IFRS-2

SHARE-BASED PAYMENTS

Goods / Services
OBJECTIVE
To specify the financial reporting by an
Share-Based Payment
entity when it undertakes a share-based
payment transaction Counterparty
Entity (including employees)

TYPES OF SHARE-BASED PAYMENTS

Equity Settled SBP Cash Settled SBP Settlement Alternatives

Payment for goods / services Payment for goods / services Payment term where entity or
is in the form of equity is in cash / other assets based counter party has an option
instruments (shares or share on price or value of equity either to choose b/w equity
options) of the company. instruments of the company. settled SBP or cash settled SBP

IMPORTANT TERMS

Vesting Conditions Grant Date:

The conditions that must be satisfied for the other The date at which the entity and other party
party to become entitled to receive the SBP. agree to the share-based payment
Vesting conditions are either service or arrangement. At this date the entity agrees
performance conditions. to pay cash, other assets or equity
instruments to the other party, provided that
specified vesting conditions, if any, are met.
If the agreement is subject to shareholder
approval, then the approval date becomes
Service Condition Performance Condition the grant date.

A vesting condition that

requires the counterparty Vesting Period:
A vesting condition that to meet specified
performance target(s) The period during which the vesting
requires the counterparty
to complete a specified while counter party conditions are lo be satisfied.
period of service during is rendering the services.
which services are The performance
provided to the entity. conditions are either Vesting Date:
market condition or
non-market condition. The date on which all vesting conditions have
been met and the counter party becomes
entitled to the share-based payment.

Market Condition Non-Market Condition

A vesting condition where performance target is A vesting condition where performance target is
defined with reference to the market price of defined with reference to the entity’s own
the entity’s equity instruments. For e.g: operations (or activities). For e.g.:
Minimum increase in the share price of entity Achievement of minimum sales target
Minimum increase in shareholder’s return Achievement of specific increase in profit or
Specified target share price relative to an EPS
index of market prices Completion of a particular project

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IFRS-2
SHARE-BASED PAYMENTS

EQUITY SETTLED SHARE BASED PAYMENT

MEASUREMENT OF EQUITY SETTLED SBP

Counter party is other than employee Counter party is employee of entity

Presumed Required

Measure at fair value of goods / Measure at fair value of equity

services received at the receipt date instruments granted at the grant date
If fair value of
goods or services
cannot be reliably If fair value of equity
measured instruments cannot be
reliably measured

Intrinsic value Measure such equity instruments at

their intrinsic value , initially at the
The difference between the fair value of shares to date the entity obtains the goods or
which the counter-party has the right to receive, the counterparty renders services.
and the price (if any) the counter-party is
required to pay for those shares. For example, a Remeasure intrinsic value at each
share option with an exercise price of $15, on a reporting date and at the date of final
share with a fair value of $20, has an intrinsic settlement, with any change in
value of $5. intrinsic value recognized in P/L.

RECOGNITION OF EQUITY SETTLED SBP

No Vesting Condition Vesting Condition

(Immediate Vesting)
Non-Vesting
If there is no vesting Condition
conditions, or the SBP is vested Performance Condition
or
immediately, IFRS 2 regards
Service Post Vesting
such transaction as granted in
Condition Condition
return of the counterparty’s Non-Market Market
services in the past. Condition Condition

Taken into account in Taken into account in

Recognize full expense immediately estimating the no of equity determining the FV of the
with the corresponding increase instrument (likely to be equity instrument at the
in equity vested) at reporting date grant date (By the Actuary)

Equity Settled
SBP Reserve = Fair Value of the Equity
Instrument at the Grant Date
x No. of Equity Instruments
likely to be vested
x Time Factor

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IFRS-2
SHARE-BASED PAYMENTS

RECOGNITION OF EQUITY SETTLED SBP

Equity Settled
SBP Reserve = Fair Value of the Equity
Instrument at the Grant Date
x No. of Equity Instruments
likely to be vested
x Time Factor

Fair Value of Equity Instruments granted No. of Equity Instruments likely to be vested

Market Based Vesting Conditions & Non-vesting

Conditions are taken into account in measuring Non-Market Based Vesting Conditions and
the FV of Equity Instruments at the grant date. Service Condition are taken into account in
FV of Equity Instruments is measured by the estimating the No, of Equity Instrument that
actuary of the Company using: are likely to be vested.
i. Black-Scholes model; At each reporting date, such estimate is
ii. Binomial model; or adjusted/updated to reflect the No. of Equity
iii. Monte- Carlo model. Instrument for which Non-Market Conditions
Grant date FV of Equity Instruments is not & Service Condition are expected to be
adjusted / remeasured subsequently for any satisfied.
changes in the:
On the vesting date, such estimate is revised
FV of underling instruments;
to the actual number of equity instruments
Possibility of not meeting the Market Based
that do actually vest.
Vesting Conditions & Non-vesting Conditions;
Actual outcome of Market Vesting Conditions If equity instruments are not likely to vest / do
& Non-vesting conditions. not actually vest, due to breach of Non-Market
If the equity instrument do not vest due to Conditions or Service Condition, any amount
breach of Market Conditions, any amount recognized in SBP Reserve will be reversed.
recognized in Share-Based Payment Reserve (Expense is reversed through P/L).
will remain in equity. (Expense is not reversed
through P/L).

Vested Options Not Exercised

If, after the vesting date, options are not exercised or the equity instruments are forfeited, there will
be no impact on the financial statements.
This is because the holder of the equity instruments has effectively made that decision as an Investor.
The services (against which equity instruments are given), were actually received by the entity and
the financial statements reflect the substance of this transaction.
IFRS 2 does, however, permit a transfer to be made between reserves in such circumstances to avoid
an amount remaining in a separate equity reserve where no equity instrument will be Issued

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IFRS-2
SHARE-BASED PAYMENTS

EQUITY SETTLED SHARE BASED PAYMENT

Variable Vesting Period / Exercise Price / No of Equity Instrument

If Exercise Price or No of Equity Instrument

If Vesting Period is Variable depending upon
are variable depending upon

Market Conditions Non-Market Conditions Market Conditions Non-Market Conditions

The amount of SBP The amount of SBP The amount of SBP The amount of SBP
Expense to be Expense to be Expense to be Expense to be
recognized in P/L recognized in P/L must recognized in P/L recognized in P/L
must be based on be based expected must be based on must be based
expected exercise exercise price or No. expected vesting expected vesting
price or No. of of equity instrument, period as estimated period, as estimated
equity instrument, as estimated at the at the grant date. at the end of each
as estimated at the end of eachreporting Such estimate is not reporting period.
grant date. period. revised subsequently

Market condition no met Actual vesting period is less than vesting

OR period estimated at grant date
Actual vesting period is more than
vesting period estimated at grant date No guidance is given in IFRS 2 in this case.
Follow either of the following approaches:
Option 1: SBP Expense to be recognized in
SBP Expense to be recognized in P/L must
P/L must be based on vesting period
be based on vesting period estimated
estimated at the grant date.
at the grant date. IFRS 2 restricts revision
Option 2: SBP Expense to be recognized in
of estimate relating to Market condition.
P/L must be based on actual vesting period.

Multiple Vesting Conditions

Equity Settled SBP may require multiple vesting conditions to be satisfied simultaneously.
In that case, Market Based Vesting Conditions and Non-vesting Conditions are taken into account in
measuring the FV of the Equity Instruments at the grant date. Where as Non-Market Based Vesting
Conditions and Service Condition are estimated at each reporting date, until the actual outcome is
known.
Where vesting period is variable depending upon fulfillment of market as well as non-market
conditions, the SBP Expense would be recognized at higher of:
Vesting period estimated at the grant date taken into account the market condition; or
Vesting period estimated at each reporting date taken into account the non-market condition.

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IFRS-2
SHARE-BASED PAYMENTS

CASH SETTLED SHARE BASED PAYMENT

Goods / Services

Cash based on price / value of equity

instruments (including shares or share Counterparty
Entity options) of the entity or another group entity (including employees)

For Example:
An entity might grant to its employees a right to receive a future cash payment by granting to
them a right to shares that are redeemable, either mandatorily or at the employee’s option.
An entity might grant Share Appreciation Rights (SARs) to employees 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.

Recognition Goods or services should be recognized as they are received by the entity

Goods or services acquired should be measured at the fair value of the

liability
The fair value of liability shall be re-measured at each reporting date and
Measurement at the date of settlement with any change to be recognized in profit or loss.

Vesting conditions should be taken into account in estimating the number

of rights to payment that will vest and the fair value of liability at the end
of each reporting period.
Service condition & Non-market performance conditions are taken into
account in estimating the number of awards that are expected to vest.
Vesting Conditions Market conditions are taken into account in determining the fair value
of the liability. Share price at the end of each reporting date is the best
estimate of final share price.

Fair Value v/s Intrinsic Value

Remeasurement of Liability Cash Payment

Based on the fair value of the instruments Based on an intrinsic value of the
Fair value of the liability for SARs is the instruments
intrinsic value plus a premium (time The final remeasurement of the liability
value) for the possibility of future increase is made on settlement date to equal the
in the intrinsic value. ultimate cash payment i.e. measurement
switches from a fair value-based
measurement to an intrinsic value-based
measurement.

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IFRS-2
SHARE-BASED PAYMENTS

SETTLEMENT ALTERNATIVE

Goods / Services

Share-Based Payment Arrangement where

The entity or Counterparty
Entity The counter party (including employees)
has a choice of settlement (i.e. Right to choose
b/w equity settled SBP or cash settled SBP)

IF THE COUNTER PARTY HAS THE CHOICE OF SETTLEMENT

The entity has granted a compound financial instrument having both liability & equity component.
Split accounting will be applied.

Initial Measurement Subsequent Measurement

Account for the 2 components

separately
Fair value of goods / services is reliably measured

Fair Value of Goods/Services xxx

Liability Component
Less. FV of Liability under cash alternative (xxx)
Equity Component / (Expense) x/(x) Apply the requirements of
cash-settled SBP
Remeasure the liability to its fair
value at each reporting date & on
settlement date.
Fair value of goods / services is not reliably measured

FV of component instrument as a whole xxx Equity Component

[ Noinofequity
equity instrument
alternative x
FV of equity instrument
at the grant date [ Apply the requirements of
Less. FV of Liability under cash alternative (xxx) equity-settled SBP
Equity component is not remeasured
Equity Component (Residual amount) x/(x)
subsequently

ACTUAL SETTLEMENT

Cash Settlement Equity Settlement

If the counter party chooses cash settlement, If the counter party chooses equity settlement,
then the cash payment settles the liability. then equity is issued against the liability.
Liability xxxx Liability xxxx
Cash xxxx Share Capital + Premium xxxx
Any equity component previously recognized Any equity component previously recognized
in equity remains in equity. in equity remains in equity.
SBRP xxxx SBRP xxxx
Equity xxxx Equity xxxx

For further info, please contact:

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IFRS-2
SHARE-BASED PAYMENTS

SETTLEMENT ALTERNATIVE

Goods / Services

Share-Based Payment Arrangement where

The entity or Counterparty
Entity The counter party (including employees)
has a choice of settlement (i.e. Right to choose
b/w equity settled SBP or cash settled SBP)

IF THE ENTITY HAS THE CHOICE OF SETTLEMENT Obligation to settle in cash arise where:
Entity is prohibited from issuing shares; or
Whether the entity has a present obligation Entity has stated policy / past practice of
to settle in cash? paying cash rather than shares.

YES NO
Account for as Cash Settled SBP Account for as Equity Settled SBP
The liability is remeasured at each reporting The value of the equity component is not
date and on settlement date to its fair value remeasured subsequently

ACTUAL SETTLEMENT ACTUAL SETTLEMENT

Cash Settlement Equity Settlement Cash Settlement Equity Settlement

Transfer liability to Treat the settlement

Pay cash against equity as as repurchase of Issue shares against
the liability consideration for equity instrument by a SBPR
issuing the equity deduction against
instruments. equity

Repurchase of Equity

Repurchase
Price > repurchased
Fair value of equity instrument
on settlement date
Repurchase
Price < repurchased
Fair value of equity instrument
on settlement date

Payment in excess of FV of equity instrument Balancing effect will be adjusted in equity.

on settlement date will be recognized as (Irrespective of the amount of SBPR)
expense in P/L, irrespective of amount in SBPR No effect will be recognized in P/L.
Any balancing effect will be adjusted in
equity.

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IFRS-2
SHARE-BASED PAYMENTS

MODIFICATION OF EQUITY SETTLED SBP

Modifications that are beneficial Modifications that are NOT beneficial

to employees to employees

Increase in FV of the equity settled SBP. Decrease in FV of the equity settled SBP.
For e.g: For e.g:
Decrease in exercise price; Increase in exercise price;
Relaxation of market performance Tightening of market performance
conditions; conditions;
Relaxation of non-vesting conditions Tightening of non-vesting conditions

Additionally, recognize **Incremental Fair

Ignore
Value, measured at date of modification,
over modified vesting period

Decrease in No. of equity instruments

Increase in No. of equity instruments granted
granted
Apply cancellation accounting for those
Additionally, recognize fair value of additional cancelled SBP arrangement.
equity instruments granted measured at date
of modification, over the period from date of
modification to the end of the vesting period
of the additional equity instruments Other non-beneficial modifications. For e.g:
Tightening of service condition;
Tightening of non-market performance
Other beneficial modifications. For e.g: conditions
Relaxation of service condition;
Relaxation of non-market performance Ignore
conditions

Take modified vesting conditions into account

recognizing expense for share based payment

**Incremental FV = FV of equity instruments after modification – FV of equity instruments before modification

GIVE & TAKE MODIFICATION

Package of modifications having both favorable and unfavorable changes to the terms of Equity Settled
Shared-Based Payment Arrangement.
For example, a share option grant can be modified by reducing the exercise price (give) and
simultaneously reducing the number of granted options (take).

Accounting Treatment

Consider the net effect of both the modifications and if the net effect is beneficial, then this net effect
should be accounted for by applying the requirements for beneficial modifications to the net change.

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IFRS-2
SHARE-BASED PAYMENTS

MODIFICATION OF EQUITY SETTLED SBP

From Cash Settled SBP to Equity Settled SBP From Equity Settled SBP to Cash Settled SBP

This occurs (for e.g.) when a cash alternative at

This occurs (For e.g.) when a new Equity Settled
the employee’s discretion is subsequently added
SBP is identified as a replacement of a Cash
to an equity-settled SBP that results in a
Settled SBP
reclassification as a financial liability

Accounting Treatment Accounting Treatment

Derecognize the liability for cash-settled SBP.

At modification date, reclassify an amount
Recognize Equity Settled SBP (i.e. SBPR) at its
equal to the FV of liability from equity (SBPR)
FV as at the modification date to the extent
to liability
that the services have been rendered up to
that date.
Recognize any difference b/w the liability
derecognized and SBPR recognized into P/L
immediately.

If liability to be
recognized > SBPR already
recognized
If liability to be
recognized < SBPR already
recognized

One of the following two approaches is to No gain is recognized in P/L for the difference
chosen as an accounting policy, to be between SBPR recognized and the amount
applied consistently. reclassified to liability i.e. the difference
remains in equity (SBPR).
Approach 1
Subsequently, recognize the SBP expense
Recognize the excess as an expense in on the basis of FV of equity instruments at
P/L at the date of modification. grant date.
Approach 2 However, any subsequent remeasurement
Recognize entire amount of liability as of the liability (from the date of modification
a reclassification from equity and do until settlement date) is recognized in P/L.
not recognize any loss in P/L. Firstly, recognize SBP expense at FV of equity
instruments at the grant date as if no
modification had occurred. The amount is
credited partially to the liability and partially
to equity in proportion of
- FV of liability and
- remaining SBPR.
Second, remeasure the liability by applying
the requirements of cash settled SBP with
any gain / loss to be recognized in P/L.

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IFRS-2
SHARE-BASED PAYMENTS

CANCELLATION OF EQUITY SETTLED SBP

Cancellation with compensation Cancellation without compensation

Cancellations of equity-settled SBP is accounted

(i) Compensation = Cash Payment for as accelerated vesting i.e. immediately
recognize the expense for the amount that would
Cancellations of equity-settled have been recognized for services over the
SBP is accounted for as accelerated remaining vesting period.
vesting.
Payment against cancellation is a/c for as
repurchases of equity to the extent that
the payment does not exceed the FV of the
equity instruments granted, measured at
the repurchase date.
Payment in excess of fair value of the
equity repurchase on the repurchase date
is recognized as an expense in P/L.

(ii) Compensation = New equity settled SBP

New equity settled SBP is identified as replacement for cancelled equity settled SBP

The principles of modification accounting are applied.

In applying modification accounting,
- Cancelled SBP is accounted for in the normal manner.
- **Incremental Fair Value, measured at the date on which the replacement award is
issued, is recognized over the modified vesting period.

New equity settled SBP is NOT identified as replacement for cancelled equity settled SBP

Cancelled equity-settled SBP is accounted for as accelerated vesting.

New equity settled SBP is accounted for separately in the normal manner.

**Incremental FV = FV of replacement award - Net FV of cancelled award

Net FV of cancelled award = FV of cancelled award measured at cancellation date - Any payment
made to employees

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