CA Final FR Ind AS 102 Share Based Payment Important Solved Questions

Ind AS 102, Share-based Payment, Important Questions with Solutions for CA Final Financial Reporting May & Nov 2021 Exams

Question 1

P Ltd. granted 400 stock appreciation rights (SAR) each to 75 employees on 1st April 2017 with a fair value Rs. 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	Rs. 210
31st March 2019	Rs. 220
31st March 2020	Rs. 215
31st March 2021	Rs. 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.

Solution

Journal entries in the books of P Ltd (without modification of service period of stock appreciation rights)

(Rs. in lakhs)
Date	Particulars	Debit	Credit
31.03.20X2	Profit and Loss account	15.75
	To Liability against SARs		15.75
	(Being expenses liability for stock appreciation rights recognised)
31.03.20X3	Profit and Loss account	17.25
	To Liability for SARs		17.25
	(Being expenses liability for stock appreciation rights recognised)
31.03.20X4	Profit and Loss account	15.38
	To Liability for SARs		15.38
	(Being expenses liability for stock appreciation rights recognised)
31.03.20X5	Profit and Loss account	17.02
	To Liability for SARs		17.02
	(Being expenses liability for stock appreciation rights recognised)

Journal entries in the books of P Ltd (with modification of service period of stock appreciation rights)

(Rs. in lakhs)
Date	Particulars	Debit	Credit
31.03.20X2	Profit and Loss account	15.75
	To Liability for SARs		15.75
	(Being expenses liability for stock appreciation rights recognised)
31.03.20X3	Profit and Loss account	28.25
	To Liability for SARs		28.25
	(Being expenses liability for stock appreciation rights recognised)
31.03.20X4	Profit and Loss account	20.50
	To Liability for SARs		20.50
	(Being expenses liability for stock appreciation rights recognised)

Working Notes:Calculation of expenses for issue of stock appreciation rights without modification of service period For the year ended 31st March 20X2

Working Notes:

Calculation of expenses for issue of stock appreciation rights without modification of service period

For the year ended 31st March 20X2

= Rs. 210 x 400 awards x 75 employees x 1 year /4 years of service

= Rs. 15,75,000

For the year ended 31st March 20X3

= Rs. 220 x 400 awards x 75 employees x 2 years /4 years of service – Rs. 15,75,000previous recognised

= Rs. 33,00,000 – Rs. 15,75,000 = Rs. 17,25,000

For the year ended 31st March 20X4

= Rs. 215 x 400 awards x 75 employees x 3 years/4 years of service – Rs. 33,00,000 previously recognised

= Rs. 48,37,500 – Rs. 33,00,000 = Rs. 15,37,500

For the year ended 31st March, 20X5

= Rs. 218 x 400 awards x 75 employees x 4 years / 4 years of service –Rs. 48,37,500 previously recognised

= Rs. 65,40,000 –Rs. 48,37,500 = Rs. 17,02,500

Calculation of expenses for issue of stock appreciation rights with modification of service period

For the year ended 31st March 20X2

= Rs. 210 x 400 awards x 75 employees x 1 year / 4 years of service

= Rs. 15,75,000

For the year ended 31st March 20X3

= Rs. 220 x 400 awards x 75 employees x 2 years / 3 years of service – Rs. 15,75,000 previous recognised

= Rs. 44,00,000 – Rs. 15,75,000 = Rs. 28,25,000

For the year ended 31st March 20X4

= Rs. 215 x 400 awards x 75 employees x 3 years/ 3 years of service – Rs. 44,00,000 previous recognised

= Rs. 64,50,000 – Rs. 44,00,000 = Rs. 20,50,000.

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Question 2

ABC 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  Rs. 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 will exercise the option at the end of next year and finally 89 % will 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	Rs
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.

Solution –

Applicability of 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.

1. When vesting conditions are attached to the share-based payment plans

The recognition of such share-based payment plans should be done by recognizing fair value of the liability at the time of goods/ services received and not at the date of grant.

2. When no vesting period / condition is attached or to be fulfilled

Cash settled share-based payment can be recognized in full at initial recognition itself.

Until the liability is settled, the entity shall remeasure the fair value of the liability at the end of each reporting period date and difference in fair value will be charged to profit or loss for the period as employee benefit expenses.

At the date of settlement, the liability is paid in cash based on the fair value on the date of settlement.

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 x b x 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

Journal Entries

Date	Particulars		Amount (Rs.)	Amount (Rs.)
1st April, 2015	Employee benefits expenses	Dr.	19,00,000
	To Share based payment liability			19,00,000
	(Fair value of the SAR recognized initially)
31st March, 2016	Employee benefits expenses	Dr.	1,90,000
	To Share based payment liability			1,90,000
	(Fair value of the SAR re-measured)
31st March, 2017	Share based payment liability	Dr.	1,21,200
	To Employee benefits expenses			1,21,200
	(Fair value of the SAR re-measured & reversed)
31st March, 2018	Employee benefits expenses	Dr.	24,800
	To Share based payment liability			24,800
	(Fair value of the SAR remeasured & recognized)
	Share based payment liability	Dr.	19,93,600
	To Cash			19,93,600
	(Settlement of SARs in cash)

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Question 3 –

Golden Era 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 Rs. 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.

Solution –

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	½	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

Journal Entries

		Rs.	Rs.
31st  March 2016
Employee benefits expenses A/c	Dr.	5,49,000
To Share based payment reserve (equity) A/c			5,49,000
(Equity settled shared based payment based on conditional vesting period)
Profit and Loss A/c	Dr.	5,49,000
To Employee benefits expenses A/c			5,49,000
(Employee benefits expenses transferred to Profit and Loss A/c)
31st March, 2017
Employee benefits expenses	Dr.	18,05,600
To Share based payment reserve (equity)			18,05,600
(Equity settled shared based payment based on conditional expected vesting period)
Profit and Loss A/c	Dr.	18,05,600
To Employee benefits expenses A/c			18,05,600
(Employee benefits expenses transferred to Profit and Loss A/c)
31st March, 2018
Employee benefits expenses	Dr.	8,44,850
To Share based payment reserve (equity)			8,44,850
(Equity settled shared based payment based on conditional expected vesting period)
Profit and Loss A/c	Dr.	8,44,850
To Employee benefits expenses A/c			8,44,850
(Employee benefits expenses transferred to Profit and Loss A/c)
31st March, 2019
Employee benefits expenses	Dr.	11,07,150
To Share based payment reserve (equity)			11,07,150
(Equity settled shared based payment based on conditional expected vesting period)
Profit and Loss A/c	Dr.	11,07,150
To Employee benefits expenses A/c			11,07,150
(Employee benefits expenses transferred to Profit and Loss A/c)
Share based payment reserve (equity) (353 x 200 x 61)	Dr.	43,06,600
To Share Capital			43,06,600
(Share capital Issued)

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Question 4 –

Tata Industries 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 I		Period	Rs.
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	20X0		138
	20X1		140
	20X2		147

Pass the Journal entries?

Solution –

Fair value of Equity option components:
Fair value of a share with restrictive clause		Rs. 115
Number of shares		90,000
Fair value (90,000 x 115)	A	Rs. 1,03,50,000
Fair value of a share at the date of grant		Rs. 135
Number of cash settled shares		74,000
Fair value (74,000 x 135)	B	Rs. 99,90,000
Fair value of equity component in compound instrument (A-B)		Rs. 3,60,000

Journal Entries

		Rs.	Rs.
31/12/20X0
Employee benefit expenses	Dr.	35,24,000
To Share based payment reserve (equity) (3,60,000/3)			1,20,000
To Share based payment liability (138 x 74,000) / 3			34,04,000
(Recognition of equity option and cash settlement option)
31/12/20X1
Employee benefits expenses	Dr.	36,22,667
To Share based payment reserve (equity) (3,60,000/3)			1,20,000
To Share based payment liability (140 x 74,000) 2/3 -34,04,000			35,02,667
(Recognition of equity option and cash settlement option)
31/12/20X2
Employee benefits expenses	Dr.	40,91,333
To Share based payment reserve (equity) (3,60,000/3)			1,20,000
To Share based payment liability			39,71,333
(147 x 74,000) 3/3 – (34,04,000 + 35,02,667)
(Recognition of equity option and cash settlement option)
Upon cash alternative chosen
Share based payment liability (147 x 74,000)	Dr.	1,08,78,000	1,08,78,000
To Bank/ Cash
(Being settlement made in cash)
Upon equity alternative chosen
Share based payment liability	Dr.
To Equity		1,08,78,000
(Being settlement made in equity)			1,08,78,000

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Question 5 –

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 Rs. 30 each. At grant date, the subsidiary estimates that 80 percent 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.

Solution –

As required by Ind AS 102, over the two-year vesting period, the subsidiary measures the services received from the employees in accordance, the requirements applicable to equity-settled share-based payment transactions. Thus, the subsidiary measures the services received from the employees on the basis of the fair value of the share options at grant date. An increase in equity is recognised as a contribution from the parent in the separate or individual financial statements of the subsidiary.

The journal entries recorded by the subsidiary for each of the two years are as follows:

Year 1		Rs.	Rs.
Remuneration expense (200 × 100 employees × Rs.30 × 80% × ½)	Dr.	2,40,000
To Equity (Contribution from the parent)			2,40,000
Year 2
Remuneration expense [(200 x 81 employees x Rs.30) – 2,40,000]	Dr.	2,46,000
To Equity (Contribution from the parent)			2,46,000

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Question 6 –

MINDA issued 11,000 share appreciation rights (SARs) that vest immediately to  its  employees on 1st April, 20X0. The SARs will be settled in cash. Using an option pricing  model, at that date it is estimated that the fair value of a SAR is Rs. 100. SAR can be exercised any time until 31st March, 20X3. It  is expected that out of  the total employees, 94% at the  end of period on 31st March, 20X1, 91% at the end of next year will exercise the option.

Finally, when these were vested i.e. at the end of the 3rd year, only 85% of the total employees exercised the option.

Fair value of SAR	Rs.
31st March, 20X1	132
31st March, 20X2	139
31st March, 20X3	141

 Solution –

Period	Fair value	To be vested	Cumulative	Expense
Start	100	100%	11,00,000	11,00,000
Period 1	132	94%	13,64,880	2,64,880
Period 2	139	91%	13,91,390	26,510
Period 3	141	85%	13,18,350	(73,040)
				13,18,350

 Journal Entries

1st April, 20X0
Employee benefits expenses	Dr.	11,00,000	11,00,000
To Share based payment liability
(Fair value of the SAR re-cognised)
31st March, 20X1
Employee benefits expenses	Dr.	2,64,880	2,64,880
To Share based payment liability
(Fair value of the SAR re-measured)
31st March, 20X2
Employee benefits expenses	Dr.	26,510	26,510
To Share based payment liability
(Fair value of the SAR re-measured)
31st March, 20X3
Share based payment liability	Dr.	73,040
To Employee benefits expenses			73,040
(Fair value of the SAR reversed)
Share based payment liability	Dr.	13,18,350
To Cash			13,18,350
(Settlement of SAR)

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Question 7 –

An entity which follows its financial year as per the calendar year grants 1,000 share appreciation rights (SARs) to each of its 40 management employees as on 1st January 20X5. The SARs provide the employees with the right to receive (at the date when the rights are exercised) cash equal to the appreciation in the entity’s share price since the grant date. All of the rights vest on 31st December 20X6; and they can be exercised during 20X7 and 20X8. Management estimates that, at grant date, the fair value of each SAR is Rs.11; and it estimates that overall 10% of the employees will leave during the two-year period. The fair values of the SARs at each year end are shown below:

Year	Fair value at year end
31 December 20X5	12
31 December 20X6	8
31 December 20X7	13
31 December 20X8	12

10% of employees left before the end of 20X6. On 31st December 20X7 (when the intrinsic value of each SAR was  Rs. 10), six employees exercised their options; and the  remaining    30 employees exercised their options at the end of 20X8 (when the intrinsic value of each SAR was equal to the fair value of Rs. 12).

How much expense and liability is to be recognized at the end of each year? Pass Journal entries.

Solution –

The amount recognized as an expense in each year and as a liability at each year end is as follows:

Year	Expense Rs.	Liability Rs.	Calculation of Liability
31 December 20X5	2,16,000	2,16,000	= 36 x 1,000 x 12 x ½
31 December 20X6	72,000	2,88,000	= 36 x 1,000 x 8
31 December 20X7	1,62,000*	3,90,000	= 30 x 1,000 x 13
31 December 20X8	(30,000)**	0	Liability extinguished

* Expense comprises an increase in the liability of Rs. 102,000 and cash paid to those exercising their SARs of Rs. 60,000 (6 x 1,000 x 10).

** Difference of opening liability (Rs. 3,90,000) and actual liability paid [Rs. 3,60,000  (30  x 1,000 x 12)] is recognised to Profit and loss ie Rs. 30,000.

JOURNAL ENTRIES

31 December 20X5
Employee benefits expenses	Dr.	2,16,000	2,16,000
To Share based payment liability
(Fair value of the SAR recognized)
31 December 20X6
Employee benefits expenses	Dr.	72,000	72,000
To Share based payment liability
(Fair value of the SAR re-measured)
31 December 20X7
Employee benefits expenses	Dr.	1,62,000
To Share based payment liability			1,62,000
(Fair value of the SAR recognized)
Share based payment liability	Dr.	60,000
To Cash			60,000
(Settlement of SAR)
31 December 20X8
Share based payment liability	Dr.	30,000
To Employee benefits expenses			30,000
(Fair value of the SAR recognized)
Share based payment liability	Dr.	3,60,000
To Cash			3,60,000
(Settlement of SAR)