Ind AS 102, Share Based Payment (All you need to know about)

Ind AS 102

Ind AS 102, Share Based Payment: The objective of Ind AS 102 is to specify the financial reporting by an entity when it undertakes a share-based payment transaction. In particular, it requires an entity to reflect in its profit or loss and financial position the effects of share-based payment transactions, including expenses associated with transactions in which share options are granted to employees.

Recognition under Ind AS 102

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. The 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 acquired in a share -based payment transaction do not qualify for recognition as assets, they shall be recognised  as expenses.

The Standard sets out measurement and specific requirements for following types of share-based payment transactions:

  • equity-settled share-based payment transactions, in which the entity
    • receives goods or services as consideration for its own equity instruments (including shares or share options), or (b) receives goods or services but has no obligation to settle the transaction with the supplier.
    • cash-settled share-based payment transactions, in which 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

For equity-settled share-based payment transactions, the entity  shall  measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods  or  services  received, unless  that fair value cannot be estimated reliably. If the entity cannot  estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.

Furthermore:

  • for transactions with employees and others providing similar services, the entity is required to measure the fair value of the services received by reference to the fair value of the equity instruments granted,  because typically it is not possible to estimate reliably the fair value of the services received. The fair value of those equity instruments shall  be measured at grant
  • for transactions with parties other than employees, there shall be a rebuttable presumption that the fair value of the goods or services received can be estimated reliably. That  fair value shall  be  measured at the date the entity obtains the goods or the counterparty renders service. In rare cases, if the entity rebuts this presumption because it cannot estimate reliably the fair value of the goods or  services  received, the entity shall measure the goods or services received, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, measured at  the  date  the entity obtains the goods or the counterparty renders service.
  • for goods or services measured by reference to the fair value of the equity instruments granted, the Standard specifies that vesting conditions, other than market conditions, are not taken into account when estimating the fair value of the shares or share options at the measurement date. Instead, vesting conditions shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Hence, on a cumulative basis, no amount is recognised for goods or services received if the equity instruments granted do not vest because of failure to satisfy a vesting condition
  • the fair value of the equity instruments granted, an entity  shall  measure the fair value of equity instruments granted at  the measurement date, based on market prices if available, taking into account the terms and conditions upon which those equity instruments were granted (subject to the requirements of paragraphs 19 –22). If market prices are not available, the entity shall estimate the fair value   of the equity instruments granted using a valuation technique  to estimate what the price of those equity instruments would have  been  on the measurement date in an arm’s length transaction between knowledgeable, willing

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, subject to the requirements of paragraphs 31–33D. 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 recognised in profit or loss for the period.

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, 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.

The terms of a share-based payment arrangement may permit or require the entity to withhold the number of equity instruments equal to  the monetary  value of the employee’s tax obligation from the total number of equity instruments that otherwise would have been issued to the employee upon exercise (or vesting) of the share-based payment, i.e. the share-based payment arrangement has a ‘net settlement feature’. As an exception, such transactions shall be classified in its entirety as an equity -settled  share-  based payment transaction if it would have been so classified in  the absence of the net settlement feature.

The payment made shall be accounted for as a deduction from equity for the shares withheld, except to the extent that the payment exceeds the fair value at the net settlement date of the equity instruments withheld.

The exception does not apply to:

  • a share-based payment arrangement with a net settlement feature for which there is no obligation on the entity under tax laws  or regulations to withhold an amount for an employee’s tax obligation associated with that share-based payment; or
  • any equity instruments that the entity withholds in excess of the employee’s tax obligation associated with the share-based payment (i.e. the entity withheld an amount of shares that exceeds  the  monetary value of the employee’s tax obligation). Such exces s shares withheld shall be accounted for as  a  cash-settled  share-based payment when this amount is paid in cash (or other assets) to the employee.

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