounting for it as ….. repurchase of an equity interest
 CANCELLATION OF SBP ….. ASB, ICAI

Illustration 1 Cancellation of SBPs

Consider the following information in respect of share options granted by CT Corp to its employees:
 The entity granted share options to employees in return for 4-years of service
 The fair value of the entire grant – on the grant date - was calculated to be $8 million
 It was expected that all the employees would provide the full four year service
 Accordingly, after 2-years of the grant  Cumulative expense for the grant = $4 million
 In Year 3, the entity cancelled the share option contract
In this case …..
Note that:
 Ind-AS 102 requires that the full fair value of transaction  is to be recognized, on cancellation
 Accordingly, the remaining $4 million fair value will fully be expensed to profit and loss in Year 3
 In other words, the expense is now been charged against profits over three years, rather than the original four
years
CANCELLATION, SETTLEMENT OR REPLACEMENT OF SBP
ASB, ICAI

Illustration 2 Cancellation of Equity-settled SBP

Consider the following information in respect of share options granted by CT Corp to its directors:
 Number of directors 10
 Number of share options granted to each director 2000
 Number of years – the directors are required to serve for vesting of share options 3 years
 FV of share option (on the grant date) Rs. 130 per option
 Expected number of directors, in respect of which share option likely to vest 8
During Year 2, there was a crisis in CT Corp and hence the entity decided to cancel the scheme immediately. The
entity provides the following additional estimates / information to you:
o FV of share option (at the time of cancellation) Rs. 90 per option
o Market Price of shares (at the time of cancellation) Rs. 99 per share
o Number of directors in employment (at the time of cancellation) 9
o Compensation paid to directors (for each share option) Rs. 95

Advise the company as to how it need to record the cancellation of SBP

 CANCELLATION, SETTLEMENT OR REPLACEMENT OF SBP
ASB, ICAI

Solution Cancellation of Equity-settled SBP

In the instant case:
 The workings for SBP cancellation accounting is given below:
Table showing year-wise expense to be recorded by CT Corp in respect of SBP Awards:

Sl # Details Year 1 Year 2 Remarks

1 Number of options granted per director 2,000 2,000

2 Total number of director expected to meet vesting condition 8 9
3 Fair Value of each option 130 130
4 Cumulative Total Expense expected to be recorded (in each year) 20,80,000 23,40,000 (being 1 * 2 * 3)
(Being 1 * 2 * 3)
5 Expense weightage to be recorded in each year 1/3
6 Expense - related to SBP awards - to be recorded for the year 6,93,333 16,46,667 Remaining amount – since
cancelled
(being 4 * 5) (being Sl # 4 less 693,333 in Year 1)

The original SBP is considered as an acceleration of vesting and fully accounted for as expense on ne xt slide
Continued on the
cancellation ….
CANCELLATION, SETTLEMENT OR REPLACEMENT OF SBP
ASB, ICAI

Solution Cancellation of Equity-settled SBP

In addition:
 The compensation paid to the directors – at the end of year 2 – in respect of SBP award cancelation will be as follows:

Cancellation
Sl # Details Remarks
Compensation
1 Total number of director, to whom cancellation comensation paid 9
2 Number of options held by each director at the time of cancellation 2,000
3 Amount agreed to be paid (per option cancelled), as compensation 95
4 Comensation Amount Paid to directors (at the end of Year 2) 17,10,000 (being 1 * 2 * 3)
 Out of the above Rs. 17.10 lacs paid to directors – a sum of Rs. 16.20 lacs (being 9 * 2000 * 90 capped at FV of option on date of cancellation) – will
be deducted from equity and the balance amount of Rs. 90,000 will be transferred to PNL (Para 28(b) of Ind-AS 102)
 ASB, ICAI

Group and Re-charge

Arrangements

97
 GROUP AND RE-CHARGE ARRANGEMENTS
ASB, ICAI

Group entity receiving goods / services (receiving entity, say a subsidiary) may be different from
the group entity incurring obligation to settle payment (settling entity, say the parent)

Recharge payment Parent company may require

Parent is the
Settling Entity the Subsidiary to reimburse it
Settling entity for settling the obligation
(Parent)
(Recharge arrangement)
Parent’s Receiving Entity
Share (Subsidiary)
Services

Employee Subsidiary company reflects

Subsidiary is the
the SBP transaction
Receiving entity
in its financial statements

In fact, both the settling entity and the receiving entities – reflect SBP transactions in
their financial statements
 GROUP AND RE-CHARGE ARRANGEMENTS
ASB, ICAI

Classification of SBP Transaction in Group Situations

SBP
SBP Transaction
Transaction in
in Group
Group Entities
Entities

Settled
Settled Cash
Cash Settled
Settled by
by
by Settled
Settled by
by Cash
Cash Settled
Settled by
by
by Parent
Parent
Own Equity
Equity Shares
Shares of
of Parent
Parent Entity
Entity
Own Equity
Equity Shares
Shares (with
(with no
no obligation
obligation on
on the
the entity)
entity)

No
No obligation
obligation Equity
Equity Rights
Rights of
of the
the parent
parent
to
to (with
(with obligation
obligation on on the
the
reimburse
reimburse the
the entity
entity to
to reimburse
reimburse the
the
Parent
Parent Parent)
Parent)

Equity
Equity Settled
Settled Equity
Equity Settled
Settled Cash
Cash Settled
Settled Cash
Cash Settled
Settled Equity
Equity Settled
Settled
 GROUP AND RE-CHARGE ARRANGEMENTS
ASB, ICAI

Classification of SBP Transaction in Group Situations

SBP
SBP Classification
Classification in
in Group
Group Situations
Situations …..
….. Is
Is based
based on
on ((11))
Nature
Nature of
of the
the awards
awards granted
granted and
and (2)
(2) the
the entity’s
entity’s obligations
obligations

Nature
Nature of
of award
award Own
Own Cash
Cash // Other
Other Assets
Assets // Equity
Equity Instrument
Instrument of
of …
…
Entity
Entity Instruments
Instruments Other
Other Group
Group Entity
Entity
Obligation
Obligation to
to settle?
settle?

Yes
Yes Equity
Equity Settled
Settled Cash
Cash Settled
Settled

No
No Equity
Equity Settled
Settled Cash
Cash Settled
Settled
 ASB, ICAI

Comparison Between
IFRS 2 and Ind-AS 102

101
IFRS 2 VS. IND AS 102 ASB, ICAI

No GAAP Difference
 ASB, ICAI

Faculty Contact Details: CA Anjani Kumar Khetan

ICAI Contact for more details : indascourse@icai.in
Follow ICAI on Social Media - http://www.icai.org/followus
 ASB, ICAI

Copyright Notice

"This presentation contains copyright © material of the IFRS Foundation and The Institute of Chartered Accountants of
lndia. All rights reserved. Published by The institute of Chartered Accountants of lndia under licence from the IFRS
Foundation. Reproduction and use rights are strictly limited. For more information about the IFRS Foundation and rights to
use its material please visit www.ifrs.org".
 ASB, ICAI

Appendix

105
 ASB, ICAI

Comparison with Indian GAAP

106
I-GAAP (GN ON SBP) VS. IND-AS 102
Guidance Note on SBP
Coverage Guidance Notes deals only with
accounting for Employee Share-
based payments
Method of Guidance Note recommends Fair
accounting Value method, but permits Intrinsic
Value method (with fair value
disclosures) – as an alternative
Share / Stock Compensation expense previously
options expired, recognized (viz. balance standing to the
unexercised credit of the relevant Equity
Account) – is to be transferred to
General Reserve
ASB, ICAI
Ind-AS 102 Share-based Payments
Ind-AS 102 deals with accounting for all types of SBPs including
the Employee Share-based payments
Ind-AS 102 provides detailed guidance on SBPs to Non-
employees
Under Ind-AS 102, all share-based payments should be measured
by using the Fair Value method.
Only in extremely rare cases, where the Fair Value can’t be
determined, the Intrinsic Value method can be used
Ind-AS 102 expressly prohibits the reversal of .. compensation
expense previously recognized.
However, the transfer of the amount from one component of
Equity (viz. Shareholders’ Funds) to another is permitted
 ASB, ICAI

Key Disclosures
under Ind-AS 102

108
 KEY DISCLOSURES ASB, ICAI

1 2 3
Nature, Type & Scope of SBP agreements existing Description of
General T&C
during the reporting period SBP Agreements
(Settlement Methods, Vesting Conditions etc.)
of each type of SBP Plans

4 5
For share options exercised during the period ... For share options outstanding at the end of the year
Average Share Price of Options Exercised, - Range of exercise prices and
at the date of exercise - weighted average remaining contractual life of options

6
Number and Weighted Average exercise price of share options (by category)
- outstanding at the beginning and end of the reporting period
- options granted, forfeited, exercised, expired, vested, cancelled during the period
- options exercisable at the end of the reporting period

7 8
Impact of such SBPs on….
Valuation Method used
Profit & Loss (total expense) and
to estimate the “FV of the awards”
Balance Sheet (carrying amount of liabilities)
 ILLUSTRATIVE DISCLOSURE IN NOTES ASB, ICAI

Source: Illustrative Ind-AS Financial Statements KPMG

 ILLUSTRATIVE DISCLOSURE IN NOTES ASB, ICAI

Source: Illustrative Ind-AS Financial Statements KPMG

 ILLUSTRATIVE DISCLOSURE IN NOTES ASB, ICAI

Source: Illustrative Ind-AS Financial Statements KPMG

 ILLUSTRATIVE DISCLOSURE IN NOTES ASB, ICAI

Source: Illustrative Ind-AS Financial Statements KPMG

 ILLUSTRATIVE DISCLOSURE IN NOTES ASB, ICAI

Source: Illustrative Ind-AS Financial Statements KPMG

 ILLUSTRATIVE DISCLOSURE IN NOTES ASB, ICAI

Source: Illustrative Ind-AS Financial Statements KPMG

 ILLUSTRATIVE DISCLOSURE IN NOTES ASB, ICAI

Source: Illustrative Ind-AS Financial Statements KPMG

 ILLUSTRATIVE DISCLOSURE IN NOTES ASB, ICAI

Source: Illustrative Ind-AS Financial Statements KPMG

 ILLUSTRATIVE DISCLOSURE IN NOTES ASB, ICAI

Source: Illustrative Ind-AS Financial Statements KPMG

 ILLUSTRATIVE DISCLOSURE IN NOTES ASB, ICAI

Source: Illustrative Ind-AS Financial Statements KPMG

 ASB, ICAI

ICAI Advisory on Ind-AS

COVID-19

120
COVID 19 IMPACT ON …..
…. FINANCIAL REPORTING
ASB, ICAI

Key
Key Areas
Areas Covered
Covered for
for Financial
Financial Reporting
Reporting Impact
Impact
1. Inventory Measurement 7. Modifications / Termination of Contracts etc.
2. Impairment of Non-Financial Assets 8. Going Concern Assessment
3. Financial Instruments 9. Income Taxes
o Impairment Losses 10. Consolidated Financial Statements
o Fair Value Measurement 11. Property, Plant and Equipment
o Hedge Accounting 12. Presentation of Financial Statements
4. Leases 13. Borrowing Costs
5. Revenue 14. Post Balance Events
6. Provisions, Contingent Liabilities and 15. Interim Financial Reporting
Contingent Assets

121