Abbirami (CHARTERED ACCOUNTANT) (104 Points)
12 September 2011According to Ind AS 102- Share Based Payments
Will a Service Condition qualify as a non-vesting condition as the satisfaction of the condition not within the control of the entity?
Can you help with an example..
CA Sachin Rastogi
(Audit/IFRS Manager)
(338 Points)
Replied 12 September 2011
Hi Abbi
Below comments are based on my understanding of IFRS 2 -Share based payment
Vesting conditions are conditions that must be satisfied before counterparty becomes unconditionally entitled to equity instruments or a payment under a share-based payment arrangement (SBPA). Such conditions require the counterparty to complete a specified period of service. Vesting conditions are of tow types i.e service condition and performance conditons.
For the purpose of calculation of SBPA, u need to determine the number of eligible persons and fair value of each reward. Service conditions plays an important role in determining the number of eligible persons and at the time of grant date management has to make some estimate about the number of persons at the end of vesting period which will be eligible for such award. This estimate needs to be revisited at each reporting date.
Following is an example :
On 1 Jan 2009, entity A made an award of 1000 options to each of its 60 employees. The only condition associated with the award is that recipients must remain in entity A’s employment for 3 years. The fair value of each option is INR 5.
At the date of the award, the management estimated that 10% employees (i.e 6 employees) would leave before the end of 3 years. During 2009 the management revisited their stand and estimated that only 3 employees will leave. In the end of 2010, the award actually vested to 55 employees i.e 5 employees left.
Year SBPT Expense Cumulat exp Cal of cum expense
31 December 2008 90,000 90,000 1000 x 54 x 5 x 1/3
31 December 2009 100,000 190,000 1000 x 57 x 5 x 2/3
31 December 2010 85,000 275,000 1000 x 55 x 5 x 3/3
I hope this will help in understanding the issue raised by you.
Thanks
Abbirami
(CHARTERED ACCOUNTANT)
(104 Points)
Replied 12 September 2011
Thanks a lot Sachin.
To improve our understanding, how the non-vesting condition is dealt in books of accounts?
CA Sachin Rastogi
(Audit/IFRS Manager)
(338 Points)
Replied 12 September 2011
U need to book the expense in the income statement as per the above statement and create a reserve in equity which will be utilised for distribution of awards to the employees once, the vesting period is over.
CAclubindia
