Taxmann's Financial Reporting (FR) | Study Material

Preface

Financial Reporting both in India and from the examination point of view has undergone a massive change, especially with Ind AS (Adoption of IFRS) implementation. Keeping in view the latest trend in the exams this thoroughly revised and enlarged edition has been prepared. This book has been completely revised incorporating the notes and the teaching style which are used in a live class. The book is based on a step by step approach (Almost, all the Ind AS have been converted into a 3-step model). This approach will help the students to crack the complexities of the subject with ease and also serve as a mind map for last minute revision for the exams. Students will not be required to refer any other material for their preparation.

We thought there is a need for covering both the concepts and questions at one place which is the key to score well in the subject of Financial Reporting. This book will also help students preparing GFRS for CA Final (elective paper) - New Course. This book would also serve the need of other students pursuing professional courses where Ind AS would be required.

for their successful preparation of their subject of Financial Reporting.

in Ind AS. Pointers have been highlighted for important issues at various places in the book. We felt that there is a need to address these complicated standards in a lucid manner. An attempt has been made to make these standards easily understandable by examples, diagrams, charts and explanations.

The book has been written in a classroom style teaching, so that one is able to easily understand the concept. The questions in each topic have been carefully arranged covering objective, descriptive, practical and advanced questions to suit beginners as well as experts. The book incorporates all the questions from past examination -

rial and selected Ind AS Bulletins. The book will be helpful both for CA (Final) - Group I, Paper on ‘Financial Reporting’ as well as CA (Final) – Group II, elective paper on GFRS.

We shall be eager to receive any suggestions, feedback for improvements. You can email us at kapileshwarbhalla@gmail.com Or Contact us on: 0-989911-4735(M)

New Delhi 30th November 2022.

CA. PARVEEN SHARMA CA. KAPILESHWAR BHALLA

I-5

Syllabus

Objectives:

(

a) To acquire the ability to integrate and solve problems in practical scenarios on Indian Accounting Standards for deciding the appropriate accounting treatment and formulating suitable accounting policies.

(b (c arrangements based on Indian Accounting Standards.

(d special transactions and apply such knowledge in problem solving.

Contents:

1. Framework for Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards (Ind AS).

2. Application of Indian Accounting Standards (Ind AS) with reference to General Purpose Financial Statements

(i) Ind AS on First time adoption of Indian Accounting Standards

(ii) Ind AS on Presentation of Items in the Financial Statements

(iii) Ind AS on Measurement based on Accounting Policies

(iv) Ind AS on Income Statement (v

(vi) Ind AS on Items impacting the Financial Statements

(vii) Ind AS on Disclosures in the Financial Statements

(viii) Other Ind AS

3. Indian Accounting Standards on Group Accounting

(i) Business Combinations and Accounting for Corporate Restructuring (including demerger) (as per Ind AS)

(ii) Consolidated and Separate Financial Statements (as per Ind AS)

4. Accounting and Reporting of Financial Instruments (as per Ind AS)

5. Analysis of Financial Statements

6. Integrated Reporting

7. Corporate Social Responsibility Reporting

I-7

Notes:

1. If either a new Indian Accounting Standard (Ind AS) or Announcements and Limited Revisions to Ind AS are issued or the earlier one are withdrawn or new Ind AS, Announcements and Limited Revisions to Ind AS are issued in place of existing Ind AS, Announcements and Limited Revisions to Ind AS, the syllabus will accordingly include/exclude Guidelines.

I-8 Syllabus

Chapter 16 Ind AS 102 - Share Based Payment

Section I

KB’s 3-Step Procedure – Overall Approach to Ind AS 102:

Step I: Step II:

Is it a SBPA (Share Based Payment Arrangement)?

Yes Go to Step II

No Ind AS 102 is N.A.

Step III:

Is it a SBPT (Share Based Payment Transaction)?

Yes Go to Step III

No Ind AS 102 is N.A. Is it within the scope of Ind AS 102?

Yes

Apply the accounting as per Ind AS 102

Let us now discuss each of these steps in detail.

No Ind AS 102 is N.A.

16.1

Ind AS 102: Share Based Payment

Step I: Is it a SBPA (Share Based Payment Arrangement)?

Step A:

Is there a binding agreement between 2 parties #?

Yes

Go to Step B

No Ind AS 102 is N.A.

# The 2 parties are:

1. Reporting entity;

2. Counter-party (May be employee or non-employee).

Step B:

Counter-party will receive either of the following:

1. Cash - Based on the future price of equity instruments (shares or options)

2. Equity instruments

3. Equity instruments with cash alternatives - where the option is either with the reporting entity or the counterparty.

Yes

Go to Step C

No Ind AS 102 is N.A.

Step C:

Are there any vesting conditions?

Yes

Go to Step II

No Go to Step II

Types of Vesting Conditions – 3 Types: Service conditions Performance conditions Non-vesting conditions

Requires the counterparty to complete certain years of service before cash/equity instruments are issued

Requires the counterparty to complete certain years of service before cash/equity instruments are issued +

To meet certain targets during this period

Does not require the counterparty to complete any years of service + Cash/EI are issued immediately

16.2

Chapter 16

Ind AS 102: Share Based Payment

Performance conditions are of 2 types:

1. Market related – Targets based on MPS

2. Non-market related – Targets are based on other than MPS i.e.; sales, profit etc.

Step II:

Is it a SBPT (Share Based Payment Transaction)?

Let us see the permutation and combination of transactions which can arise in SBPA: Say, A Ltd. is a parent company and has a subsidiary B Ltd. Let us assume B Ltd. is the Reporting entity.

Particulars Entity Entity Entity

Goods/services received by B Ltd.

B Ltd. A Ltd. Obligation incurred by B Ltd. A Ltd. B Ltd. These are called Group SBPT (Discussed in detail later)

Note: Goods includes – Inventory, PPE, IA etc.

Step III:

Is the SBPT within the scope of Ind AS 102? We can summarize the key concepts in the form of chart below: S. No. Particulars Will Ind AS 102 apply? If not, which Ind AS will apply?

1. An entity issues equity shares to shareholders who are also employees of the entity – Right Issue No [They are acting in the capacity of shareholders]

2. In a business combination – Acquirer issues equity shares: (a) To the shareholders of acquiree company as consideration (b) To the employees of acquiree company

Note: Portion related to past services – Ind AS 103 will apply (Part of consideration transferred) + Portion relating to future services – Ind AS 102 will apply

No Yes [Both Ind AS 102 and 103 will apply]

32

103 103 [Covered in Ind AS 103 in detail]

3. Contract to buy or sell a non-financial item See details in the chart below

Contract to buy or sell a non-financial item: We can summarize the different permutation and combinations as under: S. No. Particulars Which Ind AS will apply?

Intention at the time of entering into contract Intention on the Balance Sheet date

Quantity of the contract – based on expected usage

1. Physical delivery Physical delivery Yes 102

2. Cash settlement Physical delivery Yes/No 32

Chapter 16

16.3

Ind AS 102: Share Based Payment

3. Physical delivery Physical delivery No 32

4. Cash settlement Cash settlement Yes/No 32

Note 1:

Thus, for Ind AS 102 to be applicable we need to meet all 3 conditions.

Note 2: The above contract will be an executory contract and will also trigger Ind AS 37 if it becomes onerous in nature.

Question 1 [Based on Para no. 6]

Plastic manufacturing company “X” enters into an agreement with company “Y” to purchase 100kg of fiber which will be settled in cash at an amount equal to 10 Shares of X. However, X can settle the contract at any time by paying an amount of current share price less market value of fiber. There is intention taking delivery of such fiber.

How the transaction would be evaluated under Ind AS 102?

Note: This Question should be read after understanding the scope of Ind AS 32 and 102.

Answer:

Analysis and Conclusion:

A non-financial item which is not intended to use for its expected purchases/sale and could be settled at net value would be covered as per Ind AS 109 'Financial Instruments'. Thus, the transaction would not be accounted under Ind AS 102.

Question 2

Entity X acquired entity Y in a business combination as per Ind AS 103. There is an existing share-based plan in entity Y with a vesting condition for 3 years in which 2 years have already lapsed at the date of such business acquisition. Entity X agrees to replace the existing award for the employees of combined entity. The details are as below -

Acquisition date fair value of share-based payment plan ` 300 No. of years to vest after acquisition

Fair Value of award which replaces existing plan 1 year ` 400 Calculate the share-based payment values as per Ind AS 102?

Note:

This Question should be read after understanding the concept of ‘Consideration Transferred’ in Ind AS 103. Answer:

Step – I:

Computation of Fair value of Replaced Award and Original Award on the date of Acquisition:

Acquisition date fair value of share-based payment plan ` 300 Fair Value of award which replaces existing plan ` 400 Step – II:

Portion which is a part of Consideration Transferred:

Pre-acquisition period = 2 Post-acquisition period = 1 Total fair value at acquisition date = ` 300 Value to be considered as a part of Consideration Transferred = ` 300/3 x 2 = `200

Step – III:

Portion which is a part of Post Business combination period: [i.e. relates to future services]

Fair value of Replaced Award – Fair Value computed in Step II = `400 - `200 = `200

16.4

Chapter 16

Section II

Terminology:

Let us take an example to understand the basic terminology for this Ind AS.

Example:

An entity has 100 employees and grants them an option to purchase shares @ 20 per share (Market Price at that date = ` 30 per share) if they stay with the entity for 3 years of continuous employment. The entity also gives them 1 year post the 3 years to decide whether they want to exercise the shares or not.

Exercise Price

Analysis:

20 per share

Vesting period 3 years

Vesting condition Service condition – 3 years

Exercise period 1 year

Total period 4 years

Expense will be amortised over 3 years – vesting period

Employer

Has an unavoidable obligation – which needs to be accrued over 3 years

Employee Has an option – he may or may not exercise the option to buy shares

Grant date and Measurement date:

We can summarize the key aspects as under:

Grant date Measurement date

Later of the following 2 dates:

1. Date when reporting entity and counter-party agree to the terms and conditions of the SBPA

2. Date of approval of shareholders if required

For accounting –

We will see later that we take Fair value of EI on date of grant

Example:

In case the counterparty is an employee: Grant date = Measurement date

In case the counterparty is a non -employee: The date when goods are obtained and services are received

For accounting –

We will see later that we take Fair value of goods and services on date of measurement

New Age Technology Limited has entered into following Share Based payment transactions:

(i) On 1st April, 20X1, New Age Technology Limited decided to grant share options to its employees. The scheme was approved by the employees on 30th June, 20X1. New Age Technology Limited determined the fair value of the share options to be the value of the equity shares on 1st April, 20X1.

(ii) On 1st April, 20X1, New Age Technology Limited entered into a contract to purchase IT equipment from Bombay Software Limited and agreed that the contract will be settled by issuing equity instruments of New Age Technology Limited. New Age Technology Limited received the IT equipment on 30th July, 20X1. The share-based payment transaction was measured based on the fair value of 'the equity instruments as on 1st April, 20X1.

(iii) On 1st April, 20X1, New Age Technology Limited decided to grant the share options to its employees. The scheme was approved by the employees on 30th June, 20X1. The issue of the share options was however subject to the same being approved by the shareholders in a general meeting. The scheme was approved in the general meeting held on 30th September, 20X1. The fair value of the equity instruments for measuring the share- based payment transaction was taken on 30th September, 20X1.

Identify the grant date and measurement date in all the 3 cases of Share based payment transactions entered into by New Age Technology Limited, supported by appropriate rationale for the determination?

Chapter 16 Ind AS 102: Share Based Payment 16.5

[MTP April 2021]

Answer:

Ind AS 102: Share Based Payment

Evaluation Chart:

Scenario Grant date Measurement date Grant date - Reason Measurement date –Reason

(i) 30th June, 20X1 30th June, 20X1 The date on which the scheme was approved by the employees

(ii) 1st April, 20X1 30th July, 20X1 The date when the entity and the counterparty entered a contract and agreed for settlement by equity instruments

(iii) 30th September, 20X1 30th September, 20X1 The date when the approval by shareholders was obtained

Section III

Accounting – Equity Settled:

Recognition – Applicable to Equity settled and cash settled:

For employees, the measurement date is grant date

The date when the entity obtains the goods from the counterparty

For employees, the measurement date is grant date

We can summarize the entries as under: Equity Settlement Cash Settlement Goods/Services To SBP Reserve (Other Equity)/ESC Goods/Services To SBP Liability/Cash

There are 2 aspects of the above journal entries:

Debit side

In case of goods – Generally, we will create an asset. In case of services – Generally, we will record expenses (revenue).

Note: Whether, an asset or expense will be debited will depend upon the OTHER IND AS.

Example – Wages for installation of PPE is capitalized as per Ind AS 16; Goods consumed for research phase of R&D will be treated as a revenue expenditure as per Ind AS 38.

Measurement – Applicable to Equity settled only:

We can summarize the concept as under:

Counter -party is an Employee

FV of EI granted on the Grant date

Credit side

In case it immediately vest – Credit ESC/Cash as the case may be.

In case there is a vesting period – Credit SBP Reserve/SBP liability.

Counter-party is non-employee

FV of goods and services on the measurement date

See the concept of Grant date and Measurement date discussed above We can summarize the above concept in the form of KB’s 3-Step Model.

16.6

Chapter

16

Ind AS 102: Share Based Payment

KB’s 3-Step Procedure – Equity Settled:

Step I - Focus on Debit side of the journal entry

Goods

Debit Asset

Services Debit Expense

Step II - Focus on Credit side of the journal entry

Vest immediately

Credit ESC + Security premium if any

Vesting period exists

Credit SBP Reserve Note: First make an amortisation chart for expense in Working Note

Sample of Working Note – Annual expense statement: Particulars Year 1 Year 2 Year 3 No. of employees No. on Grant dateActual exits of Year 1Estimated exits for Year 2 and 3

No. on Grant dateActual exits of Year 1 and 2Estimated exits for Year 3

No. on Grant dateActual exits of Year 1, 2 and 3

No. of shares/options Given Given Given Fair value of EI on Grant date Given Given Given

Cumulative expense 12 lacs 15 lacs 16 lacs Annual expense 12 lacs/3 = 4 lacs 15 lacs x 2/3 = 10 lacs –4 lacs = 6 lacs

16 lacs –10 lacs = 6 lacs

Step III - Focus on the Amount of the journal entrySee the counter-party

Employee FV of EI

Question 3

Non-employee FV of Goods/services

Indian Inc. issued 995 shares in exchange for purchase of an office building. The title was transferred in the name of Indian Inc. on February, 20X1 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.

Pass the journal entries?

Chapter 16

16.7

Answer:

AS 102: Share Based Payment

Journal Entry:

1st February, 20X1 ` ` Office Building 2,00,000

To Share capital (995 x 100) 99,500

To Securities premium (balance) 1,00,500 (Being recognition of purchase of building by issue of shares)

Question 4

Reliance limited hired a maintenance company for its oil fields. The services will be settled by issuing 1,000 shares of Reliance. Period for which the service is to be provided is 1st April, 20X1 to 1st July, 20X1 and fair value of the service was estimated using market value of similar contracts for `1,00,000. Nominal value per share is ` 10.

Record the transactions?

Answer:

Computation of Monthly Expense:

Particulars Amount

Fair value of services 1,00,000 No. of months 3 Monthly expense 33,333.33

Journal Entries:

30th April, 20X1 ` ` Repair & Maintenance 33,333.33

To Share based payment reserve (Equity) (Being recognition of Equity settled SBP using fair value of services rendered) 33,333.33

31st May, 20X1 Repair & Maintenance 33,333.33

To Share based payment reserve (Equity) (Being recognition of Equity settled SBP using fair value of services rendered) 33,333.33

30th June, 20X1 Repair & Maintenance 33,333.33

To Share based payment reserve (Equity) (Being recognition of Equity settled SBP using fair value of services rendered) 33,333.33

1st July, 20X1

Share based payment reserve (Equity) 1,00,000

To Equity Shares (1000 x 10) 10,000

To Securities premium (balancing figure) 90,000

Question 5

An entity issued 100 shares each to its 1,000 employees subject to service condition of next 2 years. Grant date fair value of the share is ` 195 each. There is an expectation 97% of the employees will remain in service at the end of 1st year. However, at the end of 2nd year the expected employees to remain in service would be 91% of the total employees.

Calculate expense for the years 1 & 2?

16.8

Chapter 16

Ind

Answer:

Ind AS 102: Share Based Payment

Computation of Annual Expense:

Particulars Year 1 Year 2

No. of Employees

1,000 x 97% = 970 1,000 x 91% = 910

Options per employee 100 100 Fair value 195 195

Cumulative Expense 189,15,000 177,45,000 Annual Expense 189,15,000/2 = 94,57,500 177,45,000 – 94,57,500 = 82,87,500

Question 6

ABC Limited granted to its employees, share options with a fair value of ` 5,00,000 on 1st April, 20X0, if they remain in the organization upto 31st March, 20X3. On 31st March, 20X1, ABC limited expects only 91% of the employees to remain in the employment. On 31st March, 20X2, company expects only 89% of the employees to remain in the employment. However, only 82% of the employees remained in the organization at the end of March, 20X3 and all of them exercised their options.

Pass the Journal entries?

Answer:

Computation of Annual Expense:

Particulars Year 1 Year 2 Year 3

No. of Employees 5,00,000 # 5,00,000 # 5,00,000 #

Options per employee X X X Fair value 91% 89% 82%

Cumulative Expense 4,55,000 4,45,000 4,10,000

Annual Expense 4,55,000/3 = 1,51,667 4,45,000 x 2/3 – 1,51,667 = 1,45,000 4,10,000 – 4,45,000 x 2/3 = 1,13,333

# Product of all 3 factors is given.

31st March, 20X1

Journal Entries:

Employee benefits expenses 1,51,667

To Share based payment reserve (Equity) 1,51,667

31st March, 20X2

Employee benefits expenses 1,45,000

To Share based payment reserve (equity) 1,45,000

31st March, 20X3

Employee benefits expenses 1,13,333

To Share based payment reserve (equity) 1,13,333

31st March, 20X3

Share based payment reserve (equity) 4,10,000

To Share Capital 4,10,000

Question 7 [Change in vesting period]

Ankita Holding Inc. grants 100 shares to each of its 500 employees on 1st January, 20X1. 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%;

Chapter

16

16.9

Ind AS 102: Share Based Payment

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

The fair value per share at the grant date is ` 122. In 20X1, earnings increased by 10%, and 29 employees left the organization. The company expects that earnings will continue at a similar rate in 20X2 and expects that the shares will vest at the end of the year 20X2. The company also expects that additional 31 employees will leave the organization in the year 20X2 and that 440 employees will receive their shares at the end of the year 20X2. At the end of 20X2, company's earnings increased by 18%. Therefore, the shares did not vest. Only 29 employees left the organization during 20X2. Company believes that additional 23 employees will leave in 20X3 and earnings will further increase so that the performance target will be achieved in 20X3. At the end of the year 20X3, 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 pass appropriate journal entries?

Answer:

[MTP March 2018; MTP April 2019]

Computation of Annual Expense:

Particulars Year 1 Year 2 Year 3

No. of Employees (Working Note – I) 440 419 421

Options per employee 100 100 100 Fair value (Note) 122 122 122 Cumulative Expense 53,68,000 51,11,800 51,36,200 Annual Expense 53,68,000/2 = 26,84,000 51,11,800 x 2/3 – 26,84,000 = 7,23,867 51,36,200 – 51,11,800 x 2/3 = 17,28,333

Note:

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. Working Note - I: Computation of No. of Employees:

Particulars 20X1 20X2 20X3

Total employees 500 500 500 Employees left (Actual) (29) (58) (79) Employees expected to leave in the next year (31) (23)Year-end - No of employees 440 419 421

Journal Entries:

31st December, 20X1

Employee benefits expenses 26,84,000

To Share based payment reserve (equity) 26,84,000 (Being Equity settled shared based payment expected vesting amount)

31st December, 20X2

Employee benefits expenses 7,23,867

To Share based payment reserve (equity) 7,23,867 (Being Equity settled shared based payment expected vesting amount)

31st December, 20X3

Employee benefits expenses 17,28,333

16.10

Chapter 16

Ind AS 102: Share Based Payment 16.11

To Share based payment reserve (equity) 17,28,333

(Being Equity settled shared based payment expected vesting amount)

Share based payment reserve (equity) 51,36,200

To Share Capital 51,36,200 (Being Share capital Issued)

Question 8 [Change in vesting period]

Beetel Holding Inc. grants 100 shares to each of its 300 employees on 1st January, 2015. 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 13%

Second year if the company’s earnings increases by more than 21% over the two-year period.

Third year if the entity’s earning increases by more than 23% over the three-year period.

The fair value per share at the grant date is ` 125.

In 2015, earnings increased by 9% and 20 employees left the organization. The company expects that earnings will continue at a similar rate in 2016 and expects that the shares will vest at the end of the year 2016. The company also expects that additional 30 employees will leave the organization in the year 2016 and that 250 employees will receive their shares at the end of the year 2016.

At the end of 2016, company’s earnings increase by 19% Therefore, the shares did not vest. Only 20 employees left the organization during 2016. Company believes that additional 25 employees will leave in 2017 and earnings will further increase so that the performance target will be achieved in 2017.

At the end of the year 2017, only 22 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 pass appropriate journal entries.

Answer:

[June 2019 Examination - 8 Marks]

Computation of Annual Expense:

Particulars Year 1 Year 2 Year 3 No. of Employees (Working Note – I) 250 235 238

Options per employee 100 100 100 Fair value (Note) 125 125 125 Cumulative Expense 31,25,000 29,37,500 29,75,000 Annual Expense 31,25,000/2 = 15,62,500 29,37,500 x 2/3 – 15,62,500 = 3,95,833 29,75,000 – 29,37,500 x 2/3 = 10,16,667

Note:

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. Working Note - I: Computation of No. of Employees:

Particulars

20X1 20X2 20X3

Total employees 300 300 300 Employees left (Actual) (20) (40) (62) Employees expected to leave in the next year (30) (25) Nil Year-end – No. of employees 250 235 238

AS 102: Share Based Payment

Journal Entries:

31st December, 2015 `

Employee benefits expenses 15,62,500 15,62,500

To Share based payment reserve (equity) (Being Equity settled shared based payment expected vesting amount)

31st December, 2016

Employee benefits expenses 3,95,833 3,95,833

To Share based payment reserve (equity) (Being Equity settled shared based payment expected vesting amount)

31st December, 2017

Employee benefits expenses 10,16,667

To Share based payment reserve (equity) 10,16,667 (Being Equity settled shared based payment expected vesting amount) 29,75,000

Share based payment reserve (equity)

To Share Capital 2,97,5,000 (Being Share capital issued)

Question 9 [Change in vesting period]

G Limited grants 200 shares to each of its 400 employees on 1st January, 2016. The employee should remain in service during the vesting period so as to be eligible. The shares will vest at the end of the 1st year - If the company's earnings increase by 12%.

2nd year - If the company's earnings increase by more than 20% over the two-year period. 3rd year - If the company's earnings increase by more than 20% over the three-year period.

The fair value per share (non-market related) at the grant date is ` 61. In 2016, earnings increased by 10% and 22 employees left the company. The company expects that earnings will continue at a similar rate in 2017 and expect that the shares will vest at the end of the year 2017. The company also expects that additional 18 employees will leave the organization in the year 2017 and that 360 employees will receive their shares at the end of the year 2017. At the end of 2017 company's earnings increased by 18% (over the 2 years period). Therefore, the shares did not vest. Only 16 employees left the organization during 2017. The company believes that additional 14 employees will leave in 2020 and earnings will further increase so that the performance target will be achieved in 2018. At the end of the year 2018, only 9 employees have left the organization. Assume that the company's earnings increased to desired level and the performance target has been met.

You are required to determine the expense as per Ind AS for each year (assumed as financial year) and pass appropriate journal entries.

Answer:

[November 2018 Examination – 8 Marks ]

Computation of Annual Expense:

Particulars 2016 2017 2018 No. of Employees (Working Note – I) 360 348 353

Options per employee 200 200 200 Fair value (Note) 61 61 61 Cumulative Expense 43,92,000 42,45,600 43,06,600 Annual Expense 43,92,000/2 = 21,96,000 42,45,600 x 2/3 = 28,30,400 – 21,96,000 = 6,34,400

43,06,600 – 28,30,400 = 14,76,200

16.12

Chapter 16

Ind

Note:

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.

Working Note - I: Computation of No. of Employees: Particulars 2016 2017 2018

Total employees 400 400 400 Employees left (Actual) (22) (38) # (47) # # Employees expected to leave in the next year (18) (14) Nil

Year-end - No of employees 360 348 353 # (22 + 16); # # (22 + 16 + 9)

Journal Entries:

31st March, 2016 ` `

Employee benefits expenses A/c 5,49,000

To Share based payment reserve (equity) A/c 5,49,000 (Being Equity settled shared based payment based on conditional vesting period)

Workings: Expense for 2016 (Jan to Dec) = 21,96,000 Expense recognized in the financial year 2015 -2016: = 21,96,000 x 3/12 = 5,49,000

Profit and Loss A/c 5,49,000

To Employee benefits expenses A/c 5,49,000 (Being Employee benefits expenses transferred to Profit & Loss A/c)

31st March, 2017

Employee benefits expenses 18,05,600

To Share based payment reserve (equity) 18,05,600 (Being Equity settled shared based payment based on conditional expected vesting period)

Workings: Expense for 2017 (Jan to Dec) = 6,34,400 Expense recognized in the financial year 2016 -2017: = (21,96,000 x 9/12) + (6,34,400 x 3/12) = 16,47,000 + 1,58,600 = 18,05,600

Profit and Loss A/c 18,05,600

To Employee benefits expenses A/c 18,05,600 (Being Employee benefits expenses transferred to Profit and Loss A/c)

31st March, 2018

Employee benefits expenses 8,44,850

To Share based payment reserve (equity) 8,44,850 (Being Equity settled shared based payment based on conditional expected vesting period)

Workings: Expense for 2018 (Jan to Dec) = 14,76,200

Chapter 16 Ind AS 102:

16.13

Share Based Payment

102: Share Based Payment

Expense recognized in the financial year 2017-2018: = (6,34,400 x 9/12) + (14,76,200 x 3/12) = 4,75,800 + 3,69,050 = 8,44,850

Profit and Loss A/c 8,44,850

To Employee benefits expenses A/c 8,44,850 (Being Employee benefits expenses transferred to Profit and Loss A/c) 31st March, 2019

Employee benefits expenses 11,07,150

To Share based payment reserve (equity) 11,07,150 (Being Equity settled shared based payment based on conditional expected vesting period)

Workings: Expense recognized in the financial year 2018 -2019: = (14,76,200 x 9/12) = 11,07,150

Profit and Loss A/c 11,07,150

To Employee benefits expenses A/c 11,07,150 (Being Employee benefits expenses transferred to Profit and Loss A/c) Share based payment reserve (equity) (353 x 200 x 61) 43,06,600

To Share Capital 43,06,600 (Being Share capital Issued)

Question 10

The following particulars in respect of stock options granted by a company are available:

No. of Employees covered 400 Nominal Value per share ` 100 No. of options per Employee 60 Exercise price per share ` 125

Shares offered were put in three groups. Group 1 was for 20% of shares offered with vesting period one-year. Group II was for 40% of shares offered with vesting period two- years. Group III was for 40% of shares offered with vesting period three-years. Fair value of option per share on grant date was ` 10 for Group I, ` 12.50 for Group II and ` 14 for Group III.

Position on 1st Year

Position on 2nd Year

Position on 3rd Year

- No. of employees left = 40 - Employees left = 35 - Employees left = 28

- Estimate of employees to leave in Year 2 = 36 - Estimate of employees to leave in Year 3 = 30 - Employees exercising Options in Group III = 295

- Estimate of employees to leave in Year 3 = 34 - Employees exercising Options in Group II = 319

- Employees exercising Options in Group I = 350

Options not exercised immediately on vesting, were forfeited. Compute expenses to recognize in each year and show important accounts in the books of the company.

16.14 Ind

Chapter 16

AS

[RTP November 2022]

Chapter 16

Answer:

Ind AS 102: Share Based Payment 16.15

Working Note – I: Computation of number of Options – Group wise:

Group I - 20% Group II - 40% Group III - 40% Vesting in 1 Year Vesting in 2 Years Vesting in 3 Years = 12 options = 24 options = 24 options

Working Note - II: Computation of No. of Employees:

Group I Group II Group III

Particulars Year 1 Year 1 Year 2 Year 1 Year 2 Year 3 Total employees 400 400 400 400 400 400 Employees left (Actual) (40) (40) (40 + 35) (40) (40 + 35) (40 +35 +28) Employees expected to leave in the next year N.A. (36) N.A. (36 +34) (30) N.A.

Year-end - No of employees 360 324 325 290 295 297

Working Note – III: Computation of Annual Expense: Particulars Group I = 12 Options Group II = 24 Options Group III = 24 Options Year 1 Year 1 Year 2 Year 1 Year 2 Year 3

No. of employees eligible (W. Note II) 360 324 325 290 295 297 No. of options expected to Vest 12 24 24 24 24 24 Fair Value per option ` 10 ` 12.50 ` 12.50 ` 14 ` 14 ` 14

Total Cumulative expense [A] ` 43,200 ` 97,200 ` 97,500 ` 97,440 ` 99,120 ` 99,792 From beginning till each year end: Cumulative Cost of Options

[A x 1/2] [A x 2/2] [A x 1/3] [A x 2/3] [A x 3/3] [A x Completed Years/Total Years] ` 43,200 ` 48,600 ` 97,500 ` 32,480 ` 66,080 ` 99,792

Less: Recognized in last years 0 0 ` 48,600 0 ` 32,480 ` 66,080

Expenses to be recognized ` 43,200 ` 48,600 ` 48,900 ` 32,480 ` 33,600 ` 33,712 Employees not exercising ESOP 10 Employees 325 - 319 = 6 Employees 297 - 295 = 2 Employees

Total Expenses for: Year 1 ` 43,200 (Group 1) + ` 48,600 (Group 2) + ` 32,480 (Group 3) = ` 1,24,280 Year 2 ` 48,900 (Group 2) + ` 33,600 (Group 3) = ` 82,500 Year 3 ` 33,712 (Group 3 only)

Particulars

Ind AS 102: Share Based Payment

Working Note – IV: Computation of Securities Premium:

Group I Group II Group III

Year 1 Year 2 Year 3

Exercise Price received per share 125 125 125

FV of the Options 10 12.50 14 Total Consideration received per share 135 137.50 139 Less: Nominal Value per share (100) (100) (100) Securities Premium per share 35 37.50 39 Let us prepare the ledger account;

Employees Benefit Expenses A/c

Year 1

Particulars ` Particulars `

To Share-based Payment Reserve A/c 1,24,280 By Profit and Loss A/c 1,24,280 1,24,280 1,24,280 Year 2

To Share-based Payment Reserve A/c 82,500 By Profit and Loss A/c 82,500 82,500 82,500

Year 3

To Share-based Payment Reserve A/c 33,712 By Profit and Loss A/c 33,712 33,712 33,712

Share-based Payment Reserve A/c

Year 1

Particulars ` Particulars `

To Retained Earnings 1,200 By Employees Benefit 1,24,280 [(360 - 350) employees x 12 Options x ` 10] Expenses A/c

To Share Capital

[350 employees x 12 Options x ` 100] 4,20,000 By Bank A/c [350 employees x 12 Options x ` 125] 5,25,000

To Securities Premium [350 employees x 12 Options x ` 35] 1,47,000 To Balance c/d 81,080 6,49,280 6,49,280

Year 2

To Retained Earnings 1,800 By Balance b/d 81,080

[(325 - 319) employees x 24 options x ` 12.50]

By Employees Benefit Expenses A/c 82,500

16.16

Chapter

16

Chapter 16

Ind AS 102: Share Based Payment 16.17

[319 employees x 24 options x ` 100] 7,65,600 By Bank A/c [319 employees x 24 Options x ` 125] 9,57,000

To Share Capital

To Securities Premium 2,87,100 [319 employees x 24 Options x ` 37.50)

To Balance c/d 66,080 11,20,580 11,20,580

Year 3

To Retained Earnings 672 By Balance b/d 66,080 [(297 - 295) employees x 24 Options x ` 14] By Employees Benefit Expenses A/c 33,712

To Share Capital

[295 employees x 24 Options x ` 100] 7,08,000 By Bank A/c [295 employees x 24 Options x ` 125] 8,85,000

To Securities Premium [295 employees x 24 Options x ` 39] 2,76,120 9,84,792 9,84,792

Section IV

Impact of vesting conditions:

We can summarize the key aspects as under: S. No. Condition

Remarks – Is the expense required to be booked?

If the condition is expected to be met at each y/e

If the condition is not expected to be met at each y/e

1. (a) Service condition (b) Performance condition – non-market Yes Yes No No

2. (a) Performance condition - Market

(b) Non-vesting condition

Yes Yes

Clarification Chart – In case multiple conditions are present: S. No. Particulars

Service Performance – Nonmarket Performance –Market

Yes Yes

Remarks – Is the expense required to be booked?

If the Non-Market condition is expected to be met at each y/e

If the Non-Market condition is not expected to be met at each y/e

1. Exists Does not exist Does not exist Yes No

2. Exists Does not exist Exists Yes No

Market condition is met or not will, it will not impact the analysis – So, effectively same as Point 1

3. Exists Exists Does not exist Yes (If both service and non-market conditions are met)

4.

Exists Exists Exists

No (If any one –service or nonmarket conditions are not met)

-do- -doMarket condition is met or not will, it will not impact the analysis – So, effectively same as Point 3

Note : In the above chart we are assuming service condition will be met. Let us take some examples on the above concept to elaborate further.

Example – Performance – Non- market related: A 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 10% over the next 3 years. Fair value of the option at grant date was ` 95 Cost reduction achievedYear 1 12% Achieved Year 2 8% Not expected to vest in future Year 3 10% Achieved

How the expenses would be recorded?

Answer: It is a non-market related condition. Hence the target to achieve cost reduction would be taken while estimating the number of options to be vested.

In simple words, if the condition is not met then the previous expense b ooked shall be reversed.

Computation of Annual Expense:

Year Options Fair value FV of the options vested Year 1 10,000 95 3,16,667 [(10,000 x 95)/3] Year 2 10,000 95 (3,16,667) – Note 1 Year 3 10,000 95 9,50,000 – Note 2 [10,000 x 95]

Note 1: The condition to achieve 10% cost reduction each was not fulfilled in the year 2 and there was no expectation to vest this non-market condition in future as well and hence earlier expense amount was reversed in year 2.

Note 2: Since in the year 3 the non-market condition was again met, hence all such expense will be charged to Profit and Loss.

Example – Performance - Market related:

A 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 per below details—

Year 1 22% Year 2 19% Year 3 25%

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

16.18 Ind AS 102:

Chapter 16

Share Based Payment

Ind AS 102: Share Based Payment

Answer:

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

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

Computation of Annual Expense:

Irrespective of the outcome of the market prices (as it is already taken care of in the fair value of the option), each period an amount of (120 x 10,000)/3 = ` 4,00,000 will be charged to profit and loss.

Question 11

Entity X grants 10 shares each to its 1,000 employees on the conditions as mentioned below: To remain in service & entity's profit after tax (PAT) shall reach to `100 million.

It is expected that PAT should reach to ` 100 million by the end of 3 years.

Fair value at grant date is `100.

Employees expected for vesting right by 1st year 97%, then it revises to 95% by 2nd year and finally to 93% by 3rd year.

Calculate expenses for next 3 years in respect of share-based payment?

Answer: Analysis:

Entity's PAT is one of the non-market related condition and hence would be included while making an expectation of vesting shares and there is no requirement to make any changes in the non-market condition whether this is fulfilled or not because it has already been considered in the expectation of vesting rights at the end of each year.

Computation of Annual Expense:

Particulars Year 1 Year 2 Year 3

No. of Employees 1,000 x 97% = 970 1,000 x 95% = 950 1,000 x 93% = 930

Options per employee 10 10 10

Fair value (Note) 100 100 100

Cumulative Expense

9,70,000 9,50,000 9,30,000

Annual Expense 9,70,000/3 = 3,23,333 9,50,000 x 2/3 – 3,23,333 = 3,10,000 9,30,000 –9,50,000 x 2/3 = 2,96,667

Special Issue – Vesting conditions are met earlier or later than expected:

Example – Performance -Market related:

An entity P issues share-based payment plan to its employees based on the below details—

No. of employees 100

Fair value at grant date

Market condition

Service condition Expected completion of market condition

` 25

Share price to reach at ` 30

To remain in service until market condition is fulfilled 4 years

Define expenses related to such share-based payment plan in each year subject to the below scenarios:

(a) Market condition if fulfilled in year 3; or (b) Market condition is fulfilled in year 5.

Chapter

16

16.19

Ind AS 102: Share Based Payment

Answer:

Market conditions are required to be considered while calculating fair value at grant date. However, service conditions will be considered as per the expected vesting right to be exercised by the employees and would be re-estimated during vesting period.

If the market related condition is fulfilled before it is expected then all remaining expenses would immediately be charged off.

If market related condition takes longer than the expected period then original expected period will be followed.

(a)

Computation of Annual Expense: [If Market condition is fulfilled in year 3]

2,500/4 = 625 Year 2 2,500/4 = 625 Year 3 2,500 – 625 – 625 = 1,250 Year 4 Nil (b)

Year 1

Computation of Annual Expense: [If Market condition is fulfilled in year 5]

Year 1 2,500/4 = 625 Year 2 2,500/4 = 625 Year 3 2,500/4 = 625 Year 4 2,500/4 = 625 Year 5 Nil

Section V

Accounting – Cash Settled:

For cash-settled SBPT, the entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability.

Until the liability is settled, the entity shall remeasure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognised in profit or loss for the period.

Let us take examples to elaborate the concept:

Example 1 – Vests immediately + Paid immediately: No. of employees = 1 No. of options per employee = 1,000 Fair value at measurement date = 12

Computation of expense:

Particulars

Year 1 (Beginning)

No. of employees 1 No. of options per employee 1,000 FV 12

Expense 12,000

Journal entry:

Particulars Debit Credit Expense 12,000 To Cash 12,000

16.20

Chapter

16

DESCRIPTION

This book is prepared exclusively for the Final Level of Chartered Accountancy Examination requirement. It covers the entire revised syllabus as per ICAI. This book serves as a guide for students & professionals, and the objectives of this book are as follows: It helps the reader acquire the ability to integrate & solve problems in practical scenarios on Indian Accounting Standards (Ind AS). It also assists the reader in deciding the appropriate accounting treatment and formulation of suitable accounting policies While preparing and presenting the financial statements, this book helps in the ability to recognize and apply disclosure requirements specified in Ind AS Acquiring/developing the skill to prepare financial statements of group entities based on Ind AS Develop an understanding of the various forms of reporting (other than financial statements) and accounting for special transactions, and apply such knowledge in problem-solving The Present Publication is the 6th Edition for CA-Final | New Syllabus | May/Nov. 2023 exams.

Financial Reporting

Rs. 2395 USD 79

:

PUBLISHER : TAXMANN DATE OF PUBLICATION : DECEMBER 2022 EDITION : 6TH EDITION ISBN NO : 9789391596323 NO.OF PAGES : 1640 BINDING TYPE : PAPERBACK

Step by Step Approach to Ind AS

AUTHOR

PARVEEN SHARMA KAPILESHWAR BHALLA

    ORDER NOW

Turn static files into dynamic content formats.

Create a flipbook

Taxmann's Financial Reporting (FR) | Study Material

Preface

Syllabus

Contents

SECTION-I

Introductory Standards

SECTION-III

Slightly Complicated Standards

SECTION-IV

Complex Standards

SECTION-V

Disclosure Related Standards

SECTION-VI Basic Standards

SECTION-VII

First Time Adoption

SECTION-VIII Non-Ind AS

Chapter 16

Ind AS 102 - Share Based Payment

Section I

KB’s 3-Step Procedure – Overall Approach to Ind AS 102:

Analysis and Conclusion:

Section II

Terminology:

Section III

Accounting – Equity Settled:

Goods

Debit Asset

Services Debit Expense

Computation of Monthly Expense:

Ind AS 102: Share Based Payment

AS 102: Share Based Payment

Journal Entries:

Journal Entries:

Question 10

Section IV

Impact of vesting conditions:

Exists Exists Exists

Question 11

Section V

Accounting – Cash Settled:

DESCRIPTION