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

Fair Value Measurement and Vesting Conditions under Ind AS 102

Updated 11 October 2026 · Fact-checked

Under Ind AS 102, you measure the fair value of equity instruments at grant date (for employees) using market prices or an option pricing model. Market conditions and non-vesting conditions go into fair value. Other vesting conditions (service, non-market performance) adjust the number of instruments expected to vest. Reload features are ignored.

Understand Fair Value Measurement and Vesting Conditions

When a company grants shares or options to employees, Ind AS 102 asks two questions. What is each instrument worth? And how many will actually vest? Keep these two questions apart. Most exam errors come from mixing them.

Fair value is measured at the measurement date. For employees and those providing similar services, this is the grant date. You use market prices if available. If not, you use a valuation technique consistent with generally accepted methods, which reflects all factors that knowledgeable, willing market participants would consider.

For options, the pricing model matters. Employee options often have long lives and are exercised early. The Black-Scholes-Merton formula does not allow for exercise before the end of the option's life, so for many entities it may not be suitable. For options with short contractual lives, or that must be exercised soon after vesting, it may give a value substantially the same as a more flexible model. Early exercise can be handled in two ways: use the expected life as an input in a model like Black-Scholes-Merton, or use a binomial or similar model with contractual life.

Now the conditions. Market conditions relate to a specified share price, or a target based on the market price of the entity's shares relative to an index. They are built into the grant date fair value. Non-vesting conditions are also built into fair value. Other vesting conditions (service conditions and non-market performance conditions such as profit growth) are not in fair value. Instead, you adjust the number of instruments, so the final amount is based on instruments that eventually vest.

One more rule: a reload feature is ignored when measuring fair value at grant. If a reload option is later granted, you account for it as a new grant.

Key rules to remember

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.

How to solve Fair Value Measurement and Vesting Conditions questions

Use this order for any question on fair value and conditions. It separates the value per option from the number of options.

1Identify the measurement date. For employees, it is the grant date.
2Find the grant date fair value per option. If given, use it. If you must choose a model, think about early exercise and option life.
3List every condition attached to the grant and classify each one: service, non-market performance, market condition, or non-vesting condition.
4Put market and non-vesting conditions into fair value. Do not adjust the number of options for them.
5Leave service and non-market performance conditions out of fair value. Estimate how many options will vest and revise that estimate each year.
6Ignore any reload feature in the grant date value. Treat a later reload option as a new grant.
7Compute the cumulative expense (number expected to vest × fair value × time fraction), then deduct the amount already recognised to get the year's charge.
8Write the journal: employee benefits expense debit, share-based payment reserve (equity) credit.

Quickest way: Two-bucket classification

When to use it: Use this when a question lists several conditions and asks for the expense or the treatment under time pressure.

Bucket 1 (price side): market conditions and non-vesting conditions. They change the fair value per option, set once at grant.
Bucket 2 (count side): service and non-market performance conditions. They change the number of options expected to vest, revised yearly.
Ask of each condition: is it about share price or something the employee can choose to do outside service? Bucket 1. Is it about staying or about profit, sales or growth? Bucket 2.
Multiply: fair value per option from Bucket 1 × count from Bucket 2 × time fraction.
Ignore reload features at grant.

Common mistakes in Fair Value Measurement and Vesting Conditions

Reversing expense when a market condition (such as a share price target) is not met.
Students treat all conditions alike and apply the true-up for failed conditions.
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.
It feels logical that a harder condition lowers the value.
Fix: Non-market vesting conditions are excluded from fair value. Adjust the number of options expected to vest instead.
Revising fair value each year for an equity-settled grant.
Confusion with cash-settled grants, where the liability is remeasured.
Fix: For equity-settled grants the grant date fair value is fixed. Only the estimate of options vesting is revised.
Including a reload feature in the grant date value.
It looks like extra value to the employee.
Fix: Ind AS 102 says the reload feature is not taken into account. A reload option is a new grant when it is made.
Using Black-Scholes-Merton blindly for long-lived employee options.
It is the best-known formula.
Fix: State that it ignores early exercise. Use expected life as an input or a binomial model, and note short-life options may give similar values.
Treating non-vesting conditions as vesting conditions and reversing expense when they fail.
The names sound alike.
Fix: Non-vesting conditions go into fair value. Expense is recognised for employees who satisfy all vesting conditions that are not market conditions, whether or not the non-vesting condition is met.

Worked examples

Example 1

On 1 April 2026, Kaveri Industries Ltd grants 100 options each to 200 employees. Vesting needs 3 years of service. Grant date fair value is ₹60 per option. At the end of year 1, the company expects 10% of employees to leave before vesting. Compute the expense for the year ended 31 March 2027.

Show the solution

Measurement date is the grant date, so fair value is ₹60 per option.
Total options granted = 200 × 100 = 20,000.
Service is a non-market vesting condition, so it is not in fair value. Adjust the number: expected to vest = 20,000 × 90% = 18,000.
Cumulative expense after year 1 = 18,000 × ₹60 × 1/3 = ₹3,60,000.
Nothing was recognised earlier, so the year's expense = ₹3,60,000.
Journal: Employee benefits expense Dr ₹3,60,000; To Share-based payment reserve ₹3,60,000.

Answer: Expense for the year ended 31 March 2027 is ₹3,60,000.

Example 2

Continuing the above, on 1 April 2026 the grant also required the share price to reach ₹500 at vesting. The ₹60 fair value already reflects this market condition. At 31 March 2028, the company expects 85% of employees to stay for the full 3 years. Compute the expense for the year ended 31 March 2028 and explain what happens if the ₹500 price is never reached.

Show the solution

The market condition is already in the ₹60 fair value, so do not change the value or the count for it.
Options expected to vest = 20,000 × 85% = 17,000.
Cumulative expense at end of year 2 = 17,000 × ₹60 × 2/3 = ₹6,80,000.
Expense recognised in year 1 = ₹3,60,000.
Expense for year 2 = ₹6,80,000 − ₹3,60,000 = ₹3,20,000.
If the ₹500 target is never reached, no expense is reversed for employees who complete the 3 years, because the market condition is in fair value.

Answer: Expense for the year ended 31 March 2028 is ₹3,20,000. A missed market condition does not reverse the expense for employees who complete service.

Exam tips

Write a short classification line first: 'Service condition – non-market – adjust number'. It earns marks even if the arithmetic slips.
In MCQs, watch for the word 'share price'. It signals a market condition, which goes into fair value.
For theory, quote the reason Black-Scholes-Merton may not suit employee options: no early exercise and fixed inputs over the option's life.
Show the cumulative-less-previous working for each year. Examiners award marks for the method.
State clearly that fair value is not revised for equity-settled grants.

Practice questions from Share based Payment (Ind AS 102)

Fair Value Measurement and Vesting Conditions in other exams

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

CA FinalInd AS 113 Scope, Objective and Definition of Fair Value

Fair Value Measurement and Vesting Conditions: frequently asked questions

What is the difference between a market condition and a non-market condition?

A market condition is a performance target tied to the share price or to the share price relative to an index. A non-market condition relates to the entity's own operations, such as profit growth, or to service. Market conditions go into fair value. Non-market vesting conditions adjust the number of instruments.

What is the difference between vesting and non-vesting conditions?

Vesting conditions are service conditions and performance conditions that decide whether the employee earns the instrument. Non-vesting conditions are other conditions that are not service or performance conditions. Non-vesting conditions are taken into account in fair value, and expense is recognised for employees who meet the vesting conditions even if the non-vesting condition fails.

Can I always use the Black-Scholes-Merton formula under Ind AS 102?

No. It does not allow for exercise before the end of the option's life, which is common for employee options. For options with short contractual lives or that must be exercised soon after vesting, it may give a value substantially the same as a more flexible model. You can also use expected life as an input to handle early exercise.

How is a reload feature treated?

You do not consider the reload feature when estimating the fair value of the options at the measurement date. If a reload option is granted later, you account for it as a new option grant.