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CMA Final · Corporate Financial Reporting

Share Based Payment (Ind AS 102) for CMA Final

Ind AS 102 covers transactions where an entity pays for goods or services with its own shares, options or cash linked to its share price. Equity-settled grants are measured at grant date fair value and spread over the vesting period. Cash-settled ones are a liability remeasured at each reporting date until settled.

What this chapter covers

This chapter deals with how a company accounts for paying employees and other parties in shares, options or cash based on its share price. The core idea is simple. The services received are an expense, and the other side is either equity or a liability. Which one depends on how the deal is settled.

The chapter splits into two big halves. In equity-settled plans, you measure the fair value once, at grant date, and recognise it over the vesting period. In cash-settled plans, you measure a liability and remeasure it at the end of every reporting period until it is settled. Most numerical questions test the cost recognised year by year, with leavers, changed estimates and modifications.

The chapter links to other parts of Corporate Financial Reporting. The expense hits profit or loss, so it affects earnings per share. The credit goes to equity or liabilities, so it shows up in the statement of changes in equity and the balance sheet. Fair value under this standard follows Ind AS 102 itself, not Ind AS 113. The standard says this in paragraph 6A.

Share-based payment is a favourite for the written section because one scenario can carry a full numerical with several parts: expense for each year, journal entries, and the effect of a modification or cancellation. The rules are also fairly compact, so a well-prepared student can score well here. It can also feed Section A MCQs on definitions, vesting conditions and modification treatment. Because the working is mechanical once the rules are clear, marks are won by method rather than by luck.

Share based Payment (Ind AS 102): topics in the order to study them

  1. 1Ind AS 102 Scope and Key DefinitionsYou need the vocabulary (grant date, vesting period, equity-settled, cash-settled) before any working makes sense.
  2. 2Recognition and Measurement of Equity-Settled TransactionsThis is the core model. Everything else is a variation of it.
  3. 3Fair Value Measurement and Vesting ConditionsOnce you know the model, learn which conditions change the fair value and which change the number of instruments expected to vest.
  4. 4Modifications, Cancellations and Settlements of GrantsThis builds directly on the equity-settled model and is the most tested rule-based area.
  5. 5Cash-Settled Share-Based Payment TransactionsStudy it after equity-settled so you can compare the two: grant date fixed value versus a liability remeasured each period.
  6. 6Employee Stock Option Plans, ESPS and DisclosuresThis applies everything to Indian plan types and closes with disclosures, which are best learned last.

How to prepare Share based Payment (Ind AS 102)

Treat this chapter as one method applied to different situations. Learn the method first, then drill the variations.

  1. Write the basic equity-settled formula on one page: number of instruments expected to vest × fair value at grant date × fraction of vesting period elapsed, less expense already recognised.
  2. Practise year-by-year tables with leavers, where the expected number to vest is revised each year. Always do a cumulative calculation and then deduct the earlier cumulative amount.
  3. Separate vesting conditions into two groups in your notes: market conditions, which sit inside the fair value, and service or non-market performance conditions, which change the number expected to vest.
  4. Learn the modification rules as a decision list. Beneficial change: add the incremental fair value over the period from the modification date to vesting. Non-beneficial change: carry on as if it had not happened. Cancellation during vesting: accelerate the remaining expense.
  5. Do cash-settled questions in a separate table. Remeasure the liability at each reporting date and take the movement to profit or loss until settled.
  6. Finish with mixed past-style cases that combine a grant, a modification and a journal entry. Write the final journal entries, since marks are given for them.
  7. Revise disclosures as a short list of headings, so you can add them quickly to a theory answer.

Common mistakes in Share based Payment (Ind AS 102)

  • Remeasuring equity-settled grants to current fair value each year

    Fix: Ask first: who gets paid in shares and who in cash? Equity-settled stays at grant date fair value. Only the number expected to vest is revised.

  • Calculating each year's expense instead of the cumulative amount

    Fix: Compute the cumulative expense to date every year, then subtract the cumulative expense of the previous year. Show both lines.

  • Ignoring a modification that reduces fair value or makes terms worse for the employee

    Fix: Remember the rule: non-beneficial changes are ignored and the grant is accounted for as if no modification occurred. A cancellation of part of the grant is the exception and is handled under the cancellation rules.

  • Spreading the incremental fair value over the original vesting period

    Fix: Spread the incremental amount from the modification date to the date the modified instruments vest. Keep the original amount on its original schedule.

  • Treating the whole cancellation payment as an expense

    Fix: Treat the payment as a deduction from equity, up to the fair value at the repurchase date. Only the excess over that fair value goes to profit or loss.

  • Mixing market and non-market conditions

    Fix: Market conditions go into the fair value estimate. Service and non-market performance conditions adjust the number of instruments expected to vest.

Last-day revision: Share based Payment (Ind AS 102)

  • 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).

Share based Payment (Ind AS 102) practice questions

Share based Payment (Ind AS 102) in other exams

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

Share based Payment (Ind AS 102): frequently asked questions

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

In equity-settled plans the entity gives its own equity instruments, and the cost is fixed at grant date fair value with a credit to equity. In cash-settled plans the entity pays cash based on its share price, so it records a liability. That liability is remeasured at fair value at each reporting date until it is settled.

How is a modification that reduces the exercise price treated under Ind AS 102?

Repricing options downward increases their fair value, so it is a beneficial modification. You recognise the original grant date fair value as before. You also recognise the incremental fair value, which is the fair value after the change minus the fair value before it, both at the modification date. If it happens during vesting, that extra amount is spread from the modification date to vesting.

What happens if a grant is cancelled during the vesting period?

Ind AS 102 treats it as an acceleration of vesting. The entity recognises immediately the amount that would otherwise have been recognised over the rest of the vesting period. Any payment to the employee is a deduction from equity, except for the excess over fair value, which is an expense.

Is Ind AS 113 used to measure fair value in Ind AS 102 questions?

No. The standard says that fair value here is measured under Ind AS 102 itself and not under Ind AS 113. In exam questions you will normally be given the fair value, so you only need to apply it at the right date.