CMA Final · Corporate Financial Reporting

Share based Payment (Ind AS 102): formula sheet

Full chapter guide

Key formulas

Intrinsic value of an option: Intrinsic value = Fair value of share − Exercise price; Ind AS 102 uses this only in rare cases where the fair value of the equity instruments cannot be reliably estimated (paragraph 24). Changes are taken to profit or loss. Floor at zero if the option is out of the money.
Three types of transaction: Equity-settled | Cash-settled | Choice of settlement; Classify first. Measurement and journal entries depend on the type.
Fair value under Ind AS 102: Measure fair value as per Ind AS 102, not Ind AS 113; Paragraph 6A: the Standard's use of fair value differs in some respects from Ind AS 113.
Cash-settled liability: Liability measured at fair value initially and at the end of each reporting period until settled; Paragraph 33 refers to an option pricing model and the extent of service rendered to date.
Choice of settlement given to counterparty: Compound instrument = Debt component + Equity component; Paragraph 35. For employees, measure the fair value of the compound instrument at the measurement date (paragraph 36).
Scope exclusion: Contracts within Ind AS 32 paras 8-10 or Ind AS 109 paras 2.4-2.7 are outside Ind AS 102; Paragraph 6.
Cumulative expense at year end: Cumulative expense = Options expected to vest × Grant date fair value per option × (Years elapsed ÷ Total vesting period); For cliff vesting. Options expected to vest = employees × options each × estimated vesting percentage.
Expense for the year: Expense for the year = Cumulative expense at year end − Cumulative expense at previous year end; This is a catch-up method. A change in estimate is absorbed in the current year, with no restatement of earlier years.
Final year trueing up: Total expense = Options actually vested × Grant date fair value per option; On a cumulative basis the expense is based on options that eventually vest (paragraph 19).
Graded vesting tranche: Tranche cumulative expense = Tranche options expected to vest × Tranche fair value × (Years elapsed ÷ Tranche vesting period); Each tranche has its own vesting period, measured from grant date to its own vesting date. Add the tranches.
Journal entry: Employee benefit expense Dr; To Employee Stock Options Outstanding (equity) Cr; On exercise: Bank Dr (exercise price); ESOP Outstanding Dr; To Share capital and Securities premium.
Measurement date (employees): Measurement date = grant date; For non-employees, it is the date the entity obtains the goods or the counterparty renders the service.
Market condition: Market condition → included in grant date fair value; No true-up if the market condition is not met, provided the service condition is met.
Non-market vesting condition: Service / non-market performance condition → NOT in fair value; adjust number of instruments; Cumulative amount is based on instruments that eventually vest.
Non-vesting condition: Non-vesting condition → included in fair value; Expense is recognised for employees who complete service, whether or not the non-vesting condition is met.
Reload feature: Reload feature → ignored at grant; later reload option = new grant; Applies to fair value measurement at the measurement date.
Equity-settled expense per year (working): Cumulative expense = Number expected to vest × Grant date fair value × (Years elapsed ÷ Vesting period); Annual expense = cumulative expense less expense already recognised. Fair value is not revised for equity-settled grants.
Minimum expense: Minimum cost = grant date fair value × instruments that vest; Applies whatever the later modification, unless failure of a non-market vesting condition set at grant date stops vesting.
Incremental fair value (repricing): Incremental FV = FV of modified option − FV of original option, both at modification date; Positive increment is recognised from the modification date to the vesting date. If it is zero or negative, ignore it.
Additional instruments granted: Added cost = FV of additional instruments at modification date; Recognised from the modification date to the date the additional instruments vest.
Cancellation during vesting period: Immediate expense = total grant date cost − amount already recognised; Treated as acceleration of vesting. Forfeiture for unmet vesting conditions is not covered by this rule.
Payment on cancellation or settlement: Deduction from equity up to FV of instruments at repurchase date; excess = expense; Same treatment for repurchase of vested instruments.
Replacement grant: Incremental FV = FV of replacement − (FV of cancelled immediately before cancellation − payment deducted from equity); Only if the entity identifies the new grant as a replacement on its grant date. Otherwise it is a new grant.
Unfavourable modifications: Reduced FV, fewer instruments or harder vesting conditions: continue as if no modification; A reduction in the number of instruments is accounted for as a cancellation of that portion. Beneficial changes to vesting conditions are taken into account.
Cumulative liability at a reporting date: Liability = Expected employees entitled × Rights per employee × Fair value per right at that date × (Service completed ÷ Total vesting period); Use the fair value at the reporting date, not the grant date. Revise the headcount estimate every year.
Expense for the year: Expense = Closing liability − Opening liability + Cash paid during the year; Cash paid to employees who exercise in the year is added back, because it reduced the liability without being an expense.
Measurement rule (para 30): Remeasure the liability at each reporting date and at settlement; changes go to profit or loss; There is no transfer to equity and no grant-date locking for cash-settled awards.
Counterparty choice of settlement: Compound instrument = Debt component + Equity component; Debt part follows the cash-settled rules. Equity part follows the equity-settled rules. Equity component is zero if both alternatives have the same fair value.
Debt component settled in cash or equity: At settlement, remeasure the liability to fair value; if equity is issued, transfer the liability direct to equity; if cash is paid, it settles the liability in full; Any equity component recognised earlier stays within equity. A transfer within equity is allowed.
Entity choice, settled in cash or at the higher-value alternative: Additional expense = Fair value of the higher alternative at settlement − Fair value of the other alternative; Applies when the entity has no obligation to settle in cash and elects the alternative with the higher fair value at settlement.
Cumulative expense (equity-settled): Fair value at grant date × options expected to vest × (years elapsed ÷ total vesting period); The grant-date fair value is not revised. Only the expected number of options vesting is revised.
Expense for the year: Cumulative expense at year-end − cumulative expense charged earlier; This is a catch-up approach. The entry is Dr Employee benefits expense, Cr Share-based payment reserve.
Net settlement for withholding tax (paras 33E-33F): Classified entirely as equity-settled if it would have been so in the absence of the net settlement feature; The payment to the tax authority for shares withheld is a deduction from equity (para 33G), except for any excess over fair value at the net settlement date.
Excess shares withheld (para 33H): Shares withheld beyond the employee's tax obligation are accounted for as cash-settled when paid in cash or other assets; The exception also does not apply if tax law imposes no obligation to withhold.
Diluted EPS for options (Ind AS 33): Incremental shares = Options × (1 − Exercise price plus unrecognised expense per option ÷ Average market price); Use only if the result is positive. Options with a market price below the adjusted exercise price are anti-dilutive.
Disclosure of expense (para 51(a)): Total expense for the period, with the equity-settled portion shown separately; For liabilities, disclose carrying amount at year-end and intrinsic value of vested liabilities (para 51(b)).

Quick revision

Equity-settled: credit equity, debit expense. Cash-settled: credit liability, debit expense.
Equity-settled grants are measured at grant date fair value and not remeasured afterwards.
Cash-settled liability is remeasured at fair value at the end of each reporting period until it is settled.
Fair value under Ind AS 102 follows the standard itself, not Ind AS 113 (para 6A).
Minimum rule: the entity recognises at least the grant date fair value of the services received, unless instruments fail to vest because of a non-market vesting condition set at grant date (para 27).
Modification that raises total fair value or benefits the employee: add the incremental fair value, measured as fair value after minus fair value before, both at the modification date.
Modification during vesting: incremental value is spread from the modification date to the vesting date, in addition to the original amount over the original period.
Modification that reduces fair value or is not beneficial: continue as if it had not occurred. A reduction in the number of instruments is treated as a cancellation.
Cancellation or settlement during vesting is treated as acceleration of vesting: recognise at once what would have been recognised over the rest of the period.
Payment on cancellation or settlement is a deduction from equity, except any excess over fair value at the repurchase date, which is an expense.
Replacement grants identified at grant date are treated as a modification. Incremental fair value is the fair value of the replacement less the net fair value of the cancelled instruments.
Repurchase of vested instruments: deduct the payment from equity, except any excess over fair value at repurchase date, which is an expense (para 29).

Common mistakes

Treating a cash payment linked to share price as outside Ind AS 102. Fix: Remember the three types. Share appreciation rights paid in cash are cash-settled and are within the Standard.
Applying Ind AS 113 to measure fair value of options. Fix: Paragraph 6A says fair value here is measured as per Ind AS 102, not Ind AS 113.
Remeasuring the option fair value every year. Fix: For equity-settled, fair value is fixed at grant date. Only the number of options expected to vest changes.
Charging the full expense in the year of grant. Fix: Spread the cost over the vesting period unless the grant vests immediately.
Reversing expense when a market condition (such as a share price target) is not met. Fix: A market condition is in fair value. If the employee completes the service period, the expense stays even if the share price target is missed.
Putting a profit target or service period into the fair value per option. Fix: Non-market vesting conditions are excluded from fair value. Adjust the number of options expected to vest instead.
Measuring incremental fair value as modified option value minus original grant date value. Fix: Take both the modified and the original option values at the modification date and subtract them.
Reducing the expense because the repricing lowers the option's value or the vesting period was lengthened. Fix: Unfavourable changes are ignored. Continue with the grant date fair value and the original conditions.
Fixing the fair value at grant date and never changing it. Fix: For cash-settled awards, remeasure at each reporting date and at settlement. Changes go to profit or loss.
Crediting equity instead of a liability. Fix: Cash will be paid, so credit a liability. Equity is credited only for equity-settled awards or the equity component of a compound instrument.

Exam tips

Expect MCQs that ask you to match a scenario to equity-settled, cash-settled or choice of settlement. Practise spotting the settlement form quickly.
In case scenarios, find the grant date from the wording about when terms were communicated and accepted, not when the plan was approved.
Quote the paragraph number only when you are sure of it. Paragraph 6A on fair value and paragraph 24 on intrinsic value are safe to cite.
Write definitions in your own words in one line each, then apply them to the numbers in the question.
This topic is the base for the equity-settled and cash-settled topics. A wrong classification here carries forward into the journal entries.
In MCQs, first decide whether the question wants a yearly charge or a cumulative figure. Many wrong options are the cumulative number.
Underline the vesting condition. If it is a share price target, it is a market condition and is already in the fair value, so do not adjust the count for it.
For graded vesting, write the tranche table before computing anything. Marks are given for the tranche-wise working.