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Financial Reporting · Ind AS 102 Share Based Payment

Cash-Settled Share-Based Payments and SARs under Ind AS 102

Updated 5 October 2026 · Fact-checked

A cash-settled share-based payment under Ind AS 102 is one where you pay employees cash based on the value of your shares, as with Stock Appreciation Rights. You recognise a liability, not equity. Measure it at fair value at every reporting date until settlement, spread it over the vesting period, and take every change to profit or loss.

Understand Cash-Settled Share-Based Payments and SARs

In a cash-settled share-based payment, the entity does not issue shares. It promises to pay cash, and the amount depends on the price of its shares. The most common example is a Stock Appreciation Right (SAR). The employee gets cash equal to the rise in share price over a base price, for a stated number of rights.

Because the entity owes cash, it has a liability. Ind AS 102 therefore measures the services received and the liability at the fair value of the liability. That fair value is not fixed at grant. You remeasure it at the end of every reporting period and at the settlement date. Every change in fair value goes to profit or loss for that period.

This is the key contrast with equity-settled awards. An equity-settled award is measured once, at grant date fair value, credited to equity and never remeasured. A cash-settled award is measured at the current fair value each time, credited to a liability and remeasured until it is paid.

The expense is spread over the vesting period as service is received. At each date, the liability is the fair value of the SAR multiplied by the number of rights expected to vest, multiplied by the fraction of the vesting period completed. Once the SARs have vested, there is no more spreading. You keep remeasuring the full liability until it is settled or lapses.

Vesting conditions work as in equity-settled awards. Service conditions and non-market performance conditions change the number of rights you expect to vest. Market conditions and non-vesting conditions are built into the fair value of the SAR. The fair value is usually found with an option pricing model, and the SAR's fair value includes its time value, not just intrinsic value.

Key rules to remember

Measurement basis
Liability = fair value of the liability, remeasured at each reporting date and at settlement date
Changes in fair value go to profit or loss. Nothing is credited to equity.
Closing liability during the vesting period
Liability = Number of employees expected to vest × Rights per employee × Fair value per SAR at the reporting date × (Service period completed ÷ Total vesting period)
Use the best estimate of leavers at each date. Use current fair value, not grant date fair value.
Closing liability after vesting
Liability = SARs outstanding × Fair value per SAR at the reporting date
The time fraction is dropped because services are fully received.
Expense for the year
Expense = Closing liability − Opening liability + Cash paid during the year
Add back cash paid on SARs exercised in the year, because payment reduces the liability but is not a reversal of expense.
Accounting entry
Dr Employee benefits expense; Cr Liability for SARs (and on payment: Dr Liability; Cr Bank)
If the closing liability falls below the opening liability, the net result is a credit to profit or loss.
Equity-settled vs cash-settled
Equity-settled: grant date fair value, credit to equity, no remeasurement. Cash-settled: current fair value, credit to liability, remeasured through P&L
Learn this as the first point of any comparison answer.

How to solve Cash-Settled Share-Based Payments and SARs questions

Use the same table for every SAR question. Work out the closing liability at each date first, then derive the expense.

  1. 1Confirm the settlement form. If the entity pays cash linked to its share price, treat the award as cash-settled and plan for a liability.
  2. 2Note the grant date, vesting period, number of employees, rights per employee and the fair value of one SAR at each reporting date.
  3. 3Estimate at each date how many employees will remain to vest. Use actual leavers for past periods and the best estimate for future periods.
  4. 4Before vesting is complete, compute the closing liability = expected employees × rights × fair value per SAR × fraction of the vesting period elapsed.
  5. 5After vesting, compute the closing liability = SARs still outstanding × fair value per SAR. No time fraction is used.
  6. 6Compute the year's expense = closing liability − opening liability + cash paid in the year. Remember that after vesting, changes in fair value still go to profit or loss.
  7. 7Pass the journal entries: Dr Employee benefits expense; Cr SAR liability. On payment, Dr SAR liability; Cr Bank.
  8. 8State the treatment in words if asked: liability at fair value, remeasured each reporting date, changes in profit or loss, not equity.

Quickest way: Liability roll-forward table

When to use it: Use this for any multi-year SAR question where you must find the yearly expense, including years with cash payments.

  1. Draw four columns: opening liability, cash paid, closing liability, expense.
  2. Fill the closing liability first for every year using the formula for that stage (with or without the time fraction).
  3. Get the expense as closing − opening + cash paid.
  4. Check the table: opening + expense − cash paid must equal closing.
  5. Write the journal entry from the expense and payment figures.

Common mistakes in Cash-Settled Share-Based Payments and SARs

  • Using the grant date fair value for every year

    Students carry over the equity-settled approach where the grant date value is fixed.

    Fix: For cash-settled awards, use the fair value at each reporting date. The grant date value is only the starting point.

  • Crediting the amount to equity or a share-based payment reserve

    The word 'share-based' suggests that equity is credited.

    Fix: The entity owes cash, so credit a liability. Equity is credited only for equity-settled awards.

  • Ignoring cash paid when computing the expense in the year of exercise

    Students take the expense as just the change in liability.

    Fix: Expense = closing liability − opening liability + cash paid. Payment reduces the liability without reducing the expense.

  • Still applying the time fraction after the vesting date

    Students apply the vesting-period fraction in every year by habit.

    Fix: Once the service period is over, the fraction is 1. Use all outstanding SARs at the current fair value.

  • Putting remeasurement changes into other comprehensive income or deferred it to settlement

    Students confuse it with equity instruments or hedge accounting.

    Fix: All changes in the liability's fair value are recognised in profit or loss in the period in which they arise.

  • Not adjusting the number of rights for expected leavers

    Students use the original number of employees granted.

    Fix: Estimate leavers at each date for service conditions. Use the actual number of employees when vesting is final.

Worked examples

Example 1

On 1 April 2025, Alpha Ltd grants 100 SARs each to 500 employees. The SARs vest after three years of service, ending 31 March 2028, and are settled in cash. Fair value of one SAR: ₹14 at 31 March 2026, ₹15 at 31 March 2027 and ₹18 at 31 March 2028. Estimated employees expected to vest: 450 at 31 March 2026 and 440 at 31 March 2027. Actual employees vested: 430. Find the expense and liability each year.

Show the solution
  1. Year ended 31 March 2026: liability = 450 × 100 × ₹14 × 1/3 = 45,000 × ₹14 × 1/3 = ₹6,30,000 × 1/3 = ₹2,10,000. Expense = ₹2,10,000.
  2. Year ended 31 March 2027: liability = 440 × 100 × ₹15 × 2/3 = 44,000 × ₹15 × 2/3 = ₹6,60,000 × 2/3 = ₹4,40,000. Expense = ₹4,40,000 − ₹2,10,000 = ₹2,30,000.
  3. Year ended 31 March 2028: vesting is complete, so the fraction is 3/3. Liability = 430 × 100 × ₹18 = 43,000 × ₹18 = ₹7,74,000. Expense = ₹7,74,000 − ₹4,40,000 = ₹3,34,000.
  4. Check: ₹2,10,000 + ₹2,30,000 + ₹3,34,000 = ₹7,74,000, which equals the closing liability.
  5. Journal each year: Dr Employee benefits expense; Cr Liability for SARs, with the expense amounts above.

Answer: Expense: ₹2,10,000 (2025-26), ₹2,30,000 (2026-27) and ₹3,34,000 (2027-28). Closing liability: ₹2,10,000, ₹4,40,000 and ₹7,74,000 respectively.

Example 2

Continuing from the previous case, the liability at 31 March 2028 was ₹7,74,000 for 43,000 outstanding SARs. During 2028-29, employees exercise 20,000 SARs and Alpha Ltd pays cash of ₹19 per SAR. The fair value of one SAR at 31 March 2029 is ₹21. Find the expense for 2028-29 and show the liability account.

Show the solution
  1. Cash paid = 20,000 × ₹19 = ₹3,80,000.
  2. SARs still outstanding at 31 March 2029 = 43,000 − 20,000 = 23,000.
  3. Closing liability = 23,000 × ₹21 = ₹4,83,000. No time fraction is used because the SARs are fully vested.
  4. Expense = closing liability − opening liability + cash paid = ₹4,83,000 − ₹7,74,000 + ₹3,80,000 = ₹89,000.
  5. Liability account: opening ₹7,74,000 + expense ₹89,000 − cash paid ₹3,80,000 = ₹4,83,000, which agrees with the closing liability.
  6. Journal entries: Dr SAR liability ₹3,80,000; Cr Bank ₹3,80,000. Dr Employee benefits expense ₹89,000; Cr SAR liability ₹89,000.

Answer: The expense charged to profit or loss for 2028-29 is ₹89,000. The liability at 31 March 2029 is ₹4,83,000 for 23,000 outstanding SARs.

Exam tips

  • Start every SAR answer with one line: cash-settled, so a liability at fair value, remeasured each reporting date, changes in profit or loss.
  • Show the liability working per year in a table. Marks are given for the closing liability, the expense and the journal entry.
  • For a comparison question, give points: measurement date, remeasurement, credit to liability or equity, effect on profit or loss in later years.
  • Read the question for the phase. Before vesting needs the time fraction. After vesting it does not. A question may cover both phases.
  • In case-scenario MCQs, check whether the entity can choose cash or shares. If so, it is a different topic: share-based payments with cash alternatives.

Practice questions from Ind AS 102 Share Based Payment

Cash-Settled Share-Based Payments and SARs in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Cash-Settled Share-Based Payments and SARs: frequently asked questions

What is the difference between equity-settled and cash-settled share-based payment?

An equity-settled award is measured at grant date fair value and credited to equity. It is not remeasured later. A cash-settled award creates a liability measured at fair value at each reporting date and at settlement, with changes taken to profit or loss.

Why is the SAR liability remeasured every year?

The entity owes cash that depends on its share price. The amount it will pay changes as the price changes, so the liability must reflect current fair value at each reporting date until it is settled.

Do I use the time fraction after the SARs have vested?

No. After vesting, services have been fully received. The liability is the number of outstanding SARs multiplied by their current fair value, and all changes go to profit or loss until settlement.

How do I find the expense in the year SARs are exercised?

Take the closing liability, subtract the opening liability and add the cash paid on exercise. This gives the total charge to profit or loss for that year, including the remeasurement up to the settlement date.