Max Ltd. enters into a share-based payment arrangement with its employees on the following terms: Each employee will receive 500 shares if they…
CA Final · Financial Reporting · RTP · September 2025
Max Ltd. enters into a share-based payment arrangement with its employees on the following terms: Each employee will receive 500 shares if they remain employed for a period of five years.It is expected that no employees are expected to leave during the five year period.The grant date fair value of the award is 4,000.If an employee leaves Max Ltd. after the five -year period, but before its shares are listed, the entity has an option to purchase the shares for fair value from the employee.On grant date, Max Ltd. expects to list in the list in the next 3-5 years. This is the first share-based plan and Max Ltd. has no past practice or stated policy of buying back shares from employees when the employees leave. Neither does Max Ltd. expect that it will settle the awards in cash.At the end of year 2, Max Ltd. on longer expects to list; and the employees are informed of this fact. Max Ltd. announces to employees that if it is not listed after the five years and employees leave, Max Ltd. will repurchase the shares. The fair value of the shares is 6,000 on this date.At the end of year 3, the fair value of the liability has increased to 9,000 Required (i) Determine the accounting for years 1-3.
Suggested Answer and Working Notes:
On the grant date, the employer accounts for the arrangement as an equity settled share-based payment because there is no present obligation to settle in cash. Journal Entries ₹ ₹ Employee benefit expenses (4,000 x 1/5) Dr. 800 To Share-based payment reserve 800 At the end of year 2, Max Ltd. has created an obligation to settle in cash through a change in stated policy: Employee benefit expenses (4,000 x 1/5) Dr. 800 To Share-based payment reserve 800 The above entry is to record - 4,000 vesting over a period of five years which was the expectation until year end. Share-based payment reserve Dr. 2,400 To Share-based payment liability (6,000 x 2/5) 2,400 In substance the reclassification represents the repurchase by Max Ltd. of its own shares, so no further expense is recognized. The subsequent measurement of the liability would follow the requirements for a cash settled share – based payment. At the end of year 3, the award is accounted for on a cash - settled basis as follows: Employee benefit expenses Dr. 3,000 To Share-based payment liability (9,000x3/5–2,400) 3,000
Topics: Ind AS 102
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