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CA Final · Financial Reporting · Ind AS 102 Share Based Payment

Kaveri Pharma Ltd (the parent) has agreed to pay cash to employees of its subsidiary, Kaveri Labs Ltd, based on the price of the parent's shares. Kaveri Labs Ltd receives the employees' services and the parent will settle in cash. How must the parent classify this transaction in its own financial statements as per Ind AS 102?

The parent classifies it as a cash-settled share-based payment. Paragraph 43C permits equity-settled treatment for the settling entity only if settlement is in its own equity instruments; since the parent settles in cash, the transaction is otherwise cash-settled, even though the amount depends on its share price.

  1. AEquity-settled, because the cash amount is linked to the parent's own share price
  2. BCash-settled, because it is not settled in the parent's own equity instrumentsCorrect
  3. CEquity-settled, because the services are received within the same group
  4. DNot recognised by the parent until the cash is actually paid

Explanation

Under paragraph 43C, the entity settling the transaction when another group entity receives the services recognises it as equity-settled only if settled in its own equity instruments. Settlement is in cash, so the parent treats it as cash-settled. Linking the amount to the share price does not make it equity-settled, which is why the first option fails.

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