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Thread: 02 - Indian Accounting Standard (Ind AS) 102 - Share-based Payment

  1. #51
    IND-AS
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    Thumbs up Cash-settled share-based payment transactions of Indian Accounting Standard (Ind AS) 102 - Share-based Payment

    Cash-settled share-based payment transactions of Indian Accounting Standard (Ind AS) 102

    Share-based Payment

    Appendix - C


    Cash-settled share-based payment transactions

    IG18. Paragraphs 30–33 of the Standard set out requirements for transactions in which an entity acquires goods or services by incurring liabilities to the supplier of those goods or services in amounts based on the price of the entity’s shares or other equity instruments. The entity is required to recognise initially the goods or services acquired, and a liability to pay for those goods or services, when the entity obtains the goods or as the services are rendered, measured at the fair value of the liability. Thereafter, until the liability is settled, the entity is required to recognise changes in the fair value of the liability.

    IG19. For example, an entity might grant share appreciation rights to employees as part of their remuneration package, whereby the employees will become entitled to a future cash payment (rather than an equity instrument), based on the increase in the entity’s share price from a specified level over a specified period of time. If the share appreciation rights do not vest until the employees have completed a specified period of service, the entity recognises the services received, and a liability to pay for them, as the employees render service during that period. The liability is measured, initially and at the end of each reporting period until settled, at the fair value of the share appreciation rights, by applying an option pricing model, and the extent to which the employees have rendered service to date. Changes in fair value are recognised in profit or loss. Therefore, if the amount recognised for the services received was included in the carrying amount of an asset recognised in the entity’s balance sheet (eg inventory), the carrying amount of that asset is not adjusted for the effects of the liability remeasurement. Example 12 illustrates these requirements.

    IG Example - 12

    Background

    An entity grants 100 cash share appreciation rights (SARs) to each of its 500 employees, on condition that the employees remain in its employment for the next three years.

    During year 1, 35 employees leave. The entity estimates that a further 60 will leave during years 2 and 3. During year 2, 40 employees leave and the entity estimates that a further 25 will leave during year 3. During year 3, 22 employees leave. At the end of year 3, 150 employees exercise their SARs, another 140 employees exercise their SARs at the end of year 4 and the remaining 113 employees exercise their SARs at the end of year 5.

    The entity estimates the fair value of the SARs at the end of each year in which a liability exists as shown below. At the end of year 3, all SARs held by the remaining employees vest. The intrinsic values of the SARs at the date of exercise (which equal the cash paid out) at the end of years 3, 4 and 5 are also shown below.

    Year
    Fair value
    Intrinsic value

    Rs.14.40

    2
    Rs.15.50

    3
    Rs.18.20
    Rs.15.00
    4
    Rs.21.40
    Rs.20.00
    5

    Rs.25.00


    Application of requirements

    Year
    Calculation

    Expense
    Rs.
    Liability
    Rs.
    1
    (500 – 95) employees × 100
    SARs
    × Rs.14.40 × 1/3

    194,400
    194,400
    2
    (500 – 100) employees × 100
    SARs
    × Rs.15.50 × 2/3 – Rs.194,400

    218,933
    413,333
    3
    (500 – 97 – 150) employees ×
    100
    SARs × Rs.18.20 – Rs.413,333
    + 150 employees × 100 SARs
    × Rs.15.00
    47,127



    225,000

    460,460

    Total

    272,127

    4
    (253 – 140) employees × 100
    SARs
    × Rs.21.40 – Rs.460,460
    + 140 employees × 100 SARs
    × Rs.20.00
    (218,640)



    280,000

    241,820

    Total

    61,360

    5
    Rs.0 – Rs.241,820
    + 113 employees × 100 SARs
    × Rs.25.00
    (241,820)

    282,500

    0

    Total

    40,680


    Total

    787,500




  2. #52
    IND-AS
    Guest

    Thumbs up Share-based payment arrangements with cash alternatives of Indian Accounting Standard (Ind AS) 102 - Share-based Payment

    Share-based payment arrangements with cash alternatives of Indian Accounting Standard (Ind AS) 102

    Share-based Payment

    Appendix - C


    Share-based payment arrangements with cash alternatives

    IG20. Some employee share-based payment arrangements permit the employee to choose whether to receive cash or equity instruments. In this situation, a compound financial instrument has been granted, ie a financial instrument with debt and equity components. Paragraph 37 of the Standard requires the entity to estimate the fair value of the compound financial instrument at grant date, by first measuring the fair value of the debt component, and then measuring the fair value of the equity component—taking into account that the employee must forfeit the right to receive cash to receive the equity instrument.

    IG21. Typically, share-based payment arrangements with cash alternatives are structured so that the fair value of one settlement alternative is the same as the other. For example, the employee might have the choice of receiving share options or cash share appreciation rights. In such cases, the fair value of the equity component will be zero, and hence the fair value of the compound financial instrument will be the same as the fair value of the debt component. However, if the fair values of the settlement alternatives differ, usually the fair value of the equity component will be greater than zero, in which case the fair value of the compound financial instrument will be greater than the fair value of the debt component.

    IG22. Paragraph 38 of the Standard requires the entity to account separately for the services received in respect of each component of the compound financial instrument. For the debt component, the entity recognises the services received, and a liability to pay for those services, as the counterparty renders service, in accordance with the requirements applying to cash-settled share-based payment transactions. For the equity component (if any), the entity recognises the services received, and an increase in equity, as the counterparty renders service, in accordance with the requirements applying to equity-settled share-based payment transactions. Example 13 illustrates these requirements.

    IG Example -13

    Background


    An entity grants to an employee the right to choose either 1,000 phantom shares, ie a right to a cash payment equal to the value of 1,000 shares, or 1,200 shares. The grant is conditional upon the completion of three years’ service. If the employee chooses the share alternative, the shares must be held for three years after vesting date.

    At grant date, the entity’s share price is Rs.50 per share. At the end of years 1, 2 and 3, the share price is Rs.52, Rs.55 and Rs.60 respectively. The entity does not expect to pay dividends in the next three years. After taking into account the effects of the post-vesting transfer restrictions, the entity estimates that the grant date fair value of the share alternative is Rs.48 per share.

    At the end of year 3, the employee chooses:

    Scenario 1: The cash alternative
    Scenario 2: The equity alternative

    Application of requirements

    The fair value of the equity alternative is Rs.57,600 (1,200 shares × Rs.48).
    The fair value of the cash alternative is Rs.50,000 (1,000 phantom shares × Rs.50).

    Therefore, the fair value of the equity component of the compound instrument is Rs.7,600 (Rs.57,600 – Rs.50,000).

    The entity recognises the following amounts:

    Year

    Expense
    Rs.
    Equity
    Rs.
    Liability
    Rs.
    1
    Liability component:
    (1,000 × Rs.52 × 1/3)
    17,333

    17,333

    Equity component:
    (Rs.7,600 × 1/3)
    2,533
    2,533

    2
    Liability component:
    (1,000 × Rs.55 × 2/3) –
    Rs.17,333
    19,333

    19,333

    Equity component:
    (Rs.7,600 × 1/3)
    2,533
    2,533

    3
    Liability component:
    (1,000 × Rs.60)– Rs.36,666
    23,334

    23,334

    Equity component:
    (Rs.7,600 × 1/3)
    2,534
    2,534

    End
    Year
    Scenario 1: cash of
    Rs.60,000 paid



    (60,000)
    3
    Scenario 1
    totals
    67,600
    7,600
    0

    Scenario 2: 1,200 shares
    issued

    60,000
    (60,000)

    Scenario 2
    totals
    67,600
    67,600
    0



  3. #53
    IND-AS
    Guest

    Thumbs up Share-based payment transactions among group entities of Indian Accounting Standard (Ind AS) 102 - Share-based Payment

    Share-based payment transactions among group entities of Indian Accounting Standard (Ind AS) 102

    Share-based Payment

    Appendix - C


    Share-based payment transactions among group entities

    IG22A. Paragraphs 43A and 43B of Ind AS 102 specify the accounting requirements for share-based payment transactions among group entities in the separate or individual financial statements of the entity receiving the goods or services. Example 14 illustrates the journal entries in the separate or individual financial statements for a group transaction in which a parent grants rights to its equity instruments to the employees of its subsidiary.

    IG Example - 14

    Share-based payment transactions in which a parent grants rights to its equity instruments to the employees of its subsidiary

    Background

    A parent grants 200 share options to each of 100 employees of its subsidiary, conditional upon the completion of two years’ service with the subsidiary. The fair value of the share options on grant date is Rs.30 each. At grant date, the subsidiary estimates that 80 per cent of the employees will complete the two-year service period. This estimate does not change during the vesting period. At the end of the vesting period, 81 employees complete the required two years of service. The parent does not require the subsidiary to pay for the shares needed to settle the grant of share options.

    Application of requirements

    As required by paragraph B53 of the Standard, over the two-year vesting period, the subsidiary measures the services received from the employees in accordance with the requirements applicable to equity-settled share-based payment transactions. Thus, the subsidiary measures the services received from the employees on the basis of the fair value of the share options at grant date. An increase in equity is recognised as a contribution from the parent in the separate or individual financial statements of the subsidiary.

    The journal entries recorded by the subsidiary for each of the two years are as follows:

    Year 1


    Dr Remuneration expense
    (200 × 100 × Rs.30 × 0.8/2)
    Rs.240,000

    Cr Equity (Contribution from the parent)

    Rs.240,000
    Year 2


    Dr Remuneration expense
    (200 × 100 × Rs.30 × 0.81 – 240,000)
    Rs.246,000

    Cr Equity (Contribution from the parent)

    Rs.246,000


  4. #54
    IND-AS
    Guest

    Thumbs up Illustrative disclosures of Indian Accounting Standard (Ind AS) 102 - Share-based Payment

    Illustrative disclosures of Indian Accounting Standard (Ind AS) 102

    Share-based Payment

    Appendix - C


    Illustrative disclosures

    IG23. The following example illustrates the disclosure requirements in paragraphs 44–52 of the Standard.*

    Extract from the Notes to the Financial Statements of Company Z for the year ended 31 December 20X5.

    Share-based Payment
    During the period ended 31 December 20X5, the Company had four sharebased payment arrangements, which are described below.

    Type of arrangement
    Senior
    Management

    General
    Employee

    Executive
    Senior
    management

    Share option
    plan
    Share option
    plan

    Share
    appreciation
    cash plan
    Date of
    grant
    1 January
    1 January
    1 January
    1 January

    20X4
    20X5
    20X5
    20X5
    Number
    granted
    50,000
    75,000
    50,000
    50,000
    Contractua
    life l
    10 years
    10 years
    N/A
    10 years
    Vesting
    1.5 years’
    Three years’
    Three years’
    Three years’
    conditions
    service
    and
    achievement
    of a share price
    target,

    which was achieved.
    service.
    service
    and
    achievement
    of a target
    growth in earnings
    per share.
    service
    and
    achievement
    of a target
    increase in market share.

    The estimated fair value of each share option granted in the general employee share option plan is Rs.23.60. This was calculated by applying a binomial option pricing model. The model inputs were the share price at grant date of Rs.50, exercise price of Rs.50, expected volatility of 30 per cent, no expected dividends, contractual life of ten years, and a risk-free interest rate of 5 per cent. To allow for the effects of early exercise, it was assumed that the employees would exercise the options after vesting date when the share price was twice the exercise price. Historical volatility was 40 per cent, which includes the early years of the Company’s life; the Company expects the volatility of its share price to reduce as it matures.

    The estimated fair value of each share granted in the executive share plan is Rs.50.00, which is equal to the share price at the date of grant.

    Further details of the two share option plans are as follows:


    20X4
    20X5

    Number
    of options
    Weighted
    Average
    Exercise
    price
    Number
    of
    options
    Weighted
    Average
    Exercise
    price
    Outstanding at start of year
    0

    45,000
    Rs.40
    Granted
    50,000
    Rs.40
    75,000
    Rs.50
    Forfeited
    (5,000)
    Rs.40
    (8,000)
    Rs.46
    Exercised
    0

    (4,000)
    Rs.40
    Outstanding at end of
    year
    45,000
    Rs.40
    108,000
    Rs.46
    Exercisable at end of
    year
    0
    Rs.40
    38,000
    Rs.40

    The weighted average share price at the date of exercise for share options exercised during the period was Rs.52. The options outstanding at 31 December 20X5 had an exercise price of Rs.40 or Rs.50, and a weighted average remaining contractual life of 8.64 years.


    20X4
    Rs.
    20X5
    Rs.
    Expense arising from share-based
    payment transactions
    495,000
    1,105,867
    Expense arising from share and share
    Option plans
    495,000
    1,007,000
    Closing balance of liability for cash share
    appreciation plan

    98,867
    Expense arising from increase in fair value of liability for cash share appreciation plan

    9,200


  5. #55
    IND-AS
    Guest

    Thumbs up Summary of conditions for a counterparty to receive an equity instrument granted and of accounting treatments of Indian Accounting Standard(Ind AS)102

    Summary of conditions for a counterparty to receive an equity instrument granted and of accounting treatments of Indian Accounting Standard (Ind AS) 102

    Share-based Payment

    Appendix - C


    Summary of conditions for a counterparty to receive an equity instrument granted and of accounting treatments


    IG 24. The table below categorises, with examples, the various conditions that determine whether a counterparty receives an equity instrument granted and the accounting treatment of share-based payments with those conditions.

    Summary of conditions that determine whether a counterparty receives an equity instrument granted
    VESTING CONDITIONS
    NON-VESTING CONDITIONS
    Performance conditions
    Service
    conditions
    Performance
    conditions
    that are
    market
    conditions
    Other
    performance
    conditions
    Neither the
    entity nor
    the
    counterparty
    can choose
    whether the
    condition is
    met
    Counterparty
    can choose
    whether to
    meet the
    condition
    Entity can
    choose
    whether to
    meet the
    condition
    Example
    conditions
    Requirement
    to remain in
    service for
    three years
    Target based
    on the market
    price of the
    entity's equity
    instruments
    Target based
    on a
    successful
    initial public
    offering with
    a specified
    service
    requirement
    Target based
    on a
    commodity
    index
    Paying
    contributions
    towards the
    exercise price
    of a sharebased
    payment
    Continuation
    of the plan
    by the entity
    Include in
    grant-date
    fair value?
    No
    Yes
    No
    Yes
    Yes
    Yes(a)
    Accounting
    treatment if
    the
    condition
    is not met
    after the
    grant date
    and during
    the vesting
    period
    Forfeiture.
    The entity
    revises the
    expense to
    reflect the
    best available
    estimate of
    the number of
    equity
    instruments
    expected to
    vest.
    (paragraph19)
    No change to
    accounting.
    The entity
    continues to
    recognise the
    expense over
    the
    remainder of
    the vesting
    period.
    (paragraph
    21)
    Forfeiture.
    The entity
    revises the
    expense to
    reflect the
    best
    available
    estimate of
    the number
    of equity
    instruments
    expected to
    vest.
    (paragraph
    19)
    No change to
    accounting.
    The entity
    continues to
    recognise the
    expense over
    the
    remainder of
    the vesting
    period.
    (paragraph
    21A)
    Cancellation.
    The entity
    recognises
    immediately
    the amount of
    the expense
    that would
    otherwise
    have been
    recognised
    over the
    remainder of
    the vesting
    period.
    (paragraph
    28A)
    Cancellation.
    The entity
    recognises
    immediately
    the amount
    of the
    expense that
    would
    otherwise
    have been
    recognised
    over the
    remainder of
    the vesting
    period.
    (paragraph
    28A)

    Note-

    (a)
    In the calculation of the fair value of the share-based payment, the probability of continuation
    of the plan by the entity is assumed to be 100 per cent.
    Last edited by IND-AS; 23-02-2011 at 02:09 PM.

  6. #56
    IND-AS
    Guest

    Thumbs up Appendix - 1 of Indian Accounting Standard (Ind AS) 102 - Share-based Payment

    Appendix - 1 of Indian Accounting Standard (Ind AS) 102

    Share-based Payment


    Appendix - 1

    Note:
    This appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the differences between Indian Accounting Standard (Ind AS) 102 and corresponding International Financial Reporting Standard (IFRS) 2, Share-based Payment.

    Comparison with IFRS 2, Share-based Payment

    1. The transitional provisions given in IFRS 2 and portions related thereto have not been given in Ind AS 102, since all transitional provisions related to Indian ASs, wherever considered appropriate, have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards. This has resulted in deletion of Paragraph IG8 in Appendix E. In order to maintain consistency with paragraph numbers of IFRS 2, the paragraph number is retained in Ind AS 102:

    2. Cross-reference to paragraphs B1-B4 of IFRS 3 contained in paragraph 5 of IFRS 2 has been modified as cross-reference to Appendix C of Ind AS 103 in paragraph 5 of Ind AS 102. This is consequential to the insertion of Appendix C in Ind AS 102 to deal with business combination of entities under common control.

    3. Different terminology is used in the Standard. e.g., the term ‘balance sheet’ is used instead of ‘Statement of financial position’.

    4. Paragraph number 3 appears as ‘Deleted’ in IFRS 2. In order to maintain consistency with paragraph numbers of IFRS 2, the paragraph number is retained in Ind AS 102.


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