Page 20 - 33. FR RTP NOV. 22

As per paragraph 58 of Ind AS 103, contingent consideration classified as equity should not be re-measured
and its subsequent settlement should be accounted for within equity.
In the given case, the obligation to pay contingent consideration amounting to Rs. 25,00,000 is recognised as a

part of equity and therefore not be re-measured subsequently or on issuance of shares.

(b)
(i) In the given case, the amount of purchase consideration to be recognized on initial recognition is as
follows:

Fair value shares issued (10,00,000 x Rs. 20) Rs. 2,00,00,000
Fair value of contingent consideration Rs. 25,00,000
Total purchase consideration Rs. 2,25,00,000
(ii) Subsequent measurement of contingent consideration payable for business combination
In the given case, the contingent consideration will be classified as liability as per Ind AS 32.

As per paragraph 58 of Ind AS 103, contingent consideration not classified as equity should be measured at
fair value at each reporting date and changes in fair value should be recognised in profit or loss.
As at 31st March, 20X2 (being the date of settlement of contingent consideration), the liability would be
measured at its fair value and the resulting loss of Rs. 15,00,000 (Rs. 40,00,000 – Rs. 25,00,000) should be
recognised in the profit or loss for the period. A Ltd. would recognize issuance of 1,60,000 (Rs. 40,00,000 /
25) shares at a premium of Rs. 15 per share.

Solution 10

Total number of Options per employee = 60

Group I - 20% vesting in Year 1 Group II - 40% vesting in Year 2 Group III - 40% vesting in Yr. 3
= 12 options, = 24 options, = 24 options,
Vesting period = 1 Yr. Vesting period = 2 Yrs. Vesting period = 3 Yrs.
Computation of Expenses for all the years
Group = No. of Options Group I = 12 Group II = 24 Options Group III = 24 Options
Options
Year 1 Year 1 Year 2 Year 1 Year 2 Year 3

(a) Employees at year end = 400 - 40 = 400 - 40 = 360 - 35 = 400 - 40 = 360 - 35 = 325 - 28 =
[Opening
No. of Employees - 360 360 325 360 325 297
Forfeiture]
(b) Expected to leave in NA 36 NA 36 + 34 = 30 NA
future 70
(c) No. of 360 324 325 290 295 297
employees eligible (a - b)

(d) Options (360 x 12 sh.) (324 x 24 (325 x 24 (290 x 24 (295 x 24 (297 x 24
expected to Vest = sh.) sh.) sh.) sh.) sh.)
[(c) x No. of Shares] 4,320 7,776 7,800 6,960 7,080 7,128
(e) FV per option = Rs. 10 Rs. 12.50 Rs. 12.50 Rs. 14 Rs. 14 Rs. 14
(f) Value of Total Options Rs. 43,200 Rs. 97,200 Rs. 97,500 Rs. 97,440 Rs. 99,120 Rs. 99,792
= [d x e]

33.19