Financial Reporting · Ind AS 102 Share Based Payment

Ind AS 102: Fair Value Measurement, Disclosures and Transition

Updated 5 October 2026

Under Ind AS 102, you measure equity-settled awards at grant date fair value, using market price if available or an option pricing model such as Black-Scholes. Inputs are share price, exercise price, expected term, volatility, dividends and risk-free rate. Then you spread the cost over vesting, make the required disclosures, and apply Ind AS 101 transition relief.

Understand Fair Value Measurement, Disclosures and Transition

In an equity-settled share-based payment, you pay employees with shares or options. The expense is based on the fair value of the equity instruments at grant date. You fix this value once and do not remeasure it later, even if the share price moves. Only the number of awards expected to vest is trued up each year.

If the instrument has an observable market price, use it, adjusted for the award's terms. Employee options are rarely traded, so you usually need a valuation technique. This means an option pricing model such as Black-Scholes-Merton or a binomial lattice model. Choose a model that suits the award's terms. A lattice model handles early exercise and changing assumptions better than Black-Scholes.

Every model needs the same core inputs: the current share price, the exercise price, the expected term of the option, expected volatility, expected dividends and the risk-free interest rate. Expected term is not the contractual life. You estimate it considering early exercise and employee exit behaviour. Volatility is the annualised standard deviation of the continuously compounded return on the share. Expected dividends reduce option value when the holder is not entitled to dividends during the vesting period or before exercise. If the holder is entitled to them, make no deduction.

Conditions matter. Market conditions (such as a share price target) and non-vesting conditions are built into the fair value. Service conditions and non-market performance conditions are not. They change the number of awards expected to vest instead. Ind AS 113 scope-excludes share-based payment transactions that fall within Ind AS 102. Ind AS 102 therefore applies its own measurement requirements instead: its Appendix A definition of fair value, the measurement requirements in paras 10-25 and Appendix B (Application Guidance). Apply those, not Ind AS 113, to these awards.

The standard asks for three kinds of disclosure: the nature and extent of the schemes, how fair value was determined, and the effect on profit or loss and financial position. On transition, you do not look for a separate Ind AS 102 date. It applies when Ind AS applies to the company. A first-time adopter uses the relief in Ind AS 101, which exempts equity instruments that vested before the date of transition. Equity instruments that are unvested at the date of transition are accounted for under Ind AS 102.

Key rules to remember

Black-Scholes call value: C = S × N(d1) − K × e^(−rT) × N(d2); S = share price, K = exercise price, r = continuously compounded risk-free rate, T = expected term in years, N = standard normal cumulative probability. With a dividend yield q, replace S by S × e^(−qT).
d1 and d2: d1 = [ln(S ÷ K) + (r + σ²÷2) × T] ÷ (σ × √T); d2 = d1 − σ × √T; σ = expected annual volatility. You are rarely asked to compute N(d) from tables without values given. Know the inputs and what each does.
Effect of inputs on call option value: Higher S, σ, T, r → higher value; higher K, higher expected dividends → lower value; Use this to check direction in a case question. Dividends reduce value only if the holder is not entitled to them during vesting or before exercise. If the holder is entitled to them, make no deduction.
Cumulative expense (equity-settled): Cumulative expense at year-end = Grant date fair value × Number expected to vest × (Years elapsed ÷ Vesting period); expense for year = cumulative − earlier cumulative; Fair value is fixed at grant date. Only the number expected to vest is revised.
Treatment of conditions: Market and non-vesting conditions → in fair value. Service and non-market performance conditions → in number expected to vest; If a market condition is not met but the service condition is, the expense is not reversed.
Fallback when fair value is not reliably measurable: Intrinsic value = Share price − Exercise price (not below zero). Amount recognised is based on intrinsic value at each reporting date, with a final true-up at settlement date; Applies only in rare cases when fair value of the equity instruments cannot be estimated reliably. Changes in intrinsic value go to profit or loss until settlement. The cost is based on the number of instruments that finally vest or are exercised. If the award is settled, the amount recognised is the intrinsic value at the settlement date. Any payment made on settlement is accounted for as a repurchase of equity instruments, that is, a deduction from equity. Only the part of the payment that exceeds intrinsic value at the repurchase date is an expense. For awards measured at fair value, the grant date fair value of the original terms is the minimum cost recognised, unless a vesting condition specified at grant date is not met. A modification that reduces the fair value of the instruments granted, or is otherwise not beneficial to employees, does not reduce this minimum expense. A reduction in the number of instruments granted is different: it is treated as a cancellation, which accelerates recognition of the amount not yet recognised. That floor is not applied to awards measured at intrinsic value.
Key disclosures on options: Opening + Granted − Forfeited − Exercised − Expired = Closing; also state exercisable at year-end; Give number and weighted average exercise price for each group. Also give weighted average share price at exercise date, and the range of exercise prices and weighted average remaining contractual life for options outstanding at year-end.
Transition relief for a first-time adopter: Equity instruments vested before the date of transition to Ind AS need not be accounted for under Ind AS 102 (Ind AS 101 exemption); Equity instruments that are unvested at the date of transition are accounted for under Ind AS 102.

How to solve Fair Value Measurement, Disclosures and Transition questions

Use this order for any case on fair value, disclosure or transition under Ind AS 102.

1Classify the award: equity-settled or cash-settled. This decides whether fair value is fixed at grant date or remeasured each year.
2Fix the grant date, the date the entity and the employees share an understanding of the terms. Value the award at that date only.
3Check for a market price. If none exists, pick an option pricing model that fits the terms and name it.
4List each input: share price, exercise price, expected term, volatility, expected dividends, risk-free rate. Use expected term, not contractual life, and state why.
5Sort each condition. Market and non-vesting conditions go into fair value. Service and non-market conditions go into the number expected to vest.
6Compute the expense: fair value × number expected to vest × elapsed fraction, less expense already recognised. Credit equity (share-based payment reserve).
7If the question asks for disclosures, give three groups: nature and extent, how fair value was determined, and effect on profit or loss and financial position.
8If the entity is a first-time adopter, check the date of transition. Apply the Ind AS 101 relief to awards vested before that date.

Quickest way: Fix the value once, then adjust only the count

When to use it: Use this in numerical questions with limited time and a given grant date fair value.

Write the grant date fair value per option. Do not change it later, whatever the share price does.
Write the expected number of options that vest at each year-end.
Multiply: fair value × expected options × (years elapsed ÷ vesting period).
Subtract the cumulative expense of earlier years to get the year's expense.
In the final year, use actual options vested. A missed market condition does not reverse expense if the service condition is met.
For a theory part, list the six inputs and the three disclosure groups from memory.

Common mistakes in Fair Value Measurement, Disclosures and Transition

Remeasuring an equity-settled option at each year-end using the new share price.
Students mix up equity-settled and cash-settled awards. Cash-settled awards are remeasured.
Fix: For equity-settled awards, fix fair value at grant date. Only the number expected to vest is revised.
Using the contractual life of the option as the Black-Scholes term.
The contractual life is stated in the question, so it looks like the obvious input.
Fix: Use the expected term, which allows for early exercise and employee exit. Use contractual life only if the question gives no better estimate.
Including a service or EBITDA target in the fair value per option.
Students treat every vesting condition as a valuation input.
Fix: Put only market and non-vesting conditions into fair value. Service and non-market performance conditions change the number expected to vest.
Reversing the expense when a market condition (share price target) is not met.
Students assume an unmet condition means no cost, as with a non-market target.
Fix: Because the market condition is already in fair value, you recognise the expense if the service condition is met, even if the market condition fails.
Ignoring dividends in the valuation, or deducting them when employees are entitled to dividends during vesting.
Dividends look unrelated to options.
Fix: Reduce value for expected dividends when the holder is not entitled to dividends during the vesting period or before exercise. If the holder is entitled to them, make no deduction.
Stating that Ind AS 102 has a fixed standalone effective date and applying it to all past awards.
Students recall the IFRS 2 transition and ignore Ind AS 101.
Fix: State that Ind AS 102 applies from when Ind AS applies to the company. For first-time adopters, awards that vested before the date of transition need not be restated.

Worked examples

Example 1

Case: On 1 April 2026, Meru Ltd (an Ind AS company) grants 1,000 options each to 200 employees. The options vest after 3 years of service. Grant date fair value is ₹80 per option, found with a Black-Scholes model. At 31 March 2027, management expects 180 employees to complete service. At 31 March 2028, it revises this expectation to 168 employees. At 31 March 2029, 165 employees actually complete service. The share price at each year-end is above ₹80, and at 31 March 2029 it is ₹95. Compute the expense for each year.

Show the solution

Fair value is fixed at ₹80 per option at grant date. The ₹95 share price in 2029 is irrelevant.
Year ended 31 March 2027: expected options = 180 × 1,000 = 1,80,000. Cumulative = 1,80,000 × ₹80 × 1/3 = ₹48,00,000. Expense = ₹48,00,000.
Year ended 31 March 2028: expected options = 168 × 1,000 = 1,68,000. Cumulative = 1,68,000 × ₹80 × 2/3 = ₹89,60,000. Expense = ₹89,60,000 − ₹48,00,000 = ₹41,60,000.
Year ended 31 March 2029: actual options vested = 165 × 1,000 = 1,65,000. Cumulative = 1,65,000 × ₹80 = ₹1,32,00,000. Expense = ₹1,32,00,000 − ₹89,60,000 = ₹42,40,000.
Each year, debit employee benefit expense and credit the share-based payment reserve in equity.

Answer: Expense: ₹48,00,000 for the year ended 31 March 2027, ₹41,60,000 for 2028 and ₹42,40,000 for 2029. Total ₹1,32,00,000.

Example 2

Case: Kaveri Ltd grants share options to its senior managers on 1 July 2026. The contractual life is 7 years. Vesting needs (a) 3 years of service, (b) a share price of at least ₹300 on the vesting date, and (c) a cumulative EBITDA target. Management expects managers to exercise on average in year 5. Kaveri expects to pay a dividend each year, and holders get no dividends before exercise. State how each feature is treated in measuring grant date fair value under Ind AS 102.

Show the solution

Service condition (a): not included in fair value. Reflect it by estimating the number of managers expected to complete 3 years.
Share price target (b): a market condition. Include it in the grant date fair value. The expense stays even if the target is missed, provided managers complete service.
EBITDA target (c): a non-market performance condition. Exclude it from fair value. Reflect it in the number of options expected to vest, and true up to actual outcome.
Contractual life of 7 years: not the model input. Use the expected term, here about 5 years, since that is when exercise is expected.
Dividends: holders are not entitled to dividends during vesting or before exercise. So include expected dividends as an input, which reduces the value of the options. If holders were entitled to dividends, no deduction would be made.
Choose a model, such as a lattice model, that can handle the price target and early exercise. State the model and the inputs used.

Answer: Include the price target and expected dividends in fair value, and use an expected term of about 5 years. Exclude the service and EBITDA conditions from fair value and adjust the number of options expected to vest instead.

Exam tips

In numerical questions, write the grant date and the fair value per option first. Examiners give marks for fixing the value at grant date.
In theory questions, list the six model inputs and say which direction each one moves the option value. Add that expected term is not the contractual life.
For disclosures, answer in three groups: nature and extent, determination of fair value, and effect on profit or loss and financial position. Add the option movement table with weighted average exercise prices.
For transition cases, check the date of transition. Mention Ind AS 101 relief for awards that vested before it. Do not invent a separate Ind AS 102 date.
In MCQs, check whether a condition is a market condition or not. This one test decides whether it is in fair value or in the number expected to vest.

Practice questions from Ind AS 102 Share Based Payment

Fair Value Measurement, Disclosures and Transition: frequently asked questions

Do I need to calculate Black-Scholes by hand in the CA Final exam?

Usually the question gives the grant date fair value, or gives the inputs and the N(d) values. Learn the formula and the effect of each input. Focus more on measurement logic, treatment of conditions and expense allocation.

What are the inputs to an option pricing model under Ind AS 102?

The core inputs are the share price, exercise price, expected term, expected volatility, expected dividends and the risk-free interest rate. You may add other factors that market participants would consider. You do not include service conditions or non-market performance conditions.

Why is fair value not remeasured for equity-settled awards?

The entity receives services in return for equity instruments, and the value of those services is fixed by reference to fair value at grant date. Only the number of awards expected to vest changes. Cash-settled awards are different because they create a liability that is remeasured.

What is the transition rule for Ind AS 102?

Ind AS 102 applies when Ind AS becomes applicable to the company. A first-time adopter uses the Ind AS 101 exemption, so equity instruments that vested before the date of transition need not be accounted for under Ind AS 102. Equity instruments that are unvested at the date of transition are accounted for under Ind AS 102.

When can I use intrinsic value instead of fair value?

Only in rare cases when fair value of the equity instruments cannot be estimated reliably. You then base the amount recognised on intrinsic value at each reporting date and take changes to profit or loss. The cost is based on the number of instruments that finally vest or are exercised. If the award is settled, you recognise intrinsic value at the settlement date, and any payment on settlement is accounted for as a repurchase of equity, with only the excess over intrinsic value taken as an expense. For awards measured at fair value, the grant date fair value of the original terms is the minimum cost, unless a vesting condition specified at grant date is not met.