Ind AS 102, Share-based Payment
The objective of this Standard is to specify the financial reporting by an entity when it undertakes a share-based payment transaction. In particular, it requires an entity to reflect in its profit or loss and financial position the effects of share-based payment transactions, including expenses associated with transactions in which share options are granted to employees. Further, goods or services received in a share-based payment transaction are measured at fair value.
An entity shall recognise the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity-settled sharebased payment transaction, or a liability if the goods or services were acquired in a cash-settled share-based payment transaction.
When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they should be recognised as expenses.
The Standard sets out measurement and specific requirements for following types of share-based payment transactions:
- equity-settled share-based payment transactions, in which the entity (a) receives goods or services as consideration for its own equity instruments (including shares or share options) or equity instruments (including shares or share options) of another group entity, or (b) receives goods or services but has no obligation to settle the transaction with the supplier.
- cash-settled share-based payment transactions, in which the entity acquires goods or services by incurring a liability to transfer cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of equity instruments (including shares or share options) of the entity or another group entity.
Equity-settled share-based payment transactions
For equity-settled share-based payment transactions, the entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity should measure their value and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.
- for transactions with employees and others providing similar services, the entity is required to measure the fair value of the services received by reference to the fair value of the equity instruments granted, because typically it is not possible to estimate reliably the fair value of the services received. The fair value of those equity instruments shall be measured at grant date.
- for transactions with parties other than employees, there shall be a rebuttable presumption that the fair value of the goods or services received can be estimated reliably. That fair value shall be measured at the date the entity obtains the goods or the counterparty renders service. In rare cases, if the entity rebuts this presumption because it cannot estimate reliably the fair value of the goods or services received, the entity shall measure the goods or services received and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders service.
- for goods or services measured by reference to the fair value of them equity instruments granted, the Standard specifies that vesting conditions, other than market conditions, are not taken into account when estimating the fair value of the shares or share options at the measurement date. Instead, vesting conditions (other than market conditions) shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Hence, on a cumulative basis, no amount is recognised for goods or services received if the equity instruments granted do not vest because of failure to satisfy a vesting condition (other than market condition)
- an entity shall measure the fair value of equity instruments granted at the grant date, based on market prices if available, taking into account the terms and conditions upon which those equity instruments were granted subject to certain requirements specified in the Standard. If market prices are not available, the entity shall estimate the fair value of the equity instruments granted using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an arm’s length transaction between knowledgeable and willing parties.
Cash-settled share-based payment transactions
For cash-settled share-based payment transactions, the entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability subject to certain requirements. Until the liability is settled, the entity shall remeasure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognised in profit or loss for the period.
Share-based payment transactions with cash alternatives
For share-based payment transactions in which the terms of the arrangement provide either the entity or the counter-party with the choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments, the entity should account for that transaction, or the components of that transaction, as:
- a cash-settled share-based payment transaction if, and to the extent that, the entity has incurred a liability to settle in cash or other assets, or
- an equity-settled share based payment transaction if, and to the extent that, no such liability has been incurred.
Thus, grants in which the counterparty has the choice of equity or cash settlement are accounted for as compound instruments. Therefore, the entity accounts for a liability component and a separate equity component. However, the classification of grants in which the entity has the choice of equity or cash settlement depends on whether the entity has the ability and intent to settle in shares.
Modifications and cancellations of employee transactions
- In case of modification to the terms and conditions on which equity instruments were granted, the entity recognises, as a minimum, the goods or services measured at the grant date fair value of equity instruments. In addition, the entity recognises effects of modifications that increase the total fair value of the share-based payment arrangement or are otherwise beneficial to the employee. Any decrease in fair value is ignored. Replacements are accounted for as modifications.
- The entity accounts for the cancellation or settlement as an acceleration of vesting.
Group share-based payment arrangements
A share-based payment transaction may be settled by another group entity (or a shareholder of any group entity) on behalf of the entity receiving or acquiring the goods or services. The Standard also applies to an entity that:
- receives goods or services when another entity in the same group (or a shareholder of any group entity) has the obligation to settle the share-based payment transaction, or
- has an obligation to settle a share-based payment transaction when another entity in the same group receives the goods or services unless the transaction is clearly for a purpose other than payment for goods or services supplied to the entity receiving them.
A receiving entity that has no obligation to settle the transaction accounts for the share-based payment transaction as equity-settled.
A settling entity classifies a share-based payment transaction as equity-settled if it is obliged to settle in its own equity instruments; otherwise, it classifies the transaction as cash-settled.
Share-based payment transactions with a net settlement feature for withholding tax obligations
The terms of a share-based payment arrangement may permit or require the entity to withhold the number of equity instruments equal to the monetary value of the employee’s tax obligation from the total number of equity instruments that otherwise would have been issued to the employee upon exercise (or vesting) of the share-based payment, i.e. the share-based payment arrangement has a ‘net settlement feature’. As an exception, such transactions shall be classified in its entirety as an equity-settled sharebased payment transaction if it would have been so classified in the absence of the net settlement feature.
The payment made shall be accounted for as a deduction from equity for the shares withheld, except to the extent that the payment exceeds the fair value at the net settlement date of the equity instruments withheld.
The exception does not apply to:
- a share-based payment arrangement with a net settlement feature for which there is no obligation on the entity under tax laws or regulations to withhold an amount for an employee’s tax obligation associated with that share-based payment; or
- any equity instruments that the entity withholds in excess of the employee’s tax obligation associated with the share-based payment (i.e. the entity withheld an amount of shares that exceeds the monetary value of the employee’s tax obligation). Such excess shares withheld shall be accounted for as a cash-settled share-based payment when this amount is paid in cash (or other assets) to the employee.
An entity shall disclose information that enables users of the financial statements to understand –
- the nature and extent of share-based payment arrangements that existed during the period;
- how the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was determined;
- the effect of share-based payment transactions on the entity’s profit or loss for the period and on its financial position.