Ind AS 102 "Share-based Payment" At 1st April, 20X1 an entity enters into a share-based payment arrangement with its employees. The terms of the…

CA Final · Financial Reporting · RTP · May 2025
Ind AS 102 "Share-based Payment" At 1st April, 20X1 an entity enters into a share-based payment arrangement with its employees. The terms of the award are as follows: Employees are required to work for the entity for five years; after that they will receive a cash payment equal to the value of the entity's shares.If the entity achieves a successful IPO during the five -year period, the employees will receive free shares rather than a cash payment. So, employees might receive free shares at the time of IPO or a cash payment at the end of 5th year, but not both.No employees are expected to leave the entity over the next five years.At the date of the award and till the end of second year, it was not probable that a successful IPO would occur before year 5.At the end of year 3, a successful IPO becomes probable; and management expects it to occur in year 4.At the end of year 4, a successful IPO occurs; and employees receive free shares.The fair value of the equity-settled award alternative is 1,000 at the grant date. The fair value of the cash-settled alternative, ignoring the probability that an IPO will happen within the five years, is as follows: 50 at the end of year 1; 500 at the end of year 2; 100 at the end of year 3; and 50 at the end of year 4. Required: How the entity would account for this transaction?

Suggested Answer and Working Notes:

At the end of first and second year, the entity would not record a charge for the equity-settled award; this is because the vesting conditions are not expected to be met (that is, a successful IPO is not probable). Hence, a liability is recognised, because cash settlement is probable until year 3. (Refer para 42 of Ind AS 102) Dr. (₹) Cr. (₹) Year end 31st March, 20X2 Employee benefits expense (₹ 50 / 5years) Dr. 10 To Share-based payment liability 10 (Cash settled award recognised over the vesting period) Year end 31st March, 20X3 Employee benefits expense{(₹ 500 × 2/5)-10} Dr. 190 To Share-based payment liability 190 (Cash -settled award recognised over the vesting period) At the end of year 3, a successful IPO becomes probable; so the entity would record a charge for an equity-settled award. There should also be a reversal of the SBP liability, because this award is now deemed not probable. Dr. Cr. Year end 31st March, 20X4 Share-based payment Liability Dr. 200 To Share-based Payment Reserve 200 (Reversal of cash -settled share-based payment, because IPO deemed probable) Dr. Year end 31st March, 20X4 Employee benefits expense {(₹ 1,000 x 3/4) -200} Dr. 550 To Share-based Payment Reserve 550 (Equity -Settled award measured at grant date fair value of 550, because IPO is now deemed probable) Year end 31st March, 20X5 Employee Benefits Expenses Dr. 250 To Share-based Payment Reserve 250 (Equity settled award recognised over the vesting period) Share-based Payment Reserve Dr. 1,000 To Equity share capital 1,000 (Settlement of share-based payment award through issuance of free shares) Equity -settled award measured at fair value of 1,000. All of the vesting conditions for this ward have been met in year 4; so the award has vested, and the remaining charge of 250 (₹ 1,000 -750) is recognised in the Statement of profit and loss.

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