Ind AS 102 -Share Based Payment

INTRODUCTION
As the name suggests, it is a payment based on price or value of shares. Entities often grant
shares or share options to employees. Share plans and share option plans are a common
feature of employee remuneration, for directors, senior executives and many other
employees. Some entities issue shares or share options to pay suppliers, such as suppliers
of professional services.
In India, accounting of share-based payment transactions is done in accordance with SEBI
guidelines and Guidance Note on Accounting for Employee Share Based Payments or on the
basis of Ind AS 102 ‘Share Based Payments’. The corporate entities following Ind AS would
not account for share based payment based on Guidance Note. The Companies Act, 2013
also discusses about it under section 62.
Under Section 62 (1) (b) of the Companies Act 2013, where at any time a company having a
share capital proposes to increase its subscribed capital by the issue of further shares, such
shares may be offered to employees under a scheme of employees’ stock option, subject to
a special resolution passed by the company and subject to such conditions as may be
prescribed.
SCOPE: Ind AS 102 applies to all share-based payment transactions in which:
a) The entity acquires goods or services by incurring a liability to transfer cash or other
assets to the supplier of those goods or services for amounts that are based on the price (or
value) of equity instruments (including shares or share options) of the entity or another
group entity. Goods will include inventories, consumables, property, plant & equipment and
other non- financial items
b) Employees and others providing similar services: Individuals who render personal
services to the entity and either (a) the individuals are regarded as employees for legal or
tax purposes, (b) the individuals work for the entity under its direction in the same way as
individuals who are regarded as employees for legal or tax purposes, or (c) the services
rendered are similar to those rendered by employees.

There are three types of Share Based Payments

➢ Equity-settled share-based payment transactions
Under these plans, the employees receive shares.
➢ Cash-settled share-based payment transactions
Under these plans, the employees receive cash based on the price (or value) of the
enterprise's shares. (Share Appreciation Rights SARs)
➢ Share-based payment transactions with cash alternatives
Under these plans, either the enterprise or the employee has a choice of whether the
enterprise settles the payment in cash or by issue of shares.
The Standard Does not apply to
➢ Entity shall not apply this standard to transactions in which the entity acquires
goods as part of net assets acquired in business combinations as defined by Ind AS
103 ‘Business Combinations’
➢ Certain contract transactions falling within Ind AS 32 ‘Financial Instruments’:
Presentation or Ind AS 109 ‘Financial Instruments’
Key Terms
a. Equity instrument
A contract that evidences a residual interest in the assets of an entity after deducting
all of its liabilities.
b. Equity instrument granted
The right (conditional or unconditional) to an equity instrument of the entity conferred
by the entity on another party, under a share-based payment arrangement.
c. Grant date
The date at which the entity and another party (including an employee) agree to a
share- based payment arrangement, being when the entity and the counterparty have
a shared understanding of the terms and conditions of the arrangement. At grant date
the entity confers on the counterparty the right to cash, other assets, or 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.
d. Exercise Price
It is the price payable by the employee for exercising the option granted to him in
pursuance of ESOP.
e. Fair Value: It is the amount for which an asset can be exchanged, a liability can
be settled, or an equity instrument granted could be exchanged between
knowledgeable, willing parties in an arm’s length transaction.
f. Intrinsic Value: It is the excess of the fair value of the share under ESOP over
the exercise price of the option (including up-front payment, if any).
For example, a share option with an exercise price of Rs.15 per share, on a share with
a fair value of Rs 20, has an intrinsic value of Rs 5.
g. Measurement date: The date at which the fair value of the equity instruments
granted is measured for the purposes of this Ind AS. For transactions with employees
and others providing similar services, the measurement date is grant date. For
transactions with parties other than employees (and those providing similar services),
the measurement date is the date the entity obtains the goods or the counterparty
renders service.

h. Share option A contract that gives the holder the right, but not the obligation, to
subscribe to the entity’s shares at a fixed or determinable price for a specified period of
time.
i. Vesting
Confer, entitlement. Under a share-based payment arrangement, a counterparty
(Employee) becomes entitled to receive cash, other assets or to receive/buy equity
instruments of the entity after conditions agreed upon earlier (vesting conditions) are
satisfied.
j. Vesting condition
A condition that determine whether the entity receives the services that entitle the
counterparty to receive cash, other assets or to receive/buy equity instruments of the
entity, under a share-based payment arrangement. A vesting condition is either a service
condition or a performance condition.
k. Vesting period
The period during which all the specified vesting conditions of a share-based payment
arrangement are to be satisfied.
RECOGNITION
➢ An entity shall recognise the goods or services received or acquired in a share-based
payment transaction when it obtains the goods or as the services are received.
➢ An entity would recognize an expense or an asset if the goods and/or services received
meet the criteria for recognition as an asset.
➢ he entity shall recognise a corresponding increase in equity if the goods or services
were received in an equity-settled share-based payment transaction, or a liability if
the goods or services were acquired in a cash-settled share-based payment
transaction.
➢ When the goods or services received or acquires in a share-based payment
transaction do not qualify for recognition as assets, they shall be recognized as
expenses.
 TYPES OF SHARE BASED PAYMENTS
Analysis of the Equity Settled Share based payments
➢ As per Ind AS 102, all goods or services which are received by an entity should be
fair valued in order to arrive at the transaction price to recognize the share-based
payment.
➢ In the absence of reliable information to arrive at the fair value of goods & services
received, the fair value of equity instrument issued will be used.
➢ In case of Employees, it is required by the standard to use fair value of equity
granted because it is practically not possible to identify the fair value of the services
rendered by the employees.
➢ Where a transaction is measured by reference to the fair value for the equity
instruments granted, fair value is based on market prices if available, taking into account
the terms and conditions upon which those equity instruments were granted.
➢ If market prices are not available, the entity should estimate the fair value of the
equity instruments granted using valuation techniques.
Analysis of the Cash Settled Share Based Payments
➢ For cash-settled share-based payment transactions, the entity shall measure the goods
or services acquired and the liability incurred at the fair value of the liability. Until the
liability is settled, the entity shall remeasure the fair value of the liability at the end of
each reporting period and at the date of settlement, with any changes in fair value
recognized in profit or loss for the period.
➢ It is a plan where entity issues rights to its employees/ suppliers where employees/
suppliers will be entitled for a cash payment in future based on equity share prices of
the entity. In some cases, right to increase in equity prices is also provided which is
known as Share Appreciation Rights (SAR).
➢ The goods/ services received against share-based payment plan to be settled in cash
are measured at fair value of the liability and the liability continues to re- measured at
every reporting date until it is actually paid off.
➢ There could be vesting conditions attached to the share-based payment plans e.g. to
remain in service for next 3 years etc. The recognition of such share-based payment plans
should be done by recognizing fair value of the liability at the time of goods/ services
received and not at the date of grant. The liability so recognized will be fair valued at each
reporting date and difference in fair value will be charged to profit or loss for the period.
➢ There could be some cases where no vesting period/ condition is required to be
fulfilled, in those cases, cash settled share-based payment can be recognized in full at
initial recognition itself.
Examples
1. An entity issued share appreciation rights to its existing employees who remains in
service for next 3 years and the benefit will then be settled in cash of an equivalent amount
of share price.
2. Management of an entity decides to issue bonus amount to certain key employees for
their past services based on share price of the entity. The amount equivalent to the shares
will be recognized immediately as cost of employees because there are no conditions which
are to be vested upon.

Analysis of Share Based Payment Transactions with Cash Alternatives

For share-based payment transactions in which the terms of the arrangement provide
either the entity or the counterparty with:
-the choice of whether the entity settles the transaction in cash (or other assets) or
-by issuing equity instruments,
If the Entity has the right -
The entity shall account for:
-that transaction, or the components of that transaction, as a cash settled share-based
payment transaction if, and to the extent that, the entity has incurred a liability to settle
in cash or other assets, or
-as an equity-settled share-based payment transaction if, and to the extent that, no such
liability has been incurred.
If an Entity has granted the counterparty the right to choose whether a share-based
payment transaction is settled in cash or by issuing equity instruments:
Generally, to determine the fair value of the equity component, the grant-date fair
value of the cash alternative that would have to be forfeited is subtracted from the fair
value of the equity alternative. Any positive difference equals the fair value of the
equity component.
Share-based payment transactions in which the employee has a choice of settlement
may be structured in such a way that the fair value of the cash alternative is the same
as the fair value of the equity alternative. This will result in a grant-date fair value of
the equity component of zero.

The entity has granted a compound financial instrument which includes:

- A debt component (i.e. the counterparty’s right to demand payment in cash) and
- An equity component (i.e. the counterparty’s right to demand settlement in equity
instruments rather than in cash)
In this case, the determination of the equity component still follows the same approach.
First, the fair value of the cash alternative is determined for the liability component.
Second, the grant-date fair value of the equity component is valued by taking into
account the fact that the cash alternative is given up to obtain the equity alternative.
The entity accounts for the two components separately – i.e. applying the requirements
for cash-settled share-based payments to the liability component, and applying the
requirements for equity-settled share-based payments to the equity component, if that
component has a recognised value.
Applying the requirements for equity-settled share-based payments, the value of the
equity component is not remeasured subsequently.
Applying the requirements for cash-settled share-based payments, the liability is
remeasured at each reporting date and on settlement date to its fair value

If the employee chooses cash settlement, then the cash payment settles the liability.
Any equity component previously recognised in equity remains in equity.
If the employee chooses settlement in equity instruments, then the liability is
transferred to equity as consideration for issuing the equity instruments.

When such alternatives are given in case of transactions with parties other than
employees where fair value of goods/ services is measured directly then the difference
between fair value of such goods/ services and the fair value of debt component, at the
date when the goods or services are received, will be considered to be the value of equity
component.
The Debt element is essentially the cash payment that will occur. If the fair value of the
goods or services is measured by reference to the fair value of the equity instruments
granted less the fair value of the debt component.
SUBSEQUENT MEASUREMENT
Equity settled Share Based Payment

As discussed earlier, the entity shall recognise an amount for the goods or services
received during the vesting period based on the best available estimate of the number
of equity instruments expected to vest and shall revise that estimate, if necessary, if
subsequent information indicates that the number of equity instruments expected to
vest differs from the previous.
GROUP SHARE BASED PAYMENT PLAN
In practice, we have come across many cases where one member of the group (typically,
the parent) has obligation to settle a share-based payment transaction in which services
are provided to another member of the group (typically a subsidiary). For example,
 within a multinational group, shares in the listed parent entity may be granted to the
employees of various subsidiary entities located around the world. In some other cases,
a listed subsidiary may have obligation to settle a share-based payment transaction in
which services are provided to another member of the group (including the parent).
These transactions are within the scope of Ind AS 102 for the entity receiving the
services. This is despite the fact that it is not a direct party to the arrangement between
its group entity and its employee.

Key differences in the accounting for equity-settled and cash-settled share- based payments

Equity-settled Cash-settled
The credit entry is in equity. The credit entry is a liability.
Remeasurement of the liability at each
No remeasurement of the grant-date fair reporting date and on settlement date
value. with revised fair value.
Equity-settled expense is recognised over the Cash-settled expense is recognised until
vesting period. settlement.

DISCLOSURE
Standard requires an entity to disclose the following-
➢ Type and scope of agreement existing during the reporting period.
➢ Describing general terms & conditions of each type of share-based payment plans.
➢ The number of weighted average price of share option as outstanding with a movement
of granted, vested, expired, exercised, cancelled and closing balance of share-based
payment plans.
➢ The average share price of exercised options.
➢ The range of exercise prices and weighted average remaining contractual life of options
outstanding at the end of reporting period.
➢ The valuation method used to estimate the fair value of the awards.
➢ The impact on Statement of Profit and Loss and Balance Sheet for such share-based
payment