Taxmann's Financial Reporting Made Easy (FR) | Study Material

PREFACE

I ndi a n Acc o unti ng St a ndar ds ( I nd AS) ar e “ pri nci pl e bas e d” st a ndar ds As y o u ar e a war e, t hes e ar e ma ndat or y f or all li st e d c o mpa ni es a nd ot her l ar ge unli st e d e nti ti es i n I ndi a. Co nce pt ual underst a ndi ng of t he st a ndar ds i s ess e nti al i n pr operl y a ppl yi ng t he s a me i n pr acti c al t r ai ni ng as well as i n pr of essi o nal li f e, be i t pr acti ce or e mpl oy me nt. Bei ng i n t he t e ac hi ng pr of essi o n f or g oo d 10 ye ars, we o bs er ve d, o n n u mer o us occ asi o ns, di ffi c ul ti es f ace d by st ude nt s i n underst a ndi ng st a ndar ds a nd we fi r m l y beli e ve t he y nee d a ppr opri at e g ui da nce. I n o ur o bs er vati o n, prima facie , t he r e as o ns f or s uc h di ffi c ul ti es – ( 1) The t er m i nol ogy us e d i n t he I nd AS ; ( 2) I nt er li nkage bet wee n vari o us st a ndar ds; &( 3) Lac k of expl a nati on w i t ht he hel p of ill ust r ati ons; Our st r uggl ei n underst ati ng a nd a ppli c ati o n of st a ndar ds moti vat e d us t o s har e k no w l e dge t hr o ug h wri ti ng a book o n I nd AS i n si mpl e, l uci d l a ng uage a nd w i t h t he best possi bl e pr acti c al e xa mpl es We t ri e d o ur best t o eli m i nat e t hes e di ffi c ul ti es a nd yet t o deli ver t he k no w l e dge i n i t s ri g ht s e ns e We hope y o u will agr ee w i t h us aft er r e a di ng t he book

We ar e gl a d t o i nf or m y o u t hat we c a me o ut w i t h T WO ne w books “I ND AS Ma de Eas y ” & “ Qui c k Re vi si o n Fast Tr ac k Chart s o n Fi na nci al Re porti ng ” .

The book “Financial Reporting Made Easy” di s c uss es Busi ness c o mbi nati on(I nd AS 103), Cons oli dati on of fi na nci al st at e me nt s ( I nd ASs 28, 110, 111 & 112), Shar e bas e d pay me nt s ( I nd AS 102) a nd ot her m i s cell a ne o us t opi cs li ke CS R , I nt e gr at e d r e porti ng, et c., i n de pt h t oget her w i t h t he e x pl a nati o ns a nd ill ust r ati o ns i n o ur book. As t hes e t opi cs ar e vast a nd r e q ui r es s e par at e att e nti o n o n e ac h poi nt, t he ne w book i s e v ol ve d. Ho we ver, ki ndl y not e t hat t hes e st a ndar ds have bee n r e move d f r o m“I nd AS ma de e as y ” book, st ude nt s ar e a dvi s e d t o r ef er “ Fi na nci al r e porti ng ma de e as y ” f or t hes e st a ndar ds. I nd AS ma de e as y a nd Fi na nci al r e porti ng ma de e as y will c over 100 % of CA Fi nal s yll a b us of “ Fi na nci al r e porti ng”

The book “ Qui c k Re vi si o n Fast Tr ac k Chart s o n Fi na nci al Re porti ng” c overs t he s u mmar y of i mport a nt poi nt s of ALL t he st a ndar ds i ncl udi ng b usi ness c o mbi nati o n, c o ns oli dati o n i n C HA RT F OR M It hel ps y o u t o revise the subject just before exam Thi s book has t he f oll o w i ng uni q ue f e at ur es t o hel p: u Rece nt a me nd me nt s o n I nd AS ar e i ncl ude d ( t hi s e di ti o n i ncl udes I nd AS 115 & I nd AS 116); u St ude nt f ri e ndl y; u

Cover e d all pr e vi o us e xa m q uesti o ns; u Co nce pt ual underst a ndi ng of t he st a ndar ds w i t h mor e t ha n 1, 500 det ail e d e xa mpl es; u Ver y si mpl e l a ng uage t o underst a nd; u Su mmar y of t he St a ndar d i s pr es e nt e d i n di agr a ms at t he e nd of r es pecti ve st a ndar d a nd al s o w i t hi n t he st a ndar d wher e ver r e q ui r e d; u Maj or di ff er e nces bet wee n I nd AS v. I F RS ar e well e x pl ai ne d i n si mpl e l a ng uage; u Thi s e di ti o n i s a me nde d w i t h s ubst a nti al c ha nges i n Fi na nci al i nst r u me nt s. We ar e c o nfi de nt t hat t hi s book wo ul d be hel pf ul t o t he me mbers of I CAI a nd all t he st ude nt s pr e pari ng f or CA - FI NAL , C MA - FI NAL & M . Co m . e xa m i nati o ns.

Fr o mt he bott o m of o ur he art, we ar e gr at ef ul t o o ur de ar est f ri e nds

CA Pavan Kumar, CA. Praveen Kumar Gunda & CA. Rama Krishna Reddy Borra f or t hei r c o nti n uo us hel p i n moti vati ng a nd c orr ecti ng us at e ver y st age of t he book

Due c ar e has bee n t a ke n t o ma ke t hi s book err or f r ee t ho ug h uni nt e nde d err ors or o m i ssi o ns m i g ht have cr e pt i n. We r e q uest t he us ers of t hi s book t o bri ng t he s a me t o t he noti ce of t he a ut hor. Al s o, r e q uest t he r e a ders t o pr ovi de t hei r s uggesti o ns f or t he f urt her i mpr ove me nt of t hi s wor k.

CA. RAVI KANTH MIRIYALA Email :

ACKNOWLEDGEMENT

No book i s t he wor k of a si ngl e pers o n At t he o ut s et, we wo ul d li ke t o e x pr ess o ur si ncer e t ha nks t o o ur de ar est f ri e nds CA Pava n Ku mar, CA Ra ma kri s hna Re ddy Borr a & CA Kart hi k Ra o who have bee n a s o ur ce of i ns pi r ati o n a nd s upport pers o nall y a nd pr of essi o nall y Thi s book wo ul d have ne ver bee n wri tt e n w i t ho ut t hei r s upport, e nc o ur age me nt a nd moti vati o n.

Furt her, t he hel p of CA . Ma he k S Gho da wat, CA . Shr e yas Sati s h, CA . Dee pali R Naya k & CA . Abhil as ha Bal a kri s hna n i s unf or gett a bl e. Thes e ar e o ur st ude nt s a nd Chart er e d Acc o unt a nt s. At o ne poi nt of ti me, we t ho ug ht i t m i g ht not be possi bl e t o pr ocee d w i t h t hi s wor k. We pr o udl y cl ai m t hat t hei r s upport i nstill e d a l ot of c o nfi de nce i n us. I n t hi s be hal f, we pr ay t he Al m i g ht y t o s ho wer H i s c hoi cest bl essi ngs o n t he m . We c a nnot f or get t he gr e at s upport of o ur f ri e nds, t e ac hers & st ude nt s i n c o mpl eti o n of t hi s book. We wo ul d li ke t o t ha nk CA . Lali t h M Shar ma, CA . M . Ra dha, CA . Ni ket Tac ker, CA . Vi j aya Raj a, Pr of. Vai t hees war a n, CA . Ni k hil J o ba np ut r a, CA . As hi mJ a na, Pr of. Nar aya na Ra o, CA . May ur Na ht a, CA Ni s c hal R B, Pr of La ks h ma na Ra o & Mr Ra ma Sar ma a nd ot her s e ni ors & j uni ors f or t hei r pr of essi o nal a nd pers o nal s upport

All val ua bl e c o mme nt s a nd s uggesti o ns f or f urt her i mpr ove me nt of t hi s wor k will be d ul y ac k no w l e dge d a nd gr at ef ull y a ppr eci at e d

CA. RAVI KANTH MIRIYALA

CA. SUNITANJANI MIRIYALA

Email : r avi ka nt hc a @g mail. c o m www . r avi ka nt h m i ri yal a. c o m

As me nti o ne d e arli er, t hi s s ubj ect “I nd AS” i s a be a uti f ul s ubj ect b ut r e me mber i t i s ver y vast a nd t ho ug ht pr ov oki ng s ubj ect. All t he st a ndar ds ar e i nt erli nke d w i t h e ac h ot her. To underst a nd t hi s bett er, y o u nee d t o f oll o w a s e q ue nce of st udy.

u Bef or e st arti ngRemember , t hi s i s a ne wt o y o u– So, expect new words ( t ec hni c al t er m i nol ogy, ne w v oc a b ul ar y a nd j ar g o n) a nd y o u s ho ul d r e me mber t hos e wor ds a nd us e t he m i n t he e xa m ;

u We have gi ve n few instructions at the beginning of every chapter –st ri ctl y f oll o w t he m ; u We s uggest y o u t o prepare your own summary of e ac h st a ndar d a nd revise it f r e q ue ntl y s o t hat y o u will be a bl e t o underst a nd t he li nkage pr ovi de d by us; My upcoming book on summary will help you i.e. “Ind AS made further easy”;

u Mai nt ai n a library of new and important wordslike definitions whi c h will e nha nce y o ur un - derst a ndi ng of t hes e wor ds i n di ff er e nt c o nt e xt s a nd will b uil d y o ur v oc a b ul ar y.

u We st r o ngl y beli e ve a c o mma nd over t ec hni c al wor ds a nd t hei r a ppr opri at e us age will gai n c o nfide nce of t he e xa m i ner a nd may c o nt ri b ut e t o a ddi ti o nal mar ks i n t he e xa m . We r ec o mme nd t o f oll o w t hi s s e q ue nce f or bett er underst ati ng of t he s ubj ect. St art w i t h

1. I nt r o d ucti o n

2. Fr a me wor k f or Pr e par ati o n a nd Pr es e nt ati o n of Fi na nci al St at e me nt s ( Ver y I mport a nt)

3. I mport a nt Basi cs of I nd AS Havi ng basi c underst a ndi ng of Bal a nce s heet a nd P &L f or mat f or I nd AS fi na nci al st at e me nt s will hel p y o u t o underst a nd t he pr es e nt ati o n & di s cl os ur e r e q ui r e me nt. We r ec o mme nd y o u t o have a l ook at “ Di vi si o n II of Sc he d ul e III of The Co mpa ni es Act, 2013” f r o m o ur book “ Fi na nci al r e porti ng ma de e as y ” No w , l et us st art w i t h t he st a ndar ds

1 I nd AS 10 — Eve nt s aft er t he Re porti ng Peri o d;

2 I nd AS 8 Acc o unti ng Poli ci es, Cha nge i n Acc o unti ng Esti mat e a nd Err ors;

3 I nd AS 37 Pr ovi si o ns, Co nti nge nt Li a bili ti es a nd Co nti nge nt Ass et s; 4 I nd AS 20 Acc o unti ng f or Gover n me nt Gr a nt s;

5. I nd AS 23 Borr o w i ng Cost s;

6. I nd AS 16 Pr opert y, Pl a nt a nd Eq ui p me nt ( PP E); 7. I nd AS 38 I nt a ngi bl e Ass et s; 8. I nd AS 40 I nvest me nt Pr opert y; 9. I nd AS 41 Agri c ul t ur e; 10. I nd AS 36 I mpai r me nt of Ass et s; 11. I nd AS 105 No n- c urr e nt Ass et s Hel d f or Sal e a nd Di s c o nti n ue d Oper ati o ns; 12. I nd AS 21 The Eff ect s of Cha nges i n For ei g n Exc ha nge Rat es; 13. I nd AS 19 E mpl oyee Be ne fit s;

14. I nd AS 24 Rel at e d Part y Di s cl os ur es;

15. I nd AS 2 I nve nt ori es;

16. I nd AS 1 Pr es e nt ati o n of Fi na nci al St at e me nt s;

17. I nd AS 27 Se par at e Fi na nci al St at e me nt s;

18. I nd AS 12 I nc o me Taxes;

19. I nd AS 34 I nt eri m Fi na nci al Re porti ng;

20. I nd AS 108 – Oper ati ng Se g me nt s;

21. I nd AS 116 Le as es;

22. I nd AS 115 Re ve n ue f r o m Co nt r act s w i t h Cust o mers;

23 I nd AS 113 Fai r Val ue Me as ur e me nt;

24 I nd AS 109, 107 & 32 Fi na nci al I nst r u me nt s;

25 I nd AS 33 Ear ni ngs Per Shar e;

26 I nd AS 101 — Fi rst- ti me Adopti o n of I ndi a n Acc o unti ng St a ndar ds

Wish you the very best

CA Ravi Ka nt h M i ri yal a

CA Suni t a nj a ni M i ri yal a

WEIGHTAGE OF MARKS FOR EACH IND AS BASED ON PREVIOUS ATTEMPTS

Standards May18 Nov18 May19 Nov19 Jan21 Jul21 Dec21 May22 Nov22 Total Avg % of Weightage

I nd AS 1 4 5 4 13 1%

I nd AS 2 4 5 9 1%

I nd AS 7 5 6 11 1%

I nd AS 8 5 5 10 1%

I nd AS 10 8 8 5 21 2%

I nd AS 12 4 5 6 15 1%

I nd AS 16 8 8 16 1%

I nd AS 19 5 7 12 1%

I nd AS 20 4 5 6 4 8 27 2%

I nd AS 21 5 4 5 5 6 25 2% I nd AS 23 4 7 11 1% I nd AS 24 0 0%

I nd AS 27 0 0%

I nd AS 28 5 5 10 1% I nd AS 33 8 8 4 8 28 3% I nd AS 34 5 5 5 4 19 2% I nd AS 36 15 5 10 8 38 3% I nd AS 37 4 4 0% I nd AS 38 5 8 6 19 2% I nd AS 39 0 0%

I nd AS 40 10 5 8 5 28 3% I nd AS 41 4 9 6 19 2%

I nd AS 101 6 8 14 1%

I nd AS 102 10 8 8 8 12 5 6 6 63 6%

I nd AS 103 10 4 8 20 5 14 20 81 7%

I nd AS 104 5 5 0%

I nd AS 105 8 10 8 26 2%

I nd AS 108 10 4 8 5 27 2% I nd AS 109, 32 & 107 16 20 12 10 19 19 29 19 17 161 14%

I nd AS 110 15 16 15 15 16 5 15 97 9%

I nd AS 111 0 0%

Standards May18 Nov18 May19 Nov19 Jan21 Jul21 Dec21 May22 Nov22 Total Avg % of Weightage

I nd AS 112 0 0%

I nd AS 113 5 8 4 5 5 27 2% I nd AS 115 4 10 5 12 12 12 10 14 20 99 9% I nd AS 116 12 4 6 4 10 8 44 4% Anal ysi s of Fi na nci al St at e me nt s

16 12 28 3%

CS R 8 4 6 6 6 30 3% I nt e gr at e d r e porti ng 6 6 6 18 2% Ot hers ( Fr a mewor k & et c. ) 16 12 25 6 6 65 6% 124 124 124 120 126 126 124 126 126 1120 0

CONTENTS

PAGE

Preface I-5

Acknowledgement I-7

How to proceed with this book? I-9

Weightage of Marks for each Ind AS based on Previous attempts I-11

Chapter A

u Introduction A.1

Chapter B

u Conceptual framework for financial reporting under Ind AS (Conceptual framework) B.1

Chapter C

u Important Basics of Ind AS C.1

Chapter 1

u Ind AS 102 - Share Based Payments 1.1

Chapter 2

u Ind AS 28 - Investments in Associates and Joint Ventures 2.1

Chapter 3

u Business combination & corporate restructuring 3.1

Chapter 4

u Consolidated Financial Statements 4.1

Chapter 5

u Ind AS 111 - Joint Arrangements 5.1

Chapter 6

u Ind AS 112 - Disclosure of Interests in Other Entities 6.1

Chapter 7

u Ind AS 27 - Separate Financial Statements 7.1

Chapter 8

u Schedule III - Division II 8.1

Chapter 9

u Analysis of Financial Statements 9.1

Chapter 10

u Corporate Social Responsibility (CSR) 10.1

Chapter 11

u Integrated Reporting (IR) 11.1

1 CHAPTER

1.Introduction

As t he na me i t s el f des cri bes, s har e- bas e d pay me nt s r ef er t o “ pay me nt s ma de by a c o mpa nybased on its share price ” ( r e a d c ar ef ull y) Shar e- bas e d pay me nt occ urs whe n a n e nti t y b uys g oo ds ( or) avail s s er vi ces f r o m a ‘ c o unt er part y ’ a nd t he c o unt er part y c o ul d be a ny s uppli er or e ve n a n e mpl oyee; Thi s st a ndar d de al s w i t h t he eff ect s of s har e- bas e d pay me nt t r a ns acti o ns i n P &L a nd Bal a nce s heet including e x pe ns es ass oci at e d w i t h s har e opti o ns gr a nt e d t o e mpl oyees

What is share-based payment?

The st a ndar d has gi ve n T WOst e p defi ni ti o n i.e. i t has defi ne d ( 1)Share-based payment arrangement; a nd ( 2)Share-based payment transaction s e par at el y. One should read very carefully to understand it. Share-based payment arrangement i s a n agreement bet wee n ( a ) t he e nti t y/a not her group e nti t y/any shareholder of any group entity ; a nd (b ) a not her part y (i ncl udi ng a n e mpl oyee) Thi s arr a nge me nt entitles the other party t o r ecei ve u s har es /s har e opti o ns of t he e nti t y or a not her gr o up e nti t y; or u cash/other assets based on share price (share option price) of the entity or another group entity ; ( s ubj ect t o s ati sf acti o n of vesti ng c o ndi ti o ns me nti o ne d i n t he agr ee me nt) The di sti ncti o n bet wee n e mpl oyee a nd ot her t ha n t he e mpl oyee i s important as the measurement of s har e- bas e d pay me nt s differs acc or di ngl y.

A ‘share-based payment transaction’ i s a t r a ns acti o n i n whi c h t he e nti t y: u receives goods or services f r o m t he s uppli er of t hos e g oo ds or s er vi ces (i ncl udi ng a n e m - pl oyee) i n a s har e- bas e d pay me nt arr a nge me nt; or (in this case - the entity (A Ltd.) receives goods/services and A Ltd. settles the obligation either by paying cash based on its share price or issuing equity shares)

u incurs an obligation to settle t he t r a ns acti o n w i t h t he s uppli er i n a s har e- bas e d pay me nt arr a nge me nt when another group entity receives those goods or services . (Read it carefully, another group entity receives the goods/services from any supplier/employee and this entity is going to settle the obligation - Like, Subsidiary receives the services from its employees but Holding Co. issues its shares to subsidiary employees ) Thi s part i s g oi ng t o be di s c uss e d i n det ail t o war ds t he e nd of t hi s c ha pt er.

What do you mean by “group” entity?

The gr o up i ncl udes par e nt, s ubsi di ari es (i ncl ude s ub- s ubsi di ar y al s o), f ell o w s ubsi di ari es. It does not i ncl ude Ass oci at es & J oi nt Ve nt ur es.

What do you mean by “Goods”?

Goo ds i ncl ude i nve nt ori es, c o ns u ma bl es, pr opert y, pl a nt a nd e q ui p me nt, i nt a ngi bl e ass et s a nd ot her no n- fi na nci al ass et s.

Re a d t he a bove t wo defi ni ti o ns ver y c ar ef ull y t wo t o t hr ee ti mes.

Let us di s c uss, what ki nd of t r a ns acti o ns will be i ncl ude d or e xcl ude d i n t hi s st a ndar d

2. Scope

Thi s st a ndar d i s applicable t o all share-based payment transactions i n r el ati o n t o g oo ds or s er vi ces r ecei ve d irrespective of its specific identification. ( That i s, t he st a ndar d i s a ppli c a bl e t o g oo ds / s er vi ces whet her i de nti fi e d or uni de nti fi e d) Thi s i s i ncl udi ng:

( a ) e q ui t y- s ettl e d s har e- bas e d pay me nt t r a ns acti o ns - It settles by issuing equity instruments or share option of the entity;

(b ) c as h- s ettl e d s har e- bas e d pay me nt t r a ns acti o nsIt settles by giving either cash or other assets of the entity but based on share price of the entity;

( c ) c hoi ce of s ettl e me nt - It c a n be s ettl e d ei t her by gi vi ng c as h/ ot her ass et s or i ss ui ng e q ui t y i nst r u me nt s. Thi s c hoi ce c a n be ei t her w i t h t he e nti t y or t he c o unt er part y; (d ) uni de nti fie d Goo ds / Ser vi ces t hat ar e bei ng r ecei ve d; a nd

( e ) i n s o me c as es, o ne e nti t y(Subsidiary) i s r ecei vi ng t he g oo ds or s er vi ces b ut ot her gr o up e nti t y (Say parent entity) has t o s ettl e t he o bli gati o n a nd vice versa i.e. ot her gr o up e nti t y (Parent ) r ecei ve d g oo ds or s er vi ces a nd t he e nti t y (Subsidiary ) nee ds t o s ettl e t he o bli gati o n. Thi s st a ndar d i s a ppli c a bl e t o bot h t he e nti ti es r ecei vi ng Goo ds or Ser vi ces as well who s ettl es t he pay me nt.

Non-applicability

( a ) A t r a ns acti o n w i t h e mpl oyees ( or ot her parti es) i n hi s / her capacity as a holder of equity instruments of t he e nti t y i s not a s har e- bas e d pay me nt t r a ns acti o n

For example, Rights issue - if an entity grants rights to purchase additional shares to all holders of a particular class of its equity instruments at a price that is less than the fair value, and an employee receives such a right because he is a holder of equity instruments, the granting or exercise of that right is not covered by this Standard .

(b ) Tr a ns acti o ns i n whi c h t he e nti t y ac q ui r es g oo ds as part of t he net ass et s ac q ui r e d i n a business combination. Ho we ver, e q ui t y i nst r u me nt s granted to employees of the acquiree in their capacity as employees ( e. g. i n r et ur n f or c o nti n ue d s er vi ce) ar e within the scope of this Standard. I nd AS 103 g ui des whet her t he e q ui t y i nst r u me nt s ar e i ss ue d f or c o nt r ol ac q ui si ti o n or c o nti n ue d s er vi ces.

( c ) The t r a ns acti o n under a c o nt r act i s w i t hi n t he s c ope of Fi na nci al I nst r u me nt s I nd AS 32.

Let us look into the definitions of the standard before entering into concept capsules .

3. Definitions

“Equity-settled” share-based payment transaction : A s har e- bas e d pay me nt t r a ns acti o n i n whi c h t he e nti t y: ( a ) r ecei ves g oo ds or s er vi ces as c o nsi der ati o n f or i t s o wn e q ui t y i nst r u me nt s (i ncl udi ng s har es or s har e opti o ns), or (b ) r ecei ves g oo ds or s er vi ces b ut has no obligation to settle t he t r a ns acti o n w i t h t he s uppli er (because it will be settled by group entity)

“Cash-settled” share-based payment transaction : A s har e- bas e d pay me nt t r a ns acti o n i n whi c h t he e nti t y acquires goods or services by incurring liability to transfer cash or other assets t o t he s uppli er of t hos e g oo ds or s er vi ces f or a mo unt s t hat ar e bas e d o n t he pri ce ( or val ue) of e q ui t y i nst r u me nt s (i ncl udi ng s har es or s har e opti o ns) of t he e nti t y or a not her gr o up e nti t y We will learn few more definitions at later point of time Read so far discussion carefully for two to three times before attempting the concept capsules

Concept capsule 1

Discuss whether this Standard is applicable in the following cases:

1. Entity B grants 10 shares to its employees provided that they remain in service for the next 12 months.

2. Entity C grants employees a cash bonus equal to C’s share price growth provided that they remain in service over the next 12 months.

3. Entity E’s share price is `120. E awards a cash bonus of `120 to employees, payable in one year to those who remain in service during the next 12 months.

4. Entity D awards a cash bonus of 500 to employees, payable in one year to those who remain in service if D’s share price exceeds a price of `10 per share during the next 12 months.

5. Entity E is developing a new product and purchases a patent from entity F. The parties agree a purchase price of 1,000 of entity E’s shares. These will be issued to entity F within 60 days of finalising the legal documentation that transfers the patent from entity F to entity E.

6. An individual with a 40% shareholding in entity F awards 2% of his shareholding in entity F to a director of entity F’s subsidiary, entity G, in exchange for employment services;

7. Shares, share options, Bonus shares or other equity instruments are granted to employees as part of their remuneration package, in addition to a cash salary and other employment benefits.

8. Entity F needs a new Plant & Machinery and has arranged to acquire it from an existing shareholder. The purchase price will be settled by the entity issuing 1,500 new shares. For legal purposes, the transaction is considered as an in-kind capital contribution of P&M.

9. Entity H enters into a contract to purchase 10 tonnes of cocoa beans. The purchase price will be settled in cash at an amount equal to the value of 100 of entity H’s shares. But the entity can settle the contract at any time by paying an amount equal to the current market value of `100 of its shares less the market value of 10 tonnes of cocoa beans. The entity has entered into the contract as part of its hedging strategy and has no intention of taking physical delivery of the cocoa beans. (Read carefully)

10. The management committee of an entity has initiated a plan to provide some stock options to its employees but there are some terms which are yet to be finalized and the plan is not yet communicated to employees till the year end. Whether this standard should be followed for the current year?

11. An entity issuing its own shares for a charity without any consideration.

Suggested answer

1. The entity is receiving employee services for 12 months period and it is settling the same by issuing the shares to employees. This is an equity-settled share-based payment - covered by this Standard.

2. The entity is receiving required period of service (12 months) from employees and it is settling the same by paying cash which is determined based on the change in share price. This is a cash-settled sharebased payment. This award is also known as an SAR.

3. This is not a share-based payment. Although the payment to the employees is linked to the delivery of service from the employees, the payment is not based on the share price of E. i.e. employee receives ` 120 irrespective of increase or decrease in share value over the period. The award is considered an employee benefit in the scope of Ind AS 19.

4. Although D has an obligation if the share price-related target is met and the employees provide the required services, the amount of the payment is not based on the share price of D. The award is considered an employee benefit in the scope of Ind AS 19. This is not a share-based payment.

5. The entity is issuing shares as a consideration of received goods (patents - intangible asset). This is equity settled share-based payment;

6. As per the definition, agreement between a shareholder of any group entity and another person - In this case, the individual is share holder of the group entity and issuing to the director (other person) of the its subsidiary for employee services. This is scoped into the standard. The award will be reflected in entity G’s financial statements and in entity F’s consolidated financial statements

7. Shares, share options, Bonus shares issued for receipt of services in the capacity of employee. These transactions are within the scope of the standard and come under equity settled share based payment.

8. The counterparty did not act in its capacity as shareholder, but as a supplier of the P&M. It is like, the entity is issuing shares for the receipt of goods (P&M) from another party. This transaction is within the scope of the standard.

9. The transaction meets the definition of a cash-settled share-based payment transaction (that is, entity H has acquired goods in exchange for payment of an amount based on the value of its shares). However, the contract can be settled net and has not been entered into to satisfy entity H’s expected purchase, sale or usage requirements as there is no intention of taking delivery. So the transaction is outside the scope and is instead dealt with under Ind AS 32.

10. As per the definition of share based arrangement is an agreement between the parties. The standard will be applicable only when there is a binding agreement. Moreover, as the arrangement has not even been communicated to the employees, there is nothing to account.

11. It has been mentioned above that this standard is applicable for goods/services whether identified (or) unidentified. Suppose, the value of the goods received has been paid by issuing its own equity shares but if the fair value of the goods received is less than the value of share issued by the entity, then it means that some unidentified goods/services will be received. In case, the difference is to be debited to P&L if it merits to be considered as an expense. Similarly, if the fair value of the goods received is more than the value of the shares issues by the entity, it means that some unidentified goods/services have been received.

In this case, the difference is to be credited to P&L. The given case falls under this scenario and hence, Ind AS 102 is applicable. However, this treatment is not applicable in case of transactions with those who are considered as employees for tax purpose.

(This concept will be clear in the following concept capsules)

Concept capsule 2

A Ltd. who received services from the employees issued Employee share options. Whether this transaction is to be accounted under this standard?

What if the Company provides Share incentive plans?

Suggested answer

As per Ind AS 102, a share based payment arrangement is an agreement between the entity and another party which entitles the other party to equity instruments as a consideration for receipt of goods/services.

ESOs offer the option holders the right to buy a certain amount of company shares at a predetermined price for a specific period of time.

Share incentive plan means encouraging employees at all levels to acquire shares in the employer company.

In both the above cases, there is no obligation to settle the transaction with the supplier. But, since this is related to receipt of services and Equity based settlement, this standard applies to this transaction.

Fair value: The a mo unt f or whi c h a n ass et c o ul d be e xc ha nge d, a li a bili t y c o ul d be s ettl e d, or a n equity instrument granted c o ul d be e xc ha nge d, bet wee n k no w l e dge a bl e a nd willi ng parti es i n a n ar m ’ s l e ngt h t r a ns acti o n ( The defi ni ti o n of “ f ai r val ue” as per t hi s st a ndar d i s t oo di ff er e nt f r o m f ai r val ue as per I nd AS 113 - Yo u s ho ul d not r ef er t o I nd AS 113 f or t he p ur pos e of t hi s St a ndar d). Fai r val ue whi c hi s r e q ui r e dt o be us e di s not just a quoted price of a ny s ec uri t y. Ther e ar e s o me mar ket r el at e d c o ndi ti o ns a nd/ or no n- vesti ng c o ndi ti o ns t hat s ho ul d be c o nsi der e d i n t he det er m i nati o n of f ai r val ue He nce t o det er m i ne s uc h f ai r val ue, o ne has t o us e val uati o n t ec hni q ues Ho we ver, t her e i s no s peci fi c pr ovi si o n i n t he St a ndar d t o t hi s e xt e nt Bl ac k Sc hol es pri ci ng mo del a nd Bi no m i al pri ci ng mo del ar e ge ner all y acce pt e d a nd w i del y us e d St a ndar d s peci fi es t he f oll o w i ng m i ni mu mi np ut s t o be us e d whil e c al c ul ati ng t he f ai r val ue.

( a ) Exer ci s e pri ce of t he opti o n;

(b ) Li f e of t he opti o n;

( c ) Curr e nt pri ce of t he underl yi ng s har es;

(d ) Ex pect e d v ol atili t y of t he s har e pri ce;

( e ) Di vi de nd e x pect e d o n t he s har es (i f a ppr opri at e); a nd

(f ) Ri s k- f r ee i nt er est r at e f or t he li f e of t he opti o n.

4. Recognition

An e nti t y s hall recognise t he goods or services (i.e. e nt er i n t he books by de bi ti ng t he g oo ds /s er vi ces) i n a s har e- bas e d pay me nt t r a ns acti o n only when it receives them . Acc o unti ng i s bas e d o n t he met ho d of s ettl e me nt of t he li a bili t y.

How is it being settled?

Journal entry

Goo ds /s er vi ces a/c … . Dr To Equity (Share based payment reserve ) a/c Cas h- s ettl e d s har e- bas e d pay me nt Goo ds /s er vi ces a/c . Dr To Payable (Share based payment liability) a/c

Eq ui t y- s ettl e d s har e- bas e d pay me nt

Whether goods/services will be recorded as asset or expense?

Well, t hi s i s not under t he s c ope of t hi s St a ndar d. One s ho ul d r ef er t o t he basi c defi ni ti o n of ass et a nd c o ndi ti o ns t o be f ul fill e d t o r ec og ni s e a n ass et I f t he underl yi ng g oo ds or s er vi ces s ati sf y t he defi ni ti o n a nd c o ndi ti o ns of a n ass et - i t c a n r ec og ni s e as a n ass et, ot her w i s e i t s ho ul d be c har ge d t o P &L as a n e x pe ns e

For example

Us uall y, whe n a ny c o unt er part y pr ovi des s er vi ces - i t will be e x pe ns e d i n t he s a me ye ar I f t he e nti t y r ecei ves g oo ds - i t s ho ul d be i ni ti all y r ec og ni s e d as i nve nt or y a nd l at er i t s ho ul d be c har ge d t o t he st at e me nt of P &L whe n i nve nt or y i s c o ns u me d. I f t hes e i t e ms us e d f or de vel op me nt p has e of i nt a ngi bl e ass et - i t will be c a pi t ali s e d al o ng w i t h I nt a ngi bl e ass et as per I nd AS 38.

Let us learn this standard in FOUR PARTS

Part I - Eq ui t y- s ettl e d Shar e bas e d pay me nt t r a ns acti o ns;

Part II - Cas h- s ettl e d Shar e bas e d pay me nt t r a ns acti o ns;

Part III - Shar e bas e d pay me nt t r a ns acti o ns w i t h c as h al t er nati ves;

Part I V - Shar e- bas e d pay me nt t r a ns acti o ns a mo ng gr o up e nti ti es.

Part

I

- Equity-settled Share Based payment transactions

As we l e ar nt a bove, i n c as e of acc o unti ng f or e q ui t y- s ettl e d s har e bas e d pay me nt t r a ns acti o nsGoo ds /s er vi ces r ecei ve d will be de bi t e d a nd c orr es po ndi ng cr e di t be gi ve n t o Eq ui t y.

At what value?

First Preference Rec or d at Fair Market Value of Goods/Services received; Second Preference Rec or d at Fai r Mar ket val ue of Eq ui t y i nst r u me nt s i ss ue d; ( t hi s i s o nl y whe n F MV of g oo ds /s er vi ces ca nnot be meas ur e d r eli a bl y)

Important points on fair value: u I f e mpl oyee pr ovi des s er vi ces t o t he e nti t y : Act uall y i t i s not possi bl e t o esti mat e t he f ai r value of t he s er vi ces. He nce o ne s ho ul d c o nsi der f ai r val ue of e q ui t y i nst r u me nt s i ss ue d; (This same rule is applicable - even others providing similar services); (Explained below). I n c as e of E mpl oyees, Fai r val ue of t he e q ui t y i nst r u me nt s s ho ul d be measured on the grant date ; u I n c as e of t r a ns acti o ns w i t h t he parties other than employees , St a ndar d’ s rebuttable assumption is that fair value of goods/services can be measured reliably . I n rare cases , i t may not be possi bl e t o me as ur e t he f ai r val ue of g oo ds /s er vi ces r ecei ve d, i n t hat c as e, as a n al t er nati ve, c o nsi der f ai r val ue of e q ui t y i nst r u me nt s i ss ue d; Eve n i n t hi s c as e, fair value of e q ui t y i nst r ume nt s s ho ul d be measured on the date when the entity receives the goods/services ( Not o n t he dat e of i ss ue of e q ui t y i nst r u me nt s)

What do you mean by “Employees and others providing similar services”?

I ndi vi d ual s who r e nder personal services t o t he e nti t y ar e ei t her ( a ) t he i ndi vi d ual s ar e r e gar de d as e mpl oyees f or l e gal or t ax p ur pos es; (b ) t he i ndi vi d ual s wor k f or t he e nti t y under i t s di r ecti o n i n t he s a me way as i ndi vi d ual s who ar e r e gar de d as e mpl oyees f or l e gal or t ax p ur pos es, or ( c ) t he s er vi ces r e nder e d ar e si mil ar t o t hos e r e nder e d by e mpl oyees

For example , t he t er m i ncl udes all ma nage me nt pers o nnel, i.e., t hos e pers o ns havi ng a ut hori t y a nd r es po nsi bili t y f or pl a nni ng, di r ecti ng a nd c o nt r olli ng t he acti vi ti es of t he e nti t y, i ncl udi ng no ne xec uti ve di r ect ors.

I n t hi s st a ndar d, E mpl oyees include “ Ot hers pr ovi di ng si mil ar s er vi ces”

The following diagram summarises the above discussion

I s t he t r a ns acti o n w i t h “ e mpl oyees or ot hers pr ovi di ng si mil ar s er vi ces” ?

NO NO

Ca n t he Fai r val ue of t he g oo ds /s er vi ces r ecei ve d be me as ur e d r eli a bl y?

Me as ur e F MV of t he e q ui t y i nst r u me nt s gr a nt e d at t he dat e whe n g oo ds /s er vi ces ar e r ecei ve d

YES YES

Me as ur e F MV of Eq ui t y i nst r u me nt gr a nt e d at GRANT DATE

Me as ur e F MV of g oo ds / s er vi ces r ecei ve d at the date they are received

Concept capsule 3

Indian Inc. issued 995 shares in exchange for purchase of an office building. The title was transferred in the name of Indian Inc. on 1st February, 2021 and shares were issued. Fair value of the office building was ` 2,00,000 and face value of each share of Indian Inc was ` 100 on that date. Pass the journal entries.

Suggested answer

As per Ind AS 102, in case of equity-settled share based payment transactions - Goods/services received will be debited and corresponding credit will be given to Equity. The entity should record the goods/services at its fair value as it is very clearly available.

1st February, 2021 ` `

Office Building Dr. 2,00,000

To Share capital (995 x 100) 99,500

To Securities premium (balance) 1,00,500 (Recognition of equity option and cash settlement option)

Concept capsule 4

An oil business hires an external consultant to assess its oil reserves. The service is provided over a five-month period; it will be settled by issuing 100 shares to the consultant, which was valued at ` 40 lakh when the contract was awarded. The entity estimates the cash fair value of the service to be ` 36 lakh, based on bids from other consultants. What would be the accounting treatment in the following cases:

Case 1: The consultant is considered an employee for tax purposes.

Case 2: The consultant is NOT considered as employee for tax purposes.

Suggested answer

As per Ind AS 102, if the identifiable consideration received (if any) by the entity appears to be less than the fair value of the equity instruments granted or liability incurred, typically this situation indicates that other consideration (i.e. unidentifiable goods or services) has been (or will be) received by the entity. The value of unidentifiable goods/services = Fair value of equity instruments issued - Fair value of goods/ services.

Case 1: The consultant is considered an employee for tax purposes:

As discussed above, services of the employees are measured at fair value of equity instruments issued, hence above discussion on unidentifiable services is not applicable.

Considering the above, the consultant is considered an employee for the purpose of this standard. So management should recognise the service at the fair value of the equity instruments granted i.e., ` 40 lakh.

Employee benefits a/c … Dr ` 40 lakh

To Equity Share capital ` 40 lakh

Case 2: The consultant is NOT considered an employee for tax purposes:

When the entity receives the services from other than employees, it should be measured at the fair value of the services on the date of receipt.

Considering the above discussion, recognise the services at its fair value i.e. `36 lakh and the difference between fair value of equity instruments and services received as unidentifiable services i.e. `4 lakh (` 40 lakh - ` 36 lakh). These unidentifiable services should be charged to P&L statement immediately.

Consultancy expenses a/c … Dr ` 36 lakh

Unidentifiable services (P&L).. Dr ` 4 lakh

To Equity Share capital ` 40 lakh

Concept capsule 5

Entity M receives consultancy services from Entity F and the consideration will be paid in the form of entity M’s ordinary shares. The agreed rate is two shares for one hour of consultancy service. Entity F has a schedule of rates. They charge ` 10,000 per hour for a similar project. At the grant date the fair value of one share is ` 5,000 (No unidentified G/S’s). How should this be accounted for if there are change in scale rate over the life of the contract or changes in equity?

Suggested answer

Measurement of fair value by Direct method

In the given case, Entity M should debit the expense a/c and Credit the equity a/c by `10,000 for each hour of consultancy services received. Here, there is no scope for unidentified services as there is no difference between the value of goods or services received and equity shares issued.

If the scale rate changes over the life of the contract, this means that it could be either above (or) below `10,000 and it is not necessary that the fair value of its share also should change in similar direction. Hence, it could potentially lead to a situation wherein the fair value of service charges and fair value of its share could differ which then gives rise to the recognition of unidentifiable services as illustrated in previous concept capsule. Changes to the share price over the life of the contract will not affect the amounts to be recognized as an expense but obviously it could affect the amount of unidentifiable services.

Note that the counterparty is an entity rather than an individual that is providing services; and so it does not fall within the category of employees/others providing similar services.

Indirect Method: In the above case, if Entity F receives additional 100 shares for other services which cannot be measured directly, the value should be arrived at measuring the fair value of 100 shares at the date the counterparty renders service.

Concept capsule 6

An entity grants shares, with a total fair value of ` 1,00,000, to parties other than employees who are from a particular section of the community. The economic benefits derived from enhancing its corporate image could take a variety of forms, such as increasing its customer base, attracting or retaining employees (who might prefer to work for an entity that supports such ‘good causes’), and improving or maintaining its ability to tender successfully for business contracts. Is this covered by Ind AS 102? And if Yes, how to recognise and measure?

Suggested answer

In the given case, the entity cannot identify the specific consideration received. For example, no cash was received and no service conditions were imposed. So the identifiable consideration (nil) is less than the fair value of the equity instruments granted (` 1,00,000). The circumstances indicate that unidentifiable goods or services have been (or will be) received, and so this standard applies.

Generally, as per the standard, there is a rebuttable presumption that the fair value of the goods or services received can be estimated reliably. But in the given case, it does not apply. So, the entity should instead measure the goods or services received by reference to the fair value of the equity instruments granted. It should record the following journal entry

Unidentifiable services (sales promotion exp) (P&L).. Dr ` 1 lakh

To Equity Share capital ` 1 lakh

Let us learn few more words before getting into the subject little deeper What do you mean by “Vesting”?

Vesti ng me a ns becoming entitled . That i s, t he counterparty ( e mpl oyees /a ny ot her part y) i s entitled to receive cash, other assets or equity i nst r u me nt s of t he e nti t y. Us uall y, vesti ng i s s ubj ect t o cert ai n c o ndi ti o ns whi c h ar e di s c uss e d bel o w at l e ngt h.

What are “Vesting conditions”?

Thes e ar e t he c o ndi ti o ns me nti o ne d i n t he s har e- bas e d pay me nt arr a nge me nt whi c h nee d t o be s ati sfi e d by t he c o unt er part y t o bec o me e nti tl e d. A vesti ng c o ndi ti o n i s ei t her a service condition or a performance condition

Vesting period: Ref ers t o t he peri o d d uri ng whi c h all t he s peci fi e d vesti ng c o ndi ti o ns of a s har ebas e d pay me nt arr a nge me nt ar e t o be s ati sfi e d

What do you mean by “Service condition” & “Performance condition”?

Service condition: It i s a vesti ng c o ndi ti o n t hat r e q ui r es t he counterparty to complete a specified period of service I f t he c o unt er part y ce as es t o pr ovi de s er vi ce d uri ng t he vesti ng peri o d ( r e gar dl ess of t he r e as o n), i t has f ail e d t o s ati sf y t he c o ndi ti o n. A s er vi ce c o ndi ti o n does not require to meet a performance target .

Example

An entity issued shares options to its existing employees who remain in service for next 3 years and the benefit will be settled in cash of an equivalent amount of share price.

Performance condition: A vesti ng c o ndi ti o n t hat r e q ui r es ( a ) t he c o unt er part y t o complete a specified period of service (i.e., a s er vi ce c o ndi ti o n); t he s er vi ce r e q ui r e me nt c a n be e x pli ci t ( pr eci s el y c o mmuni c at e d) or i mpli ci t ( I mpli e d); a nd (b ) s peci fie d perf or ma nce t ar get s ho ul d be met whil e t he c o unt er part y i s r e nderi ng t he s er vi ces as per poi nt ( a) a bove. Examples include - Ac hi e vi ng s al es t ar get, Pr o fit t ar get, Mar ket pri ce t ar get, et c. Thes e t ar get s may be pert ai ni ng t o t he e nti t y or a ny ot her e nti t y i n t he s a me gr o up or partl y r el at e d t o e nti t y a nd r e mai ni ng r el at e d t o a not her e nti t y i n t he gr o up

What is “Grant date”?

The date o n whi c h both the parties ( t he e nti t y & c o unt er part y) agreed to SBP arrangement

At gr a nt dat e t he e nti t y gr a nt s t he c o unt er part y t he ri g ht t o c as h, ot her ass et s, or e q ui t y i nst r u me nt s of t he e nti t y s ubj ect t o s ati sf acti o n of s peci fi e d vesti ng c o ndi ti o ns me nti o ne d i n t he agr ee me nt I f t hat agr ee me nt i s s ubj ect t o a n a ppr oval pr ocess ( f or e xa mpl e, by s har e hol ders), grant date is the date when that approval is obtained .

Read the above words once again carefully and then get into the next topic. There are few situations, let us handle separately.

Concept capsule 7

Entity initiated a share based payment agreement in its board meeting and directed the supervisors to communicate the agreement to the employee. Consider the following scenarios and determine grant date:

(1) Employees have not yet given his/her consent either implicitly or explicitly. However, entity has taken approval of the agreement in its General Meeting.

(2) Employees have agreed to the terms implicitly/explicitly. However, the approval process is under finalization.

(3) Certain terms have not been specifically mentioned since they are based on some subjective conditions in future.

Suggested answer

Grant date is the date on which both the parties (the entity & counterparty) agreed to share based arrangement. If the agreement is subject to an approval, the grant date is the date on which such approval is obtained.

(1) Even when the approval has been obtained in general meeting, no consent has been given by an employee/counterparty; therefore, grant date cannot be determined.

(2) Even when the employee/counterparty has agreed to the terms but approval process is still not complete, hence the grant date should be the date when approvals are obtained.

(3) Terms/conditions mentioned in the agreement must be objectively defined and should not be based on subjective outcome. Mutual understanding is crucial which essentially means that all terms/clauses and calculation related to the equity prices must be clear and objectively defined.

In all of the above cases, grant date cannot be determined.

Situation 1

Equity instruments which are granted vest immediately Thi s me a ns, no vesti ng c o ndi ti o ns ar e t o be s ati sfi e d f or e nti tl e me nt. I n ot her wor ds, t he c o unt er part y nee d not f ul fil ei t her s er vi ce or perf or ma nce c ondi ti ons. It i s ass u me dt hat s er vi ces have bee n r ecei ve d . The e nti t y s hall r ec og ni s e t he s er vi ces r ecei ve d i n f ull, w i t h a c orr es po ndi ng i ncr e as e i n e q ui t y o n t he gr a nt dat e.

Concept capsule 8

Management of an entity decides to declare bonus to certain key employees for their past services amounting to ` 20 lakh which is payable by the issue of shares. Account for the transaction.

Suggested

answer

In the given case, there are no conditions are to be satisfied for entitlement. Hence, the amount equivalent to the shares will be recognised immediately as cost of employees because there are no conditions to be fulfilled for vesting.

Employee benefits a/c … Dr ` 20 lakh

To Equity Share capital ` 20 lakh

Situation 2

Equity instruments which are granted upon completion of specific period of service by counterparty I n t hi s c as e, Ser vi ces t o be r e nder e d d uri ng t he vesti ng peri o d by t he c o unt er part y = Co nsi der ati o n f or Eq ui t y i nst r u me nt s t o be i ss ue d.

The e nti t y s hall acc o unt f or ( De bi t) t hos e s er vi ces as t he y ar e r e nder e d by t he c o unt er part y d uri ng t he vesting period , w i t h a c orr es po ndi ng i ncr e as e i n e q ui t y ( Cr e di t).

For example ( a ) I f a n e mpl oyee i s gr a nt e d s har e opti o ns c o ndi ti o nal upo n s er vi ce c o ndi ti o ns (E.g., complete three years’ service) - t he s peci fie d s er vi ce peri o d i t s el f bec o mes t he vesti ng peri o d. I n t hi s c as e, c o nsi der ati o n f or s har e opti o ns gr a nt e d by t he e nti t y i s s er vi ces t o be r e nder e d by t he e mpl oyees d uri ng t he vesti ng peri o d a nd he nce, e x pe ns e f or t he s er vi ce r ecei ve d will be r ec og ni s e d over t he vesti ng peri o d. ( I n f act, vesti ng s hall t a ke pl ace o nl y upo n c o mpl eti o n of s peci fie d 3 ye ars i n t hi s c as e, ho we ver, we c a nnot post po ne r ec og ni ti o n of s er vi ce e x pe ns e until t he n a nd mor e over, i t i s pr ude nt a nd al s o i n li ne w i t h ge ner all y acce pt e d acc o unti ng pri nci pl es t o accr ue t he e x pe ns e bas e d o n ma nage me nt’ s best esti mat e of ho w ma ny of t he st aff ar e g oi ng t o f ul fil t he vesti ng peri o d c o ndi ti o n. )

Concept capsule 9 - Service condition

Entity A grants share options to employees with a service condition of 3 years. The estimated Fair value of the share options on the grant date is ` 6,00,000. What is the amount charged if none of the employees leave the entity during the vesting period.

Suppose, on the grant date, management has estimated that 5% employees will leave the entity and further, in the second year the estimate gets changed to only 3% but at the end of 3rd year, the options that are actually vested are only 93%. Account for this share based transaction for each year.

Suggested answer

In case of equity-settled share based payment transactions - Goods/services received will be debited and corresponding credit be given to Equity. Generally, equity instruments are valued at the fair value of goods/ services received, but in case of services received from employees - as it is not possible to measure the fair value of services reliably, we should recognise at fair value of equity instruments.

If none of the employees leave the entity: The services are rendered for a period of 3 years which is the vesting period. In this period, the employees become entitled for the share options.

Fair value of the options on the grant date = ` 6,00,000; We need not consider any movements in the entity’s share price.

This will be recognised over the vesting period of 3 years equally i.e. ` 2,00,000 p.a. this is charged to the statement of P&L as expense. This charge will be unchanged.

The following Journal entry is recorded every year

Employee benefit expense a/c … Dr ` 2 lakh

To Equity Share capital ` 2 lakh

If the employees leave the entity during the vesting period:

At the end of the Period Proportion to be amortised

Fair value To be vested Cumulative expenses Expenses a b c d= b x c x a e = d-previous period d

Year 1 1/3 6,00,000 95% 1,90,000 1,90,000 Year 2 2/3 6,00,000 97% 3,88,000 1,98,000 Year 3 3/3 6,00,000 93% 5,58,000 1,70,000

Journal entries:

31st March, Year 1

Employee benefits expenses Dr. 1,90,000

To Share based payment reserve (equity) 1,90,000 (being 1/3 of expected vested equity instruments value)

31st March, Year 2

Employee benefits expenses

Dr. 1,98,000

To Share based payment reserve (equity) 1,98,000 (Being 2/3 of expected vested equity instruments value)

31st March, Year 3

Employee benefits expenses Dr. 1,70,000

To Share based payment reserve (equity) 1,70,000 (Being Final vested equity instruments value)

Share based payment reserve (equity)

Dr. 5,58,000

To Share Capital 5,58,000 (Being re-allocated and issued shares)

Vesting conditions

Before learning the point (b) - Yo u nee d t o underst a nd t he t y pes of vesti ng c o ndi ti o ns. Ti m i ng a nd me as ur e me nt ( a mo unt) of e x pe ns e vari es bas e d o n t he t y pe of vesti ng c o ndi ti o ns. Bas e d o n t he t y pe of c o ndi ti o ns, t he e nti t y may r e vers e pr e vi o usl y r ec og ni s e d e x pe ns e - i f t he c o ndi ti o ns ar e not met Let us f oc us o n cl assi fi c ati o n of c o ndi ti o ns Read carefully

Co ndi ti o ns

Vesti ng

Ser vi ce Mar ket r el at e d

Service conditions:

No n- vesti ng

Perf or ma nce No n- mar ket r el at e d

It i s a vesti ng c o ndi ti o n t hat r e q ui r es t he counterparty (employee) to complete a specified period of service t o be eli gi bl e f or e mpl oyee s har e bas e d pay me nt. I rr es pecti ve of t he r e as o ns, i f t he e mpl oyee f ail s t o pr ovi de s er vi ces d uri ng t he s peci fi e d peri o d - t he y ar e not eli gi bl e f or s har e bas e d pay me nt s. Her e, e mpl oyee o nl y nee ds t o pr ovi de s er vi ces a nd not ac hi e ve a ny s peci fi c perf or ma nce t ar get s pert ai ni ng t o hi s fi el d of wor k li ke l e vel of pr o d ucti o n, PAT , et c

For example

As per the agreement an entity issues 100 shares each to its 1,000 employees if they remain in service with the entity for next 3 years. This would be considered to be a service condition; 3 years being the period over which employee would be required to be in service as a vesting condition.

Performance conditions:

A vesti ng c o ndi ti o n t hat r e q ui r es:

( a ) t he counterparty to complete a specified period of service (i.e. a s er vi ce c o ndi ti o n); t he s er vi ce r e q ui r e me nt c a n be e x pli ci t or i mpli ci t; and (b ) specified performance target(s) to be met whil e t he c o unt er part y i s r e nderi ng t he a bove s er - vi ce

Note that every performance condition is attached with a service condition. A performance condition i s f urt her cl assi fi e d i nt o t wo c at e g ori es:

1. No n- mar ket r el at e d c o ndi ti o n; a nd

2. Mar ket r el at e d c o ndi ti o n.

Non-market related condition i ncl udes a perf or ma nce t ar get w i t h r ef er e nce t o t he entity’s own operations ( or acti vi ti es); or i t s gr o up e nti t y ; like achieving specific percentage growth in profits/ EPS; Completion of Research project, etc.;

For example,

An entity issued some stock options to employees with a condition that they have to remain in the organisation for next 2 years and EBITA of the entity should rise to ` 10 Crore. Here, the EBITA target is non-market related condition. Market related condition i ncl udes a perf or ma nce t ar get w i t h r ef er e nce t o pri ce of e q ui t yi nst r u me nt s ( s har e pri ce /s har e opti o n pri ce) of t he e nti t y or i t s gr o up e nti t y;

For example,

An entity issues stock options to its employees who will serve the organization for next 2 years and till the time the share price reaches to ` 100. The target price to reach ` 100 is one of the market related condition. A perf or ma nce t ar get m i g ht r el at e ei t her t o t he perf or ma nce of t he e nti t y as a whol e or t o s o me part of t he e nti t y ( or part of t he gr o up), s uc h as a di vi si o n; or a n i ndi vi d ual e mpl oyee.

Non-vesting conditions:

Thi s i s not defi ne d by t he St a ndar d One c a n underst a nd t hat t hes e ar e ot her t ha n vesti ng c o ndi ti o ns It c a n be underst oo d t hat t hes e c o ndi ti o ns do not have any impact on eligibility to have share based payments . Thes e ar e nei t her s er vi ce nor perf or ma nce c o ndi ti o ns.

For example

1. An entity issued some stock options to its employees wherein they are required to serve minimum period of next 2 years and from the end of 2nd year there will further be waiting time till next 1 year within which the entity should achieve revenue of ` 100 Crore. However, the employee will not lose the entitlement even if he leaves the entity after the end of 2nd year. During the waiting time of 1 year, there isn’t any service condition. Hence, is neither a service condition nor a performance condition. Hence the condition of achieving revenue target is a non-vesting condition.

2. A n entity grants share options to a director on the condition that the director does not compete with the reporting entity for a period of at least three years. The fair value of the award at the date of the grant, including the effect of non-compete clause is ` 15 million. The ‘non-compete’ clause is a non-vesting condition because the entity does not receive any services. On the grant date, the entity immediately recognizes a cost of ` 15 million because director is not providing any future services. The entity cannot reverse the expense recognised, even if the director goes to work for a competitor and loses the share options. I n poi nt ( a) we l e ar nt - s er vi ce peri o d

Let us l e ar n t he point (b) i.e. r el at e d t o vesti ng c o ndi ti o n. (b ) I f t he s har e opti o ns ar e gr a nt e d t o e mpl oyees bas e d o n a performance condition (Non-Market condition) and e mpl oyee s ho ul d remain in employment until t hat perf or ma nce c o ndi ti o n i s s ati s fie d

The e nti t y s ho ul d estimate t he vesti ng peri o d o n t he gr a nt dat e bas e d o n most li kel y o ut c o me of t he perf or ma nce c o ndi ti o n The vesti ng peri o d c o ul d var y de pe ndi ng o n t he perf or ma nce c o ndi ti o n It me a ns, t he e nti t y s hall r e vi s e t he vesti ng peri o d bas e d o n t he s ubs e q ue nt i nf or - mati o n The e x pe ns e s ho ul d be r ec og ni s e d over t he esti mat e d vesti ng peri o d

I f t he perf or ma nce c o ndi ti o n i s a market condition, t he e nti t y esti mat es t he l e ngt h of vesti ng peri o d o n t he gr a nt dat e B UT i t does NOT revise the fair value of t he opti o ns gr a nt e d subsequently .

Treatment of vesting/non-vesting conditions

Vesting conditions

Where to consider?

Non-Market conditions u Do n ’ t c o nsi der i n Fai r val ue of t he s har es / opti o ns o n t he meas ur e me nt dat e; u Co nsi der i n esti mati ng t he nu mber of e q ui t y i nst r u me nt s ex pect e d t o be vest e d; u

If a ny of t he no n- mar ket vesti ng c o ndi ti o ns i s not satisfied , NO a mo unt i s r ec og ni s e d; u Say 1st year ex pe ns e i s r ec og ni s e d as c o ndi ti o ns ar e s ati s fie d, But next year c o ndi ti o ns ar e not s ati s fie dReverse the entire amount earlier recognised u If t he perf or ma nce c o ndi ti o n i s not a mar ket c o ndi ti o n, t he e nti t y s hall r evi s e i t s esti mat e of t he l e ngt h of t he vesti ng peri o d bas e d o n t he s ubs eq ue nt i nf or mati o n

Market conditions u

u

Mar ket c o ndi ti o ns ar e c o nsi der e d whil e det er m i ni ng t he Fair value of the option at t he gr a nt dat e;

Recognise

t he goo ds or s er vi ces r ecei ve d f r o ma c o unt er part y who s ati s fies ALL OTHER vesti ng c o ndi ti o ns ( e g s er vi ces r ecei ve d f r o m a n e mpl oyee who r e mai ns i n s er vi ce f or t he s peci fie d peri o d of s er vi ce), irrespective of whether that market condition is satisfied ( si nce, t hi s i s c o nsi der e d f or pri ce).

u If t he perf or ma nce c o ndi ti o n i s a mar ket c o ndi ti o n, t he esti mat e of t he l e ngt h of t he ex pect e d vesti ng peri o d s hall be c o nsi st e nt w i t h t he ass u mp - ti o ns us e d i n esti mati ng t he f ai r val ue of t he opti o ns gr a nt e d, a nd s hall NOT be s ubs e q ue ntl y r evi s e d

Non-vesting conditions u Rec og ni s e t he g oo ds or s er vi ces r ecei ve d f r o ma c o unt er part y t hat s ati s fies

ALL VESTING CONDITIONS t hat ar e not market conditions ( e g , s er - vi ces r ecei ve d f r o m a n e mpl oyee who r e mai ns i n s er vi ce f or t he s peci fie d peri o d of s er vi ce), irrespective of whether those non-vesting conditions are satisfied .

Note:

The a mo unt r ec og ni s e d i n e q ui t y r e mai ns s a me. The e nti t y c a n c hoos e t o t r a nsf er t hi s t o retained earnings. Bel o w me nti o ne d t a bl e f urt her s u mmari z es t he i mpact of vari o us c o ndi ti o ns: -

Conditions

Impact of vesting condition while determining the FV of option (Refer Note 1)

Impact to be considered in determining the number of shares vest. (Refer Note 2) Ser vi ce c o ndi ti o n No Yes

Perf or ma nce c o ndi ti o n - Mar ket r el at e d Yes No

Perf or ma nce c o ndi ti o n - No n- mar ket r el at e d No Yes No n- vesti ng c o ndi ti o n Yes No

Note 1: u Shar e bas e d pay me nt ( S BP) will be me as ur e d at f ai r val ue o n i ni ti al r ec og ni ti o n whi c h will i ncl ude t he eff ect of t hes e c o ndi ti o ns.

u I n c as e of Equity settled S BP will be me as ur e d at f ai r val ue o n gr a nt dat e with no subsequent measurement (No revision).

u But in case of cash settled

S BP , f ai r val ue s hall be re-measured at each reporting date till its settlement in full.

Note 2:

u

u

No i mpact o n f ai r val uati o n of S BP .

Ho we ver, c o nsi der whil e esti mati ng t he e x pect e d n u mber of e q ui t y s har es at t he e nd of e ac h peri o d f or r ec og ni ti o n of t he s har e bas e d pay me nt.

Important points

u

Ho we ver, s er vi ce c o ndi ti o ns will be c o nsi der e d as per t he e x pect e d vesti ng ri g ht t o be e xer ci s e d by t he e mpl oyees a nd wo ul d be r e- esti mat e d d uri ng vesti ng peri o d Ho we ver, i f t he mar ket r el at e d c o ndi ti o n i s f ul fill e d bef or e i t i s e x pect e d t he n all r e mai ni ng e x pe ns es wo ul d i mme di at el y be c har ge d off I f mar ket r el at e d c o ndi ti o n t a kes l o nger t ha n t he e x pect e d peri o d t he n ori gi nal e x pect e d peri o d will be f oll o we d.

u

u

The a mo unt r ec og ni s e d f or g oo ds or s er vi ces r ecei ve d d uri ng t he vesti ng peri o d s hall be bas e d o n t he n u mber of s har e opti o ns e x pect e d t o vest.

The e nti t y s hall revise that estimate , i f necess ar y, i f s ubs e q ue nt i nf or mati o n i ndi c at es t hat t he n u mber of s har e opti o ns e x pect e d t o vest di ff ers f r o m pr e vi o us esti mat es.

u

On vesti ng dat e, t he e nti t y s hall r e vi s e t he esti mat e t o e q ual t he n u mber of e q ui t y i nst r u me nt s t hat ul ti mat el y vest e d.

Aft er vesti ng dat e, t he e nti t y s hall r e vers e t he a mo unt r ec og ni s e d f or g oo ds or s er vi ces r e - cei ve d i f t he s har e opti o ns ar e l at er f orf ei t e d, or l a ps e at t he e nd of t he s har e opti o n ’ s li f e. Re a d all t he a bove poi nt s o nce agai n bef or e t a ki ng up t he c o nce pt c a ps ul es.

u

Following concept capsules will make you understand this better.

Concept capsule 10

An entity issued 100 shares each to its 1000 employees under share based payment upon the condition to serve the organization for at least next 2-years subject to the below scenarios:- (Treat each scenario as independent)

1. EBIDTA of the entity shall be ` 10 million in next 2 years.

2. Share price of the entity shall be `150 in next 2 years.

3. Employee is required to serve additional 4 months from the end of 2 years but will have no impact on vesting rights at the end of 2nd year.

Explain the conditions and what to be considered while recognising the share based payment transactions?

Suggested answer

Remaining in service for minimum 2 years is a ‘service related condition’, it will be considered in the calculation of expected number of shares which will satisfy the conditions attached.

1. EBIDTA is one of the performance conditions which is non-market related, hence will be considered while making an estimation of number of shares which will satisfy the condition attached.

2. Share price target is one of the market related condition and hence it will be considered in the measurement of fair value at initial recognition (equity & cash settled) and at subsequent dates (in case of cash settled).

3. Additional 4-months requirement does not have any impact on eligibility to get share based payment. Therefore, it is a non-vesting condition and will be considered in fair value of the share based payment.

Concept capsule 11 (Market conditions)

On 1st April 2019, 100 employees were given 50 share options each. They shall vest if the employees continue to work for the entity on 31st March 2021 and if the share price on that date is more than ` 500.

On 1st April 2019, the fair value of the options was `100. The share price on 31st March 2020 was `300 and it was considered unlikely that the share price would rise to ` 500 by 31st March 2021. 10 employees left during the year ended 31st March 2020 and a further 10 are expected to leave in the following year.

How should the above transaction be accounted for in the year ended 31st March 2020?

Suggested answer

As per Ind AS 102, when market conditions are included in the share based payment arrangement, one should consider the market conditions in determining the fair value of the option. The expense recognised is based on the fair value of the option at the grant date. This should be spread over the vesting period.

There are two types of conditions attached to the share based payment scheme:

u A service condition (employees must complete a minimum 2 year service period);

u A market based performance condition (the share price must be more than `500 at 31st Dec 2021). Even though it looks unlikely that the share price will reach ` 500, this condition has already been factored into the fair value of the options at the grant date. Therefore, this condition can be ignored when determining the charge to the statement of profit or loss.

The expense to be recognised should therefore be based on only how many employees are expected to satisfy the service condition. The calculation is as follows: (100 employees - 10 - 10) x 50 options x `100 FV x 1/2 = ` 2,00,000. The journal entry to recognise:

Employee benefit expenses a/c.. Dr ` 2,00,000

To Share based payment reserve (equity) ` 2,00,000

Above journal entry is based on the details available as at 31.3.2020. (10 left already and 10 are expected to leave during next year). The entry that is to be made on 31.3.21 need not be exactly for ` 2 lakhs. As it’s going to be the end of the vesting period, the actual number of employees in whom the share options are vested is to be considered. That is, it could be 90 or less.

Concept capsule 12

Apple Limited has granted 10,000 share options to one of its directors for which he must work for next 3 years and the price of the share should increase by 20% over next 3 years. The share price has moved as below–

Year % of Increase in share price

Year 1 22

Year 2 19

Year 3 25

At the grant date, the fair value of the option was ` 120. How should we recognise the transaction?

Suggested answer

As per Ind AS 102, consider market conditions only in the measurement of fair value of the option at the grant date; Recognise the goods or services received from a counterparty who satisfies ALL OTHER vesting conditions (e.g. services received from an employee who remains in service for the specified period of service), irrespective of whether that market condition is satisfied (since, this is considered for price).

The share price movement is a market based vesting condition hence its expectations are taken into consideration while calculating the fair value (`120) of the option.

Even if the required market condition as required is not fulfilled, there is no requirement to reverse the expense previously booked.

Irrespective of the outcome of the market prices (as it is already taken care of in the fair value of the option), every year an amount of (120 x 10,000)/3 = ` 4,00,000 will be charged to P&L.

Concept capsule 13 (Non-Market conditions)

On 1 April 2018, Chinmayee Ltd. granted share options to each of its 200 employees, subject to a three-year vesting period, provided that the volume of sales increases by a minimum of 5% per annum throughout the vesting period. A maximum of 300 share options per employee will vest, dependent upon the increase in the volume of sales throughout each year of the vesting period as follows:

u If the volume of sales increases by an average of between 5% and 10% per year, each eligible employee will receive 100 share options.

u If the volume of sales increases by an average of between 10% and 15% per year, each eligible employee will receive 200 share options.

u If the volume of sales increases by an average of over 15% per year, each eligible employee will receive 300 share options.

At the grant date, the entity estimated that the fair value of each option was `10 and that the increase in the volume of sales each year would be between 10% and 15%. It was also estimated that a total of 22% of employees would leave prior to the end of the vesting period. At each reporting date within the vesting period, the situation was as follows:

Reporting date Employees leaving in a year

Further leaves expected prior to vesting date

Annual increase in sales volume

Expected sales volume INC over remaining vesting period

Avg. annual INC in sales volume to date

31 Mar 19 8 18 14% 14% 14%

31 Mar 20 6 4 18% 16% 16%

31 Mar 21 2 16% 16%

Calculate the impact of the above share-based payment scheme on Chinmayee Ltd.’s financial statements in each reporting period.

Suggested answer

As per Ind AS 102, when non-market conditions are included in the share based payment arrangement, u Don’t consider in Fair value of the shares/options on the measurement date;

u Consider in estimating the number of equity instruments expected to be vested; The expense recognised is based on the fair value of the option at the grant date. This should be spread over the vesting period of three years. The following table describes the calculations.

Rep. date Calculation of equity Equity Expense Note `000 `000

31 Mar 19 (174 x 200 x `10) x 1/3 116 116 1

31 Mar 20 (182 x 300 x `10) x 2/3 364 248 2

31 Mar 21 (184 x 300 x `10) x 3/3 552 188 3

Notes:

(1) At 31/03/19, a total of 26 employees (8+18) are expected to leave by the vesting date meaning that 174 are expected to remain. The entity estimates that average annual growth in sales volume will be 14%. Hence, it is estimated that eligible employees would each receive 200 share options at the vesting date.

(2) On 31/03/20, a total of 18 employees (8 + 6 + 4) are expected to leave by the vesting date meaning that 182 are expected to remain. The current average is 16% ((14+18)/2). The entity estimates that the average growth in sales volume will be 16%, which is greater than 15%. Consequently, it is estimated that eligible employees will each receive 300 share options at the vesting date.

(3) On 31/03/21, it is known that total of 16 employees (8 + 6 + 2) have left at some point during the vesting period, leaving 184 eligible employees. As average annual growth in sales volume over the vesting period was 16%, eligible employees are entitled to 300 share options each.

Reporting date

Employee benefit expenses Dr

31 Mar 19 31 Mar 20 31 Mar 21

1,16,000 2,48,000 1,88,000

To Share based payment reserve (equity) 1,16,000 2,48,000 1,88,000

Concept capsule 14 - Non-Market conditions

Avani Inc. grants 100 shares to each of its 500 employees on 1st January 2019. The employees should remain in service during the vesting period. The shares will vest at the end of the First year - if the company’s earnings increase by 12%;

Second year - if the company’s earnings increase by more than 20% over the two-year period; Third year - if the company’s earnings increase by more than 22% over the three-year period.

u The fair value per share at the grant date is ` 122;

u In 2019, earnings increased by 10% and 29 employees left the organisation. The company expects that earnings will continue at a similar rate in 2020 and expects that the shares will vest at the end of the year 2020. The company also expects that additional 31 employees will leave the organisation in the year 2020 and that 440 employees will receive their shares at the end of the FY 2020.

u At the end of 2020, company’s earnings increased by 18%. Therefore, the shares did not vest. Only 29 employees left the organization during 2020. Company believes that additional 23 employees will leave in 2021 and earnings will further increase so that the performance target will be achieved in 2021.

u At the end of FY 2021, only 21 employees have left the organization. Assume that the company’s earnings increased to desired level and the performance target has been met.

Determine the expense for each year and record necessary journal entries?

Suggested answer

The conditions in the agreement are non-market conditions. Since the earnings of the entity is non-market related, hence it will not be considered in fair value calculation of the shares given. However, the same will be considered while calculating number of shares to be vested.

Note 1:

Expense for 2019 = No. of employees × Shares per employee × Fair value of share × Proportionate vesting period

= 440 × 100 × 122 × ½

= ` 26,84,000

Note 2:

Expense for 2020 = (No. of employees × Shares per employee × Fair value of share × Proportionate vesting period) - Expense recognized in year 2011

= (419 × 100 × 122 × 2/3) - 26,84,000 = ` 7,23,867

Note 3:

Expense for 2021 = (No. of employees × Shares per employee × Fair value of share × Proportionate vesting period) - Expense recognized in year 2011 and 2012

= (421 × 100 × 122 × 3/3) - (26,84,000 + 7,23,867)

= ` 17,28,333.

Journal entries to be recorded

Journal entry 31 Mar 19 31 Mar 20 31 Mar 21

Employee benefit expenses Dr ` 26,84,000 ` 7,23,867 ` 17,28,333

To Share based payment reserve (equity) ` 26,84,000 ` 7,23,867 ` 17,28,333 (Being equity settled SBP expected vesting amount is recognised)

Share based payment reserve (equity) Dr - - `51,36,200

To Equity share capital (Being shares are issued) - - `51,36,200

Concept capsule 15 - Non-Market conditions (Reversals)

ACC Limited granted 10,000 share options to one of its managers. In order to get the options, the manager has to work for next 3 years in the organization and reduce the cost of production by an average of 10% p.a. over the next 3 years.

Fair value of the option at grant date was ` 95 Cost reduction achieved-

Year % Year 1 12% Achieved Year 2 8% Not expected to vest in future Year 3 10% Achieved

How would the expenses be recorded?

Suggested answer

As per Ind AS 102, it is a non-market related condition. Hence the target to achieve cost reduction would be considered while estimating the number of options to be vested but not fair value of shares/options. If any of the non-market vesting conditions is not satisfied, NO amount shall be recognised. If already recognised earlier, the same shall be reversed.

In the given case, the employee did not satisfy the vesting condition in the 2nd year, hence the entire amount already recognised at the end of 1st year should be reversed. In year 3, the non-market condition was again met, hence all such expense will be charged to Profit and Loss.

Year Options Fair value

FV of the options vested

Year 1 10,000 95 1/3 3,16,667 Year 2 10,000 95 0 (3,16,667) Year 3 10,000 95 3/3 9,50,000

Journal entries to be recorded

Journal entry Year 1 Year 2 Year 3

Employee benefit expenses Dr ` 3,16,667 - ` 9,50,000

To Share based payment reserve (equity) ` 3,16,667 - ` 9,50,000 (Being equity settled SBP expected vesting amount is recognised)

Share based payment reserve (equity) Dr - `3,16,667To Employee benefit expenses Dr (Being conditions are not satisfied - reversed) - `3,16,667Ther e will not be any subsequent adjustments ar e t o be ma de t o total equity (i.e. S BP r es er ve) aft er vesti ng dat e

For example

The e nti t y s hall not s ubs e q ue ntl y reverse t he a mo unt r ec og ni s e d f or s er vi ces r ecei ve d f r o m a n e mpl oyee if the vested e q ui t y i nst r u me nt s are later forfeited or, i n t he c as e of s har e opti o ns, t he opti o ns ar e not exercised Ho we ver, t hi s r e q ui r e me nt does not pr ecl ude t he e nti t y f r o mr ec og ni si ng a t r a nsf er w i t hi n e q ui t y, i.e., a t r a nsf er f r o m o ne c o mpo ne nt of e q ui t y t o a not her li ke t o r et ai ne d e ar ni ngs or ge ner al r es er ve.

Concept capsule 16

Raj Ltd. offered its directors an option scheme conditional on a three-year period of service. The number of options granted to each of the ten directors at the inception of the scheme was 1 million. The options were exercisable shortly after the end of the third year. Upon exercise of the share options, those directors eligible would be required to pay ` 2 for each share of ` 1 nominal value.

The fair value of the options and the estimates of the number of options expected to vest at various points in time were as follows:

Year Rights expected to vest Fair value of the option

Start of Year 1 8m 0.3

End of Year 1 7m 0.33

End of Year 2 8m 0.37

At the end of year three, 9 million rights actually vested.

Required:

(a) Show how the option scheme will affect the financial statements for each of the three years of the vesting period.

(b) Show the accounting treatment at the vesting date for each of the following situations

i. The fair value of a share was `5 and all eligible directors exercised their share options immediately.

ii. The fair value of a share was `1.50 and all eligible directors allowed their share options to lapse.

Suggested answer

As per Ind AS 102, the expense recognised is based on the fair value of the option at the grant date i.e. at the beginning of the first year (0.3). This should be spread over the vesting period of three years. In case of equity settled SBP, the fair value change during the vesting period is not considered.

Made Easy (FR) Study Material

AUTHOR

RAVI KANTH MIRIYALA, SUNITANJANI MIRIYALA

Description

This book is prepared exclusively for the Final Level of Chartered Accountancy Examination requirement. It covers the entire revised syllabus as per ICAI. The objective of this book is to overcome the following difficulties faced by students in understanding the Indian Accounting Standards (Ind AS):

u The language used in the Ind AS

u Interlinking the standards

u Lack of explanation with the help of illustrations

This book will be helpful for students of CA-Final, CMA-Final, M.Com. Examinations and other specialized courses.