Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material is designed strictly as per the latest syllabus and exam pattern.

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Accounting For Equity Settled Share Based Payment (Based On Para Nos. 10 To 13)

Question 1.
G Limited grants 200 shares to each of its 400 employees on 1st January, 2016. The employee should remain in service during the vesting period so as to be eligible. The shares will vest at the end of the
1st year – If the company’s earnings increase by 12%.
2nd year – If the company’s earnings increase by more than 20% over the two year period.
3rd year – If the company’s earnings increase by more than 20% over the three year period.

The fair value per share (non-market related) at the grant date is ₹ 61. In 2016, earnings increased by 10% and 22 employees left the company. The company expects that earnings will continue at a similar rate in 2017 and expect that the shares will vest at the end of the year 2017. The company also expects that additional 18 employees will leave the organization in the year 2017 and that 360 employees will receive their shares at the end of the year 2017. At the end of 2017 company’s earnings increased by 18% (over the 2 years period). Therefore, the shares did not vest. Only 16 employees left the organization during 2017.

The company believes that additional 14 employees will leave in 2020 and earnings will further increase so that the performance target will be achieved in 2018. At the end of the year 2018, only 9 employees have left the organization. Assume that the company’s earnings increased to desired level and the performance target has been met.

You are required to determine the expense as per Ind AS for each year (assumed as financial year) and pass appropriate journal entries.
Answer:
Since the earnings of the entity is non-market related, hence it will not be considered in fair value calculation of the shares given. However, the same will be considered while calculating number of shares to be vested.
Calculation of yearly expenses to be charged:

2016 2017 2018
(a) Total employees 400 400 400
(b) Employees left (Actual) (22) (38)* (47)**
(c) Employees expected to leave in the next year (18) (14)
(d) Year end – No. of employees (a-b-c) 360 348 353
(e) Shares per employee 200 200 200
(f) Fair value of a share at the grant date 61 61 61
Conditional increase in earnings 12% 20% 20%
Actual increase in earnings 10% 18% 20%
(g) Vesting period 1/2 2/3 3/3
(h) Expenses (Refer Working Notes) 21,96,000 6,34,400 14,76,200

*22 + 16 = 38
**22 + 16 + 9 = 47

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Journal Entries
Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material 1
Working Notes:
1. Expense for 2016 (Jan. to Dec.) = No. of employees × Shares per employee × Fair value of share × Proportionate vesting period
= 360 × 200 × 61 × 1/2
= 21,96,000
Expense recognized in the financial year 2015-2016 = 21,96,000 × 3 /12 = 5,49,000

2. Expense for 2017 (Jan. to Dec.) = No of employees × Shares per employee × Fair value of share × Proportionate vesting period – Expense recognized in year 2016
= [(348 × 200 × 61) × 2/3] – 21,96,000
= 6,34,400
Expense recognized in the financial year 2016-2017 = (21,96,000 × 9/12) + (6,34,400 × 3/12)
= 16,47,000 + 1,58,600
= 18,05,600

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

3. Expense for 2018 (Jan. to Dec.) = (No of employees × Shares per employee × Fair value of share × Proportionate vesting period) – Expense recognized in year 2016 and 2017
= [(353 × 200 × 61) X 3/3] – (21,96,000 + 6,34,400)
= 14,76,200
Expense recognized in the financial year2017-2018= (6,34,400 × 9/12) + (14,76,200 × 3/12)
= 4,75,800 + 3,69,050
= 8,44,850

4. Expense recognized in the financial year 2018-2019 = (14,76,200 × 9/12) = 11,07,150

Question 2.
Beetel Holding Inc. grants 100 shares to each of its 300 employees on 1st January, 2015. The employees should remain in service during the vesting period. The shares will vest at the end of the
First year : if the company’s earnings increase by 13%.
Second year : if the company’s earnings increased by more than 21% over the two-year period.
Third year : if the entity’s earning increased by more than 23% over the three- year period.

The fair value per share at the grant date is ₹ 125.

In 2015, earnings increased by 9% and 20 employees left the organization. The company expects that earnings will continue at a similar rate in 2016 and expects that the shares will vest at the end of the year 2016. The company also expects that additional 30 employees will leave the organization in the year 2016 and that 250 employees will receive their shares at the end of the year 2016.

At the end of 2016, company’s earnings increased by 19%. Therefore, the shares did not vest. Only 20 employees left the organization during 2016. Company believes that additional 25 employees will leave in 2017 and earnings will further increase so that the performance target will be achieved in 2017.

At the end of the year 2017, only 22 employees have left the organization. Assume that the company’s earnings increased to desired level and the performance target has been met. Determine the expense for each year and pass appropriate journal entries. [May 2019 – 8 Marks]
Answer:
Since the earnings of the entity is non-market related, hence it will not be considered in fair value calculation of the shares given. However, the same will be considered while calculating number of shares to be vested.
Workings:

2015 2016 2017
Total employees 300 300 300
Employees left (20) (40) (62)
Expected to leave in future                    , (30) (25)
Year End 250 235 238
Shares / employee 100 100 100
Fair value 125 125 125
Vesting period 1/2 2/3 3/3
Expenses-2015 15,62,500 19,58,333 29,75,000
Expenses-2016 3,95,833
Expenses-2017 10,16,667

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Journal Entries

31-Dec-2015
Employee benefits expenses Dr. 15,62,500
To Share based payment reserve (equity) 15,62,500
(Equity settled shared based payment expected vesting amount)
31-Dec-2016
Employee benefits expenses Dr. 3,95,833
To Share based payment reserve (equity) 3,95,833
(Equity settled shared based payment expected vesting amount)
31-Dec-2017
Employee benefits expenses Dr. 10,16,667
To Share based payment reserve (equity) 10,16,667
(Equity settled shared based payment expected vesting amount)
Share based payment reserve (equity) Dr. 29,75,000
To Share Capital 29,75,000
(Share capital Issued)

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Impact Of Vesting Conditions (Based On Para Nos. 19 To 21a)

Question 3.
A Ltd. grants 100 shares to each of its 500 employees on 1st January 20X1. The employees should remain in service during the vesting period. The shares will vest at the end of the

First year : if the company’s earnings increase by 12%;
Second year : if the company’s earnings increase by more than 20% over the two-year period;
Third year : if the entity’s earnings increase by more than 22% over the three- year period.

The fair value per share at the grant date is INR 122. In 20X1, earnings increased by 10%, and 29 employees left the organisation. The company expects that earnings will continue at a similar rate in 20X2 and expects that the shares will vest at the end of the year 20X2. The company also expects that additional 31 employees will leave the organisation in the year 20X2 and that 440 employees will receive their shares at the end of the year 20X2.

At the end of 20X2, company’s earnings increased by 18%. Only 29 employees left the organization during 20X2. Company believes that additional 23 employees will leave in 20X3 and earnings will further increase so that the performance target will be achieved in 20X3. At the end of the year 20X3, only 21 employees have left the organization. The company’s earnings increased to desired level and the performance target has been met.

Determine the expense for each year and pass appropriate journal entries as per the relevant Ind AS?
Answer:
Since the earnings of the entity is non-market related, hence it will not be considered in fair value calculation of the shares given. However, the same will be considered while calculating number of shares to be vested.

Workings:
Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material 2

Note 1:
Expenses for 20X1 = No. of employees × Shares per employee × Fair value of share × Proportionate vesting period
= 440 × 100 × 122 × 1/2
= 26,84,000

Note 2:
Expenses for 20X2 = (No. of employees × Shares per employee × Fair value of share × Proportionate vesting period) – Expenses recognized in year 20X1
= (419 × 100 × 122 × 2/3) – 26,84,000
= 7,23,867

Note 3:
Expenses for 20X3 = (No. of employees × Shares per employee × Fair value of share × Proportionate vesting period) – Expenses recognized in year 20X1 and 20X2
= (421 × 100 × 122 × 3/3) – (26,84,000 + 7,23,867)
= 17,28,333.

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Journal Entries
Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material 3

Accounting For Cash Settled Share-Based Payment (Based On Para No. 30)

Question 4.
A Limited issued 20,000 Share Appreciation Rights (SARs) that vest immediately to its employees on 1st April, 2015. The SARs will be settled in cash. At that date it is estimated using an option pricing model, that the fair value of a SAR is ₹ 95. SAR can be exercised any time up to 31st March, 2018. At the end of 31st March, 2016 it is expected that 95% of total employees will exercise the option, 92% of total employees wilt exercise the option at the end of next year and finally 89% wilt be vested only at the end of the 3rd year. Fair values at the end of each period have been given below:

Fair value of SAR
31st March, 2016 110
31st March, 2017 107
31st March, 2018 112

Discuss the applicability of Cash Settled Share based payments under the relevant Ind AS and pass the journal entries.
Answer:
Calculation of expenses recognized during the year on account of change in the fair value of SARs

Period Fair value To be vested Cumulative expenses Expense/(benefit) for the current year
a b c = a × b × 20,000 d = c – of current period – c of previ­ous period
1st April, 2015 95 100% 19,00,000 19,00,000
31st March, 2016 110 95% 20,90,000 1,90,000
31st March, 2017 107 92% 19,68,800 (1,21,200)
31st March, 2018 112 89% 19,93,600 24,800
19,93,600

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Journal Entries
Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material 4

Question 5.
ABC Limited granted 500 stock appreciation rights (SAR) each to 80 employees on 1st April, 2017 with a fair value ₹ 100 each. The terms of the award require the employee to provide service for four years to earn the award. The SARs are expected to be settled in cash and it is expected that 100% of the employees will exercise the option. The fair value of each SAR at each reporting date is as follows:

31st March, 2018 ₹ 110
31st March, 2019 ₹ 120
31st March, 2020 ₹ 115
31st March, 2021 ₹ 130

Please present the journal entries in the books of ABC Limited over the entire life of the grants.
What would be the difference if at the end of the second year of service (i.e. at 31st March, 2019), ABC Limited modifies the terms of the award to require only three years of total service? Please present with the revised journal entries. Answer on the basis of relevant Ind AS. [Nov. 2019 – 8 Marks]
Answer:
Statement of Annual Expense:

Particulars 2017-18 2018-19 2019-20 2020-21
No. of employees 80 80 80 80
X No. of SAR per employee 500 500 500 500
X Fair value 110 120 115 130
Product 44,00,000 48,00,000 46,00,000 52,00,000
Vesting Period 4 4 4 4
Cumulative expense 11,00,000 24,00,000 [48,00,000 × 2/4] 34,50,000

[46,00,000 × 3/4]

52,00,000
Annual expense (A/B) – Cumulative PY Expense charged so far 11,00,000 13,00,000 [24,00,000 – 11,00,000] 10,50,000 [34,50,000 – 24,00,000] 17,50,000 [52,00,000 – 34,50,000]

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Journal Entry:

Particulars 2017-18 2018-19 2019-20 2020-21
Employee compensation expense            Dr 11,00,000 13,00,000 10,50,000 17,50,000
To Provision for SAR 11,00,000 13,00,000 10,50,000 17,50,000
Provision for SAR                                        Dr 52,00,000
To Bank 52,00,000

If there is change in service period:

Particulars 2017-18 2018-19 2019-20 2020-21
Product 44,00,000 48,00,000 46,00,000
Vesting Period 4 3 3
Cumulative expense 11,00,000 32,00,000 [48,00,000 × 2/3] 46,00,000
Annual expense (A/B) – Cu­mulative PY Expense charged so far 11,00,000 21,00,000 [32,00,000 – 11,00,000] 14,00,000 [46,00,000 – 32,00,000]

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Journal Entry:

Particulars 2017-18 2018-19 2019-20 2020-21
Employee compensation expense           Dr 11,00,000 21,00,000 14,00,000
To Provision for SAR 11,00,000 21,00,000 14,00,000
Provision for SAR                                    Dr 46,00,000
To Bank 46,00,000

Accounting For Share Based Payment Transactions With Cash Alternatives (Based On Para Nos. 34 To 43)

Question 6.
R Ltd. issued share-based option to one of its key management personal which can be exercised either in cash or equity and it has following features:

Option 1 Period INR
No. of cash settled shares 74,000
Service condition 3 years
Option II
No. of equity settled shares 90,000
Conditions:
Service 3 years
Restriction to sell 2 years
Fair values
Equity price with a restriction of sale for 2 years 115
Fair value grant date 135
Fair value as on 31st March 2016 138
2017 140
2018 147

Pass the Journal entries?
Answer:

Fair value of Equity option components:
Fair value of a share with restrictive clause ₹ 115
No. of shares 90,000 shares
Fair value (90,000 × 115)                                         A ₹ 1,03,50,000
Fair value of a share at the date of grant ₹ 135
No. of cash settled shares 74,000
Fair value (74,000 × 135)                                         B ₹ 99,90,000
Fair value of equity component in compound instrument (A – B) ₹ 3,60,000

Journal Entries
Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material 5

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Question 7.
At 1st January, 2017, A Limited grants its CEO an option to take either cash amount equivalent to 990 shares or 800 shares. The minimum
service requirement Is 2 years. There is a condition to keep the shares for 3 years if shares are opted.

Fair values of the shares INR
Share alternative fair value (with restrictions) 212
Grant date fair value on 1st January, 2016 213
Fair value on 31st December, 2016 220
Fair value on 31st December, 2017 232

The key management exercises his cash option at the end of 2018. Pass journal entries.
Answer:
Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material 6

Journal Entries
Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material 7

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Modifications; Cancellations And Settlements (Based On Para Nos. 26 To 28)

Question 8.
P Ltd. granted, 400 Stock Appreciation Rights (SAR) each to 75 employees on 1st April 2017 with a fair value ₹ 200. The terms of the award require the employee to provide service for four years in order to earn the award. The fair value of each SAR at each reporting date is as follows:
31st March, 2018 : ₹ 210
31st March, 2019 : ₹ 220
31st March, 2020 : ₹ 215
31st March, 2021 : ₹ 218
What would be the difference if at the end of the second year of service (i.e. at 31st March, 2019), P Ltd. modifies the terms of the award to require only three years of service. Answer on the basis of relevant Ind AS.
Answer:
Journal entries in the books of P Ltd. (without modification of service period of stock appreciation rights)
Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material 8

Journal entries in the books of P Ltd. (with modification of service period of stock appreciation rights) (₹ in lakhs)
Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material 9
Working Notes:
Calculation of expenses for issue of stock appreciation rights without modification of service period
For the year ended 31st March, 2018
= ₹ 210 × 400 awards × 75 employees × 1 year/4 years of service
= ₹ 15,75,000

For the year ended 31st March, 2019
= ₹ 220 × 400 awards × 75 employees × 2 years/4 years of service – ₹ 15,75,000 previous recognised
= ₹ 33,00,000 – ₹ 15,75,000
= ₹ 17,25,000

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

For the year ended 31st March, 2019
= ₹ 215 × 400 awards × 75 employees × 3 years/4 years of service – ₹ 33,00,000 previously recognised
= ₹ 48,37,500 – ₹ 33,00,000
= ₹ 15,37,500

For the year ended 31st March, 2021
= ₹ 218 × 400 awards × 75 employees × 4 years/4 years of service – ₹ 48,37,500 previously recognised
= ₹ 65,40,000 – ₹ 48,37,500
= ₹ 17,02,500

Calculation of expenses for issue of stock appreciation rights with modification of service period
For the year ended 31st March, 2018
= ₹ 210 × 400 awards × 75 employees × 1 year/4 years of service
= ₹ 15,75,000

For the year ended 31st March, 2019
= ₹ 220 × 400 awards × 75 employees × 2 years/3 years of service – ₹ 15,75,000 previous recognised
= ₹ 44,00,000 – ₹ 15,75,000
= ₹ 28,25,000

For the year ended 31st March, 2020
= ₹ 215 × 400 awards × 75 employees × 3 years/3 years of service – ₹ 44,00,000 previous recognised
= ₹ 64,50,000 – ₹ 44,00,000
= ₹ 20,50,000.

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

Share Based Payment Transactions With Group Entities (Based On Para Nos. 43a To 43c)

Question 9.
A parent grants 200 share options to each of 100 employees of its subsidiary, conditional upon the completion of two years’ service with the subsidiary. The fair value of the share options on grant date is ₹ 30 each. At grant date, the subsidiary estimates that 80 per cent of the employees will complete the two-year service period. This estimate does not change during the vesting period. At the end of the vesting period, 81 employees complete the required two years of service. The parent does not require the subsidiary to pay for the shares needed to settle the grant of share options.

Pass the necessary journal entries for giving effect to the above arrangement.
Answer:
The journal entries recorded by the subsidiary for each of the two years are as follows:
Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material 10

Question 10.
A Lid. had on 1st April, 2015 granted 1,000 share options each to 2,000 employees. The options are due to vest on 31st March, 2018 provided the employee remains in employment till 31st March, 2018.

On 1st April, 2015, the Directors of Company estimated that 1,800 employees would qualify for the option on 31st March, 2018. This estimate was amended to 1,850 employees on 31st March, 2016 and further amended to 1,840 employees on 31st March, 2017.

Accounting for Share Based Payment (Ind AS 102) – CA Final FR Study Material

On 1st April, 2015, the fair value of an option was ₹ 1.20. The fair value increased to ₹ 1.30 as on 31st March, 2016 but due to challenging business conditions, the fair value declined thereafter. In September 2016, when the fair value of an option was ₹ 0.90, the Directors repriced the option and this caused the fair value to increase to ₹ 1.05. Trading conditions improved in the second half of the year and by 31st March, 2017 the fair value of an option was ₹ 1.25. QA Ltd. decided that additional cost incurred due to repricing of the options on 30th September, 2016 should be spread over the remaining vesting period from 30th September, 2016 to 31st March, 2018.

The Company has requested you to suggest the suitable accounting treatment for these transaction as on 31st March, 2017. [RTP – Nov. 2019]
Answer:
The amounts recognised in years 1 and 2 are as follows:

Year Calculation Compensa­tion expense for period Cumulative compensa­tion expense
1 [1,850 employees × 1,000 options × ₹ 1.20] × 1/3 7,40,000 7,40,000
2 (1,840 employees × 1,000 options × [(₹ 1.20 × 2/3)+ {(₹ 1.05 – 0.90) × 0.5/1.5}]1 – 7,40,000 8,24,000 15,64,000

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