Corporate Financial Reporting · Share based Payment (Ind AS 102)

Cash-Settled Share-Based Payment Transactions under Ind AS 102

Updated 11 October 2026 · Fact-checked

In a cash-settled share-based payment, such as share appreciation rights, the entity pays cash based on its share price. You recognise a liability and an expense as employees render service. You measure the liability at fair value at every reporting date until settlement. Changes in fair value go to profit or loss.

Understand Cash-Settled Share-Based Payment Transactions

In an equity-settled transaction, the entity gives shares or options. The fair value is fixed at grant date and never remeasured. In a cash-settled transaction, the entity pays cash based on the value of its shares. Share appreciation rights (SARs) are the standard example. The employee gets a cash amount linked to the rise in share price over a period.

Because the entity will pay cash, it owes a liability. Ind AS 102 says the entity measures the goods or services acquired and the liability at the fair value of the liability. Until settlement, it remeasures that fair value at the end of each reporting period and at the date of settlement. Every change goes to profit or loss.

The expense follows service. If the rights vest immediately, you recognise the services and the liability at once. If employees must complete a specified period of service, you recognise the services and the liability as they render service over that period. In practice you build the liability up in proportion to the service completed.

A choice of settlement changes the treatment. If the counterparty can choose cash or equity, the entity has granted a compound instrument. It has a debt component (the right to demand cash) and an equity component. You account for the debt part like a cash-settled transaction and the equity part, if any, like an equity-settled one. If the fair values of both alternatives are the same, the equity component is zero.

If the entity can choose, you look at whether it has an obligation to settle in cash. If no such obligation exists, you treat the transaction as equity-settled. On settlement, a cash payment is a deduction from equity, as a repurchase. If the entity picks the alternative with the higher fair value at settlement, it recognises an additional expense for the excess value given.

Key rules to remember

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.

How to solve Cash-Settled Share-Based Payment Transactions questions

Use this method for any cash-settled question, whether it is a SAR table or a choice-of-settlement case.

1Classify the award. Ask who gets to choose how it settles. Cash only: cash-settled. Counterparty can choose: compound instrument. Entity can choose: check whether it has an obligation to settle in cash.
2Find the vesting period and when the services are received. Immediate vesting means full recognition at once. Otherwise spread over the service period.
3List the fair value per right at each reporting date. Ignore grant-date value for the liability unless the question says it is the fair value at that date.
4Estimate the number of employees who will satisfy the service condition at each date. Use actual leavers to date plus your best estimate of future leavers.
5Compute the cumulative liability at each date using the formula. Multiply by the fraction of service completed.
6Compute the expense: closing liability minus opening liability plus any cash paid in the year.
7Pass the journal entries: Employee benefit expense Dr to Liability Cr for the build-up; Liability Dr to Bank Cr on payment.
8For choice-of-settlement, split the instrument or test the entity's obligation, and then apply the matching rules for each part.

Quickest way: Cumulative liability table

When to use it: Use for any multi-year SAR numerical with changing fair values and headcount.

Draw columns: Year, Employees, Rights, Fair value, Fraction, Closing liability, Opening liability, Cash paid, Expense.
Fill the liability column in one multiplication per row.
Expense = closing − opening + cash paid. Check that the final liability after full settlement is nil.
Write the journal entries from the table. Do not recompute.

Common mistakes in Cash-Settled Share-Based Payment Transactions

Fixing the fair value at grant date and never changing it.
Students carry over the equity-settled rule.
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.
The entry looks like an ESOP entry.
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.
Showing the cumulative liability as the year's expense.
Students forget the opening balance.
Fix: Expense = closing liability − opening liability + cash paid in the year.
Not adding back cash paid in the year when some rights are exercised before the end of the vesting or term.
The cash payment reduces the liability, which hides the expense.
Fix: Add cash paid to the movement in liability to get the expense.
Ignoring the time fraction when vesting is over several years.
Students apply the full fair value from year 1.
Fix: Multiply by service completed ÷ total vesting period, unless the rights vest immediately.
Treating every choice-of-settlement award as equity-settled.
Students miss who holds the choice.
Fix: If the counterparty chooses, it is a compound instrument with a debt component. Only when the entity chooses, and has no obligation to settle in cash, is it equity-settled.

Worked examples

Example 1

On 1 April 2024, Bharat Textiles Ltd granted 500 SARs to each of 100 employees. The SARs vest if an employee stays for three years and are settled in cash on 31 March 2027 at the fair value then. Fair value per SAR: ₹30 on 31 March 2025, ₹36 on 31 March 2026, ₹40 on 31 March 2027. At 31 March 2025 the company expects 90 employees to complete service; at 31 March 2026 it expects 88; actual employees on 31 March 2027 are 85, and all exercise. Compute the expense each year and the cash paid.

Show the solution

Year ended 31 March 2025: 90 × 500 = 45,000 SARs. Liability = 45,000 × ₹30 × 1/3 = ₹4,50,000. Expense = ₹4,50,000.
Year ended 31 March 2026: 88 × 500 = 44,000 SARs. Liability = 44,000 × ₹36 × 2/3 = ₹10,56,000. Expense = ₹10,56,000 − ₹4,50,000 = ₹6,06,000.
Year ended 31 March 2027: 85 × 500 = 42,500 SARs. Settlement liability = 42,500 × ₹40 = ₹17,00,000. Expense = ₹17,00,000 − ₹10,56,000 = ₹6,44,000.
Cash paid on settlement = ₹17,00,000. The liability is then nil.
Total expense = ₹4,50,000 + ₹6,06,000 + ₹6,44,000 = ₹17,00,000, which equals the cash paid.

Answer: Expense: ₹4,50,000 (2024-25), ₹6,06,000 (2025-26), ₹6,44,000 (2026-27). Cash paid on 31 March 2027: ₹17,00,000.

Example 2

Kaveri Industries Ltd grants employees a share-based award where the company chooses whether to settle in cash or by issuing shares. It has no obligation to settle in cash. The grant-date fair value of the award, ₹6,00,000, has been recognised in equity over the vesting period. At settlement, the company elects to pay cash of ₹7,00,000. The fair value of the shares it would otherwise have issued is ₹6,80,000. Explain the accounting at settlement.

Show the solution

The entity has the choice and no obligation to settle in cash, so the transaction is accounted for as equity-settled over the vesting period. The ₹6,00,000 already sits in equity.
On settlement in cash, the payment is treated as the repurchase of an equity interest, a deduction from equity.
The entity has chosen the alternative with the higher fair value at settlement date. Cash ₹7,00,000 is higher than the share value ₹6,80,000.
Additional expense for the excess value = ₹7,00,000 − ₹6,80,000 = ₹20,000, recognised in profit or loss.
Deduct ₹6,80,000 from equity and recognise ₹20,000 as expense; total cash paid is ₹7,00,000.

Answer: Recognise ₹20,000 as additional expense in profit or loss. Deduct ₹6,80,000 from equity for the repurchase. Total cash paid is ₹7,00,000.

Exam tips

Always tabulate by year. Marks go for the liability workings and the formula, even if one number is off.
State the rule in one line: the liability is remeasured at each reporting date and at settlement, with changes in profit or loss.
In a case scenario MCQ, check who holds the choice of settlement before answering. The answer changes with it.
Check your total. If all rights are settled, total expense across years should equal total cash paid.
If the question says the terms are modified so a cash-settled award becomes equity-settled, derecognise the liability at modification date and recognise equity at the fair value then. The difference goes to profit or loss.

Practice questions from Share based Payment (Ind AS 102)

Cash-Settled Share-Based Payment Transactions 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 Payment Transactions: frequently asked questions

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

An equity-settled award gives the employee shares or options, and the grant-date fair value is not remeasured. A cash-settled award gives cash linked to the share price. You record a liability and remeasure it at fair value at each reporting date until it is settled.

Where do changes in the fair value of the SAR liability go?

They go to profit or loss for the period. Ind AS 102 requires the entity to remeasure the liability at the end of each reporting period and at the date of settlement, with changes recognised in profit or loss.

How is a choice of settlement by the employee treated?

It is a compound financial instrument with a debt component and an equity component. You account for the debt component as cash-settled and the equity component, if any, as equity-settled. If both alternatives have the same fair value, the equity component is zero.

Do I use grant-date fair value for SARs?

No, not for the liability. The liability uses the fair value at each reporting date. A grant-date value matters only if it is the first reporting-date fair value given in the question.