1. Ind AS 2 – Share based payment
What is Share based Payment ( SBP)
In simple words – payment based on shares or shares options.
SBP covers not just shares or shares options to Employees , i.e., shares based transactions with employees , but also SBP transactions with suppliers of goods or service, other than employees Viz., vendors
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.

2. What is Share-based Payment arrangements ?
An agreement between the entity (or another group entity or any shareholder of any group entity) and another party (including an employee) that entitles the other party to receive : (a) equity instruments (including shares or share options) of the entity or another group entity, provided the specified vesting conditions, if any, are met. (b) cash or other assets of the entity 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, or

3. Three Types of Share based payment
Share-based payments –(SBP)
Equity-settled
share-based payments
Cash-settled share-based payments
Share-based payments
with cash alternatives
Entity receives goods/services as consideration for equity instruments.
Entity receives goods/services by incurring a liability to transfer cash or other assets to the supplier for amounts that are based on the price (or value) of the entity’s shares.
Either entity or the counterparty has a choice to settle in equity instruments or in cash or other assets.
Equity
Liability
Equity or Liability

4. Definitions
• Grant date is the date at which the entity and the supplier agree to the SBP arrangement and both parties have a shared understanding of the terms and conditions of the arrangement
• Vesting period is the period during which all the specified vesting conditions are to be satisfied
• Vesting conditions determine whether the entity receives the services that entitle the supplier to receive the SBP – they are service or performance (including market) conditions
• Non-vesting conditions need to be satisfied for the supplier to become entitled to the SBP
Vest means to be come entitled to.

5. Definitions
Fair Value * The amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm’s length transaction.
Intrinsic value The difference between the fair value of the shares to which the counterparty has the (conditional or unconditional) right to subscribe or which it has the right to receive, and the price (if any) the counterparty is (or will be) required to pay for those shares. For example, a share option with an exercise price of Rs. 15, on a share with a fair value of Rs. 20, has an intrinsic value of Rs. 5.
* This Standard uses the term ‘fair value’ in a way that differs in some respects from the definition of fair value in Ind AS 113, Fair Value Measurement. Therefore, when applying Ind AS 102 an entity measures fair value in accordance with this Standard, not Ind AS 113.

6. Vesting Condition
Does the Condition determine whether the entity receives the services that entitles the counterparty to the share-based payments.
If No – Non-vesting Contiotion
If Yes – Vesting Condition
Service Condition
Performance Condition

7. Definitions
Equity instrument A contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instrument granted The right (conditional or unconditional) to an equity instrument of the entity conferred by the entity on another party, under a share-based payment arrangement.

8. For transactions with parties other than employees
Measurement Date
The date at which the fair value of the equity instruments granted is measured for the purposes of this Ind AS
For transactions with
employees and others providing similar services
For transactions with parties other than employees
Measurement Date
Is the grant Date with reference to FV of equity instrument – indirectly
Measurement Date is the date on which the goods or services are received or acquired, with reference to FV of goods or services - directly

9. Share-based payment transactions include:
Grants to employees (and others providing similar services, e.g. non-executive directors)
Grants to non-employees, e.g. consultants, suppliers
Employee share purchase plans
Certain share-based payments settled by an entity in, or an external shareholder of, the same group

10. Ind AS Scoped Out
Equity instruments issued as consideration in business combination (Ind AS 103)
Commodity contracts that can be settled by exchanging financial instruments and that are not for the purpose of entity’s expected purchase, sale or usage (Ind AS 32/Ind AS 109)
A transaction with an employee (or other party) in his/her capacity as a holder of equity instruments of the entity is not a share-based payment transaction.eg. Bonus - Rights shares.

11. Timeline of a share option award
Vesting period - the period during which all the specified vesting conditions are to be satisfied
Year 1
Year 2
Year 3
Grant date
Vesting date
Exercise date
Time
Vesting period
Grant date - the date at
which the entity and the counter party have a shared understanding of the terms and conditions of the arrangement
Vesting date – the date
when the vesting conditions for entitlement are satisfied
Exercise date is the date
when awards (e.g. options)
are exercised.
Modified Grant Date Method . No FV is changed once estimated at Grant date, except modification.

12. General recognition principles
Debit
Recognise goods / services received when goods are obtained or services are received
When the goods / services do not qualify for recognition as assets, an expense is recognised
Credit
For equity-settled share-based payment transactions a corresponding increase in equity is recognised; and
For cash-settled share-based payment transactions a corresponding liability is recognised
the entity to recognise the goods or services received during the vesting period based on the
best available estimate of the number of equity instruments expected to vest and
to revise that estimate

13. General measurement principles
Equity-settled
share-based payments
Cash-settled share-based payments
Non-employees
Employees
Goods/services are measured directly, based on fair value of goods/services received.
Goods/services are measured indirectly, by reference to fair value of equity instruments granted.
Goods/services are measured at the intrinsic value of the equity instruments.
Goods/services are measured at the grant date fair value of the liability.
Liability is remeasured.
If not reliably measurable (only in rare cases)
If not reliably measurable (only in rare cases)

14. Determining the fair value of equity instruments granted ( transactions with Employees)
Measure employee services indirectly, based on fair value of equity instruments granted
Fair value of equity instruments measured at market price for instruments with similar terms and conditions (rarely available)
If no market exists, fair value is estimated by applying a valuation (e.g. option pricing) model
If fair value is not measurable reliably (only in very rare cases), then services are measured at the intrinsic value of the equity instruments
Date of measurement
Fair value measured at grant date

15. Accounting for employee services received
If no vesting conditions recognise immediately
credit equity *
If vesting conditions spread over vesting period
credit equity incrementally
apply “modified grant date Method” *

16. Accounting for employee services received Overview of conditions
Vesting conditions are service related, i.e. they determine whether the entity receives the services that entitle the counterparty to the share-based payment
Service conditions; with or without …
Performance conditions
Market performance conditions or non-market performance conditions
Performance conditions by definition always require a service condition
Non-vesting conditions are not service related, i.e. they do not determine whether the entity receives the services that entitle the counterparty to the share-based payment

17. Performance conditions Non-market conditions
Accounting for employee services received (continued) Overview of conditions
Vesting conditions
Service conditions
Performance conditions
Market conditions
Non-market conditions
Requirement to complete a specified period of service
Service condition +
condition that is related to the market price of the equity instrument
Service condition +
condition that is a performance condition, but not market price related
Employee has to stay employed for example , for 3 three years after grant date
Share price must increase by 15%
TSR (total shareholder return) must increase by 10%
Revenue must increase by 10%
Percentage increase in market share

18. Basically Not related to Services
Accounting for employee services received (continued) Overview of conditions
Non-vesting conditions
Conditions that neither the entity nor the counterparty can choose to meet
Conditions that the counterparty can choose to meet
Conditions that the entity can choose to meet
Inflation must not be higher than 5%
Price of gold must increase by more than 3 %
Holding participation shares over the holding period
Paying monthly contributions to a share purchase plan
Continuation of the plan by the entity
Basically Not related to Services

19. Equity-settled share-based payments with non-employees
Measured directly at the fair value of goods and services received
If the fair value of goods and services cannot be estimated reliably, measure the fair value of equity instrument
If the fair value of the equity instrument granted cannot be estimated reliably (only in very rare cases), equity instruments are measured at their intrinsic value
Measured at the date the goods or services are obtained
As opposed to grant date – in case of employees
Means “daily” if services are rendered
Simplification method: “regular intervals”
Expense immediately ( means no vesting conditions) unless
Goods or services qualify for capitalisation as asset (e.g. inventory); or
Vesting conditions exist
expense when services are rendered over the vesting period

20. Other share-based payment issues
Share-based payments
Equity-settled
share-based payments
Cash-settled share-based payments For example Share Appreciation Rights
Share-based payments
with cash alternatives
with employees
with non-employees

21. Cash-settled transactions
Results in payment of cash (or other assets) to the counterparty
Payment is based on value of equity instrument, e.g., change in share price
Results in a liability
Allocate grant date measurement over vesting period (same approach as equity-settled)
Remeasure the fair value of the liability at the end of each reporting period
Remeasurement recognised in profit or loss
Changes in fair value are recognised in profit or loss. Therefore, if the
amount recognised for the services received was included in the carrying amount
of an asset recognised in the entity’s statement of financial position
(eg inventory), the carrying amount of that asset is not adjusted for the effects of
the liability remeasurement.

22. Cash or Equity Settled At Option of Entity (Ind as 102.41-43)
Cash-settled transaction if entity has present obligation to settle in cash
Equity-settled transaction if no present obligation to settle in cash

23. Cash or Equity Settled At Option of Entity – Final Settlement
Upon settlement:
(a) if the entity elects to settle in cash, the cash payment shall be accounted for as the repurchase of an equity interest, ie as a deduction from equity, except as noted in (c) below.
(b) if the entity elects to settle by issuing equity instruments, no further
accounting is required (other than a transfer from one component of
equity to another, if necessary), except as noted in (c) below.
(c) if the entity elects the settlement alternative with the higher fair value, as at the date of settlement, the entity shall recognise an additional expense for the excess value given

24. Cash or Equity Settled At Option of Counter-Party - I
Compound Financial Statement
What is Compound Financial Statement?
Equity Component
Debt Component
Accounted for as for cash-settled share-based payments
Accounted for as for Equity -settled share-based payments

25. Cash or Equity Settled At Option of Counter-Party - II
1.Transactions with parties other than employees in which the fair value of the goods or services received is measured directly, the entity shall measure the equity component of the compound financial instrument as the difference between the fair value of the goods or services received and the fair value of the debt component, at the date when the goods or services are received.
Equity Component = FV of Goods or Services – F V of Debt Component   
2. Other transactions, including transactions with employees, the entity shall measure the fair value of the compound financial instrument at the measurement date, taking into account the terms and conditions on which the rights to cash or equity instruments were granted.
In this case, entity will first measure the F V of debt component , then equity.

26. Cash or Equity Settled At Option of Counter-Party -III
At the date of settlement, the entity shall remeasure the liability to its fair value.
If Settles in Equity Instruments
If the entity issues equity instruments on settlement rather than paying cash, the liability shall be transferred direct to equity, as the consideration for the equity instruments issued.
If Settles in Cash
That payment shall be applied to settle the liability in full. Any equity component previously recognised shall remain within equity.
By electing to receive cash on settlement, the counterparty forfeited the right to receive equity instruments.
Transfer from one component of equity to another is permitted.

27. Reload
For options with a reload feature, the reload feature shall not be taken into account when estimating the fair value of options granted at the measurement date.
Reload option is accounted for as a new option grant, if and when a reload option is subsequently granted.

28. After Vesting Date
Having recognised the goods or services received and a corresponding increase in equity,
No subsequent adjustment to total equity after vesting date.
For example, no subsequent reversal of the amount recognised for services received from an employee if the vested equity instruments are later forfeited or, in the case of share options, the options are not exercised
Recognising transfer within equity is not prohibited- forfeiture.

29. Modifications – Cancellations - Settlements
How to account for the effects of modifications ( Which) are expressed in the context of :-
share-based payment transactions with employees.
share-based payment transactions with parties other than employees, that are measured with reference to the fair value of the equity instrument granted.

30. What is Modification ?
Modification of the terms and conditions on which the equity instruments were granted, like :-
Re-price the option , increase or decrease the option price.
Reduction in option price will increase the fair value of the options and vice versa.
Increase / Decrease the no of instruments granted *
By modifying vesting conditions – reducing or increasing vesting period.

31. Modification i.e. such modifications are ignored
When modifications decrease the fair value of the equity instruments, recognition is based on the original grant date fair value or it is not otherwise beneficial to employees,
for example, by increasing the vesting period or by modifying or adding a performance condition
i.e. such modifications are ignored
If the modification reduces the number of equity instruments granted to an employee, that reduction shall be accounted for as a cancellation of that portion of the grant , and NOT as Modification.

32. Modification
The entity should recognise the effects of modifications that increase the total fair value of the share-based payment arrangement or are otherwise beneficial to the employee.
When modifications increase the fair value of the equity instruments, recognition is the sum of:
The original grant date fair value; and
The incremental fair value
The incremental fair value is the difference between the fair value of the modified equity instruments and the original equity instrument, both measured at the date of modification

33. Cancellation & Settlement
Cancellation or settlement is accounted for as accelerated vesting
Recognise immediately the amount that otherwise would have been recognised over the remainder of the vesting period
Cancellations by the employer and by the employee

34. Share based payments transaction among group entities
Share-based payment arrangements involving an entity’s own equity Instruments
Share-based payment arrangements involving equity instruments of the parent For example, employees of a subsidiary are granted rights to equity instruments of its parent as consideration for the services provided to the subsidiary.
Share-based payment arrangements involving cash-settled payments to employees
Transfer of employees between group entities

35. Share-based payment arrangements involving an entity’s own equity Instruments
Such arrangement is account for as equity-settled.
This applies regardless of whether the entity chooses or is required to buy those equity instruments from another party to satisfy its obligations to its employees under the share-based payment arrangement.

36. Share-based payment arrangements involving equity instruments of the parent
a parent grants rights to its equity instruments directly to the employees of its subsidiary: the parent (not the subsidiary) has the obligation to provide the employees of the subsidiary with the equity instruments
Situation 1
a subsidiary grants rights to equity instruments of its parent to its employees: the subsidiary has the obligation to provide its employees with the equity instruments.
Situation 2

37. Situation 1 A parent grants rights to its equity instruments to the employees of its subsidiary
Both Parent & Subsidiary account shall measure its obligation in accordance with the requirements applicable to equity-settled share-based payment transactions.

38. Situation 2 A subsidiary grants rights to equity instruments of its parent to its employees
Because the subsidiary does not meet either of the conditions in paragraph 43B,it shall account for the transaction with its employees as cash-settled.

39. Share-based payment arrangements involving cash-settled payments to employees
For example, arrangements in which the parent (not the entity itself) has an obligation to make the required cash payments to the employees of the entity:
(a) the employees of the entity will receive cash payments that are linked to the price of its equity instruments.
(b) the employees of the entity will receive cash payments that are linked to the price of its parent’s equity instruments.
Subsidiary – Equity Settled
Parent Cash Settled

40. Transfer of employees between group entities.
For Example ,An employee of one subsidiary might transfer employment to another subsidiary during the specified vesting period without the employee’s rights to equity instruments of the parent under the original share-based payment arrangement being affected.
If subsidiary has obligation – Cash Settled,
If not, Equity Settled

41. Disclosures Ind AS 102 requires extensive disclosure, including:
– Weighted average fair value of options granted
– Option pricing model used and inputs to the model
– Assumptions made in respect of early exercise
– How expected volatility was measured (and extent to
which based on historical volatility)
– Details of any market conditions factored into the FV
– Details of modifications (including incremental FV)
– Expense recognised in period
– Liability relating to cash-settled share-based payments
(& intrinsic value of vested options)