Ind AS 102 | Share Based Payments

Brief summary of Ind AS 102, coving major topics only.
More focused on Accounting aspects.

1. Ind AS 102 Share Based Payments Prepared by Ankit Kumar

2. Share based payment means any contract of delivery of goods & services to reporting entity whose settlement is to be made in equity instrument or cash based on equity instrument provided vesting conditions are met. Equity Instrument can be of reporting entity, it’s Parent entity or Subsy in form of equity shares/options. Examples: A ltd received machine for which payment will be made in equity shares of A ltd, provided machine perform good for 2 years. A ltd received machine for which payment will be made in cash equal to market value of 1000 equity shares of parent/ subsy of A ltd, provided machine perform good for 2 years. Basics

3. i ) Ind AS 102 is not applicable in following cases: Contract with Shareholder For eg . we agreed with shareholder to issue bonus/right share. Contract of Speculation Dealt by Ind AS 109 , irrespective of cash payment based on equity instrument Payment in Equity instruments for acquisition of business Dealt by Ind AS 103 ii) Share based payments can be settled via Equity -called Equity Settled Cash -called Cash Settled Optional -called Phantom Options Non Applicability & Settlement

4. Recognition Entry : PPE/Asset/Employee Compensation(ESOPs) A/c ….. Dr. to SBP Reserve (if equity settled)- Shown in BS(Reserve & Surplus) to SBP Liability (if cash settled)- Shown in BS(Current or Non-current liability based on period) (Being SBP Recorded) Employee Compensation Expenses(P&L) will be written off over Vesting period Amount should be based on fair value of SBP on grant date and can be calculated on Direct or Indirect Approach Grant date : Date on which both parties on terms of SBP Direct Approach : If amount can be calculated reliably then it should be based on direct fair value (Actual) of goods & services on grant date Indirect Approach : If amount can’t be calculated reliably then it should be based on indirect fair value, i.e. fair value(benefit) of options/goods & services on grant date - generally for valuing services of employees, consultants this approach is used Fair Value : Calculated as per Guidance note on Ind AS 102.

5. Employee Stock Option Plans (ESOPs) It is a contract with employees to provide shares of entity to employees on satisfying vesting conditions for a specified period of time(vesting term) Points to remember Always measure fair value of options on Grant date only Grant date : Date on which both parties agreed to terms of ESOP Exercise Price : Price, employee will pay to company to get shares Vesting Period : Conditional period under agreement Vesting date : Date on which conditions are satisfied Exercise date : Date on which shares are actually subscribed by employee Lapse : Vesting conditions are satisfied , but options are not subscribed by employee or consultant Vesting Conditions : Only Service conditions : to serve for specified period Service conditions with performance conditions : to serve for specified period & other target attainments specified- can be market based on non market based.

6. Employee Stock Option Plans (ESOPs) Special Points If vesting date gets preponed, expense of future years should be write off in year of vesting. If vesting date gets postponed, expense can’t be postponed . Intrinsic value of options : Fair Value(computed as per GN) of shares on Grant date less exercise price Amount of expense : Best assumption should be for expected number of options only. Any change in fair value due to market condition is not relevant Number of options expected to be vest based on best assumption Fair value of options on grant date Vesting Period Expired Period Expense already recorded in earlier years

7. Employee Stock Option Plans (ESOPs) Modification to ESOPs agreement There are favourable changes made to ESOPs agreement for employees, which are in favour to employees; Number of options are increased later on here we need to calculate additional expenses from date of modification for additional options on fair value on the date of modification Reduction in Exercise price It is also called re-pricing, here we need to calculate additional advantage by comparing Fair value of original options on modification date Less, Fair value of original options on modification date post modification we will get additional advantage Amortise additional advantage over post modification period Reduction in Vesting Period Simply, just reduce Vesting period in formulae

8. Employee Stock Option Plans (ESOPs) Cancellation of Options Sometimes options are cancelled due to various reasons & those changes are unfavourable to employees. Full Cancellation of Option Agreement with/without Compensation- original expense should be recorded as it is, accelerate future expenses Transfer SBP reserve to General reserve In case of compensation paid, it is written off in P&L- Excess paid over FV on cancellation date Other Changes that are unfavourable(like increase in target) original expense should be recorded as it is If option lapse, transfer SBP reserve to General reserve

9. Employee Stock Option Plans (ESOPs) Cash Settled Options These are also called Stock appreciation rights (SAR), having same accounting treatment as of ESOPs Major difference is Fair Value of option is remeasured at the each year end . Difference due to such remeasurement is recognised in Employee Compensation expense or P&L as remeasurement effect Instead of SBP Reserve, entity should record SBP Liability, further classified as Current / Non-current provision (based on expected period of settlement) Settlement of SAR Settlement is based on excess of Market price over exercise price. Settled in cash/bank, difference is recognised as remeasurement effect in P&L a/c When vested SAR are granted to employees then previously served period is considered as vesting period. Since vesting period is already expired, expense should be required on date on grant, then here this is considered as employee compensation (later on write off in P&L) Remeasurement effect is still to be considered

10. Employee Stock Option Plans (ESOPs) Phantom Option/ Option with choice of cash or equity Choice of cash/equity can be with Counter party OR Entity

11. Employee Stock Option Plans (ESOPs) Group company shares allotment in case of ESOPs (Equity Settled) Sometimes ESOPs are granted with allotment agreement for shares of group companies. When ESOPs are granted by subsidiary company (to issue shares of parent company) When ESOPs are granted by parent company (to issue shares of subsidiary company) Holding / Parent Company Subsidiary Company Investment in Subsy ………… Dr. To SBP Reserve a/c (Being ESOPs of Subsy agreed) Employee Compensation Expense…….. Dr. To Equity (Being ESOPs expenses recorded) SBP Reserve will be used to issue shares Employee Compensation expenses will be written off in P&L Holding / Parent Company Subsidiary Company Employee Compensation Expense…….. Dr. To Equity (Being ESOPs expenses recorded) Equity ………… Dr. To SBP Reserve a/c (Being ESOPs of Subsy agreed) Employee Compensation expenses will be written off in P&L SBP Reserve will be used to issue shares

12. Disclosures requirement Information to understand the nature and extent of share based payment arrangements that existed during the period Description of SBPA

13. First time application of Ind AS 102 on Date of transition