Page 5 - 20. COMPILER QB - INDAS 102

Q.3 (November 19)

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QA Ltd. had on 1 April, 20X1 granted 1,000 share options each to 2,000 employees. The options are due to vest
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on 31 March, 20X4 provided the employee remains in employment till 31 March, 20X4.
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On 1 April, 20X1, the Directors of Company estimated that 1,800 employees would qualify for the option on
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31 March, 20X4. This estimate was amended to 1,850 employees on 31stMarch, 20X2 and further amended
to1,840 employees on31stMarch,20X3.

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On 1 April, 20X1, the fair value of an option was Rs 1.20. The fair value increased to Rs 1.30 as on 31 March,
20X2 but due to challenging business conditions, the fair value declined thereafter. In September, 20X2, when
the fair value of an option was Rs 0.90, the Director repriced the option and this caused the fair value to
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increase to Rs 1.05. Trading conditions improved in the second half of the year and by 31 March, 20X3 the
fair value of an option was Rs1.25. QA Ltd. decided that additional cost incurred due to repricing of the options
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on 30 September, 20X2 should be spread over the remaining vesting period from 30 September, 20X2 to
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31 March, 20X4.
The Company has requested you to suggest the suitable accounting treatment for these transactions as on

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31 March, 20X3.
SOLUTION

IndAS 102 requires the entity to recognise the effects of repricing that increase the total fair value of the
share-based payment arrangement or are otherwise beneficial to the employee.

If the repricing increases the fair value of the equity instruments granted, the IND AS requires the entity to
include the incremental fair value granted (ie the difference between the fair value of the repriced equity

instrument and that of the original equity instrument, both estimated as at the date of the modification) in
the measurement of the amount recognised for services received as consideration for the equity instruments

granted.
If the repricing occurs during the vesting period, the incremental fair value granted is included in the

measurement of the amount recognised for services received over the period from the repricing date until the

date when the repriced equity instruments vest, in addition to the amount based on the grant date fair value
of the original equity instruments, which is recognized over the remainder of the original vesting period.
Accordingly, the amounts recognised in years 1 and 2 are as follows:

Year Calculation Compensation Cumulative
expense for Period compensation Expense
Rs Rs
1 [1,850 employees× 1,000 options × Rs 7,40,000 7,40,000
1.20] × 1/3
2 (1,840 employees× 1,000 8,24,000 15,64,000
options × [(Rs. 1.20× 2/3) + {(Rs. 1.05
- 0.90) ×0.5/1.5}] – 7,40,000
Note: Year 3 calculations have not been provided as it was not required in the question.

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