Section 63D in The Companies (Indian Accounting Standards) Rules, 2015

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Section 63D in The Companies (Indian Accounting Standards) Rules, 2015

63D. Amendments to Classification and Measurement of Share-based Payment Transactions under Ind AS 102 amended paragraphs 19, 30-31, 33 and 52 and added paragraphs 33A-33H, 59A-59B, 63D and B44A-B44C and their related headings. An entity shall apply those amendments for annual periods beginning on or after 1 April, 2017.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]

Appendix A

Defined terms
This appendix is anintegral part of the Ind AS.
cash-settled share-based payment transaction	Ashare-based payment transactioninwhich the entity acquires goods or services by incurring aliability to transfer cash or other assets to the supplier ofthose goods or services for amounts that are based on the price(or value) ofequity instruments(including shares orshare options) of the entity or another group entity.
employees and others providing similar services	Individuals who render personal services to theentity and either (a) the individuals are regarded as employeesfor legal or tax purposes, (b) the individuals work for theentity under its direction in the same way as individuals who areregarded as employees for legal or tax purposes, or (c) theservices rendered are similar to those rendered by employees. Forexample, the term encompasses all management personnel, i.e.those persons having authority and responsibility for planning,directing and controlling the activities of the entity, includingnon-executive directors.
equity instrument	[A contract that evidences a residual interestin the assets of an entity after deducting all of itsliabilities.] [The Framework for the Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards issued by the Institute of Chartered Accountants of India,defines a liability as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits (i.e. an outflow of cash or other assets of the entity).]
equity instrument granted	The right (conditional or unconditional) to anequity instrumentof the entity conferred by the entity onanother party, under ashare-based payment arrangement.
equity-settled share-based payment transaction	Ashare-based payment transactioninwhich the entity
	(a) receives goods or services as considerationfor its ownequity instruments(including shares orshareoptions), or
	(b) receives goods or services but has noobligation to settle the transaction with the supplier.
fair value	The amount for which an asset could beexchanged, a liability settled, or anequity instrumentgrantedcould be exchanged, between knowledgeable, willingparties in an arm's length transaction.
grant date	The date at which the entity and another party(including an employee) agree to ashare-based paymentarrangement, being when the entity and the counter-party havea shared understanding of the terms and conditions of thearrangement. At grant date the entity confers on thecounter-party the right to cash, other assets, orequityinstrumentsof the entity, provided the specifiedvestingconditions, if any, are met. If that agreement is subject toan approval process (for example, by shareholders), grant date isthe date when that approval is obtained.
intrinsic value	The difference between thefair valueofthe shares to which the counter-party has the (conditional orunconditional) right to subscribe or which it has the right toreceive, and the price (if any) the counter-party is (or will be)required to pay for those shares. For example, ashare optionwith an exercise price of Rs. 15, on a share with a fair value ofRs. 20, has an intrinsic value of Rs. 5.
market condition	Aperformance conditionupon which theexercise price, vesting or excise-ability of anequityinstrumentdepends that is related to the market price (orvalue) of the entity'sequity instruments(or the equityinstruments of another entity in the same group), such as:
	(a) attaining a specified share price or aspecified amount ofintrinsic valueof ashare option;or
	(b) achieving a specified target that is basedon the market price (or value) of the entity'sequityinstruments(or the equity instruments of another entity inthe same group) relative to an index of market prices ofequityinstrumentsof other entities.
	A market condition requires the counter-party tocomplete a specified period of service (i.e. aservicecondition); the service requirement can be explicit orimplicit.
measurement date	The date at which thefair valueof theequity instruments grantedis measured for the purposes ofthis Ind AS. For transactions withemployees and othersproviding similar services, the measurement date isgrantdate. For transactions with parties other than employees (andthose providing similar services), the measurement date is thedate the entity obtains the goods or the counter-party rendersservice.
performance condition	A vesting condition that requires:
	(a) the counter-party to complete a specifiedperiod of service (i.e. a service condition); the servicerequirement can be explicit or implicit; and
	(b) specified performance target(s) to be metwhile the counter-party is rendering the service required in (a).
	The period of achieving the performancetarget(s):
	(a) shall not extend beyond the end of theservice period; and
	(b) may start before the service period on thecondition that the commencement date of the performance target isnot substantially before the commencement of the service period.
	A performance target is defined by reference to:
	(a) the entity's own operations (or activities)or the operations or activities of another entity in the samegroup (i.e. a non-market condition); or
	(b) the price (or value) of the entity'sequityinstrumentsor the equity instruments of another entity inthe same group (including shares andshare options) (i.e.amarket condition).
	A performance target might relate either to theperformance of the entity as a whole or to some part of theentity (or part of the group), such as a division or anindividual employee.
reload feature	A feature that provides for an automatic grantof additional share options whenever the option holder exercisespreviously granted options using the entity's shares, rather thancash, to satisfy the exercise price.
reload option	A newshare optiongranted when a shareis used to satisfy the exercise price of a previous share option.
service condition	Avesting conditionthat requires thecounter-party to complete a specified period of service duringwhich services are provided to the entity. If the counter-party,regardless of the reason, ceases to provide service during thevesting period, it has failed to satisfy the condition. Aservice condition does not require a performance target to bemet.
share-based payment arrangement	An agreement between the entity (or another[group] [A 'group' is defined in Appendix A of Ind AS 110, Consolidated Financial Statements,as 'a parent and its subsidiaries' from the perspective of the reporting entity's ultimate parent.]entity or any shareholder of any group entity) andanother party (including an employee) that entitles the otherparty to receive
	(a) cash or other assets of the entity foramounts that are based on the price (or value) ofequityinstruments(including shares orshare options) of theentity or another group entity, or
	(b)equityinstruments(including shares orshare options) of theentity or another group entity,provided the specifiedvesting conditions,if any, are met.
share-based payment transaction	A transaction in which the entity
	(a) receives goods or services from the supplierof those goods or services (including an employee) in ashare-based payment arrangement, or
	(b) incurs an obligation to settle thetransaction with the supplier in ashare-based paymentarrangementwhen another group entity receives those goods orservices.
share option	A contract that gives the holder the right, butnot the obligation, to subscribe to the entity's shares at afixed or determinable price for a specified period of time.
vest	To become an entitlement. Under ashare-basedpayment arrangement, a counter-party's right to receive cash,other assets orequity instrumentsof the entity vestswhen the counter-party's entitlement is no longer conditional onthe satisfaction of any vesting conditionsvesting condition.
vesting condition	A condition that determine whether the entityreceives the services that entitle the counter-party to receivecash, other assets orequity instrumentsof the entity,under ashare-based payment arrangement.A vestingcondition is either aservice conditionor aperformancecondition.
vesting period	The period during which all the specifiedvesting conditionsof ashare-based payment arrangementare to be satisfied.

Appendix BApplication guidanceThis appendix is an integral part of the Ind AS.Estimating the fair value of equity instruments grantedB1. Paragraphs B2-B41 of this appendix discuss measurement of the fair value of shares and share options granted, focusing on the specific terms and conditions that are common features of a grant of shares or share options to employees. Therefore, it is not exhaustive. Furthermore, because the valuation issues discussed below focus on shares and share options granted to employees, it is assumed that the fair value of the shares or share options is measured at grant date. However, many of the valuation issues discussed below (e.g. determining expected volatility) also apply in the context of estimating the fair value of shares or share options granted to parties other than employees at the date the entity obtains the goods or the counter-party renders service.SharesB2. For shares granted to employees, the fair value of the shares shall be measured at the market price of the entity's shares (or an estimated market price, if the entity's shares are not publicly traded), adjusted to take into account the terms and conditions upon which the shares were granted (except for vesting conditions that are excluded from the measurement of fair value in accordance with paragraphs 19-21).B3. For example, if the employee is not entitled to receive dividends during the vesting period, this factor shall be taken into account when estimating the fair value of the shares granted. Similarly, if the shares are subject to restrictions on transfer after vesting date, that factor shall be taken into account, but only to the extent that the post-vesting restrictions affect the price that a knowledgeable, willing market participant would pay for that share. For example, if the shares are actively traded in a deep and liquid market, post-vesting transfer restrictions may have little, if any, effect on the price that a knowledgeable, willing market participant would pay for those shares. Restrictions on transfer or other restrictions that exist during the vesting period shall not be taken into account when estimating the grant date fair value of the shares granted, because those restrictions stem from the existence of vesting conditions, which are accounted for in accordance with paragraphs 19-21.Share optionsB4. For share options granted to employees, in many cases market prices are not available, because the options granted are subject to terms and conditions that do not apply to traded options. If traded options with similar terms and conditions do not exist, the fair value of the options granted shall be estimated by applying an option pricing model.B5. The entity shall consider factors that knowledgeable, willing market participants would consider in selecting the option pricing model to apply. For example, many employee options have long lives, are usually exercisable during the period between vesting date and the end of the options' life, and are often exercised early. These factors should be considered when estimating the grant date fair value of the options. For many entities, this might preclude the use of the Black-Scholes-Merton formula, which does not allow for the possibility of exercise before the end of the option's life and may not adequately reflect the effects of expected early exercise. It also does not allow for the possibility that expected volatility and other model inputs might vary over the option's life. However, for share options with relatively short contractual lives, or that must be exercised within a short period of time after vesting date, the factors identified above may not apply. In these instances, the Black-Scholes-Merton formula may produce a value that is substantially the same as a more flexible option pricing model.B6. All option pricing models take into account, as a minimum, the following factors:

(a)the exercise price of the option;

(b)the life of the option;

(c)the current price of the underlying shares;

(d)the expected volatility of the share price;

(e)the dividends expected on the shares (if appropriate); and

(f)the risk-free interest rate for the life of the option.

B7. Other factors that knowledgeable, willing market participants would consider in setting the price shall also be taken into account (except for vesting conditions and reload features that are excluded from the measurement of fair value in accordance with paragraphs 19-22).B8. For example, a share option granted to an employee typically cannot be exercised during specified periods (e.g. during the vesting period or during periods specified by securities regulators). This factor shall be taken into account if the option pricing model applied would otherwise assume that the option could be exercised at any time during its life. However, if an entity uses an option pricing model that values options that can be exercised only at the end of the options' life, no adjustment is required for the inability to exercise them during the vesting period (or other periods during the options' life), because the model assumes that the options cannot be exercised during those periods.B9. Similarly, another factor common to employee share options is the possibility of early exercise of the option, for example, because the option is not freely transferable, or because the employee must exercise all vested options upon cessation of employment. The effects of expected early exercise shall be taken into account, as discussed in paragraphs B16-B21.B10. Factors that a knowledgeable, willing market participant would not consider in setting the price of a share option (or other equity instrument) shall not be taken into account when estimating the fair value of share options (or other equity instruments) granted. For example, for share options granted to employees, factors that affect the value of the option from the individual employee's perspective only are not relevant to estimating the price that would be set by a knowledgeable, willing market participant.Inputs to option pricing modelsB11. In estimating the expected volatility of and dividends on the underlying shares, the objective is to approximate the expectations that would be reflected in a current market or negotiated exchange price for the option. Similarly, when estimating the effects of early exercise of employee share options, the objective is to approximate the expectations that an outside party with access to detailed information about employees' exercise behaviour would develop based on information available at the grant date.B12. Often, there is likely to be a range of reasonable expectations about future volatility, dividends and exercise behaviour. If so, an expected value should be calculated, by weighting each amount within the range by its associated probability of occurrence.B13. Expectations about the future are generally based on experience, modified if the future is reasonably expected to differ from the past. In some circumstances, identifiable factors may indicate that unadjusted historical experience is a relatively poor predictor of future experience. For example, if an entity with two distinctly different lines of business disposes of the one that was significantly less risky than the other, historical volatility may not be the best information on which to base reasonable expectations for the future.B14. In other circumstances, historical information may not be available. For example, a newly listed entity will have little, if any, historical data on the volatility of its share price. Unlisted and newly listed entities are discussed further below.B15. In summary, an entity should not simply base estimates of volatility, exercise behaviour and dividends on historical information without considering the extent to which the past experience is expected to be reasonably predictive of future experience.Expected early exerciseB16. Employees often exercise share options early, for a variety of reasons. For example, employee share options are typically non-transferable. This often causes employees to exercise their share options early, because that is the only way for the employees to liquidate their position. Also, employees who cease employment are usually required to exercise any vested options within a short period of time, otherwise the share options are forfeited. This factor also causes the early exercise of employee share options. Other factors causing early exercise are risk aversion and lack of wealth diversification.B17. The means by which the effects of expected early exercise are taken into account depends upon the type of option pricing model applied. For example, expected early exercise could be taken into account by using an estimate of the option's expected life (which, for an employee share option, is the period of time from grant date to the date on which the option is expected to be exercised) as an input into an option pricing model (e.g. the Black-Scholes-Merton formula). Alternatively, expected early exercise could be modelled in a binomial or similar option pricing model that uses contractual life as an input.B18. Factors to consider in estimating early exercise include:

(a)the length of the vesting period, because the share option typically cannot be exercised until the end of the vesting period. Hence, determining the valuation implications of expected early exercise is based on the assumption that the options will vest. The implications of vesting conditions are discussed in paragraphs 19-21.

(b)the average length of time similar options have remained outstanding in the past.

(c)the price of the underlying shares. Experience may indicate that the employees tend to exercise options when the share price reaches a specified level above the exercise price.

(d)the employee's level within the organisation. For example, experience might indicate that higher-level employees tend to exercise options later than lower-level employees (discussed further in paragraph B21).

(e)expected volatility of the underlying shares. On average, employees might tend to exercise options on highly volatile shares earlier than on shares with low volatility.

B19. As noted in paragraph B17, the effects of early exercise could be taken into account by using an estimate of the option's expected life as an input into an option pricing model. When estimating the expected life of share options granted to a group of employees, the entity could base that estimate on an appropriately weighted average expected life for the entire employee group or on appropriately weighted average lives for subgroups of employees within the group, based on more detailed data about employees' exercise behaviour (discussed further below).B20. Separating an option grant into groups for employees with relatively homogeneous exercise behaviour is likely to be important. Option value is not a linear function of option term; value increases at a decreasing rate as the term lengthens. For example, if all other assumptions are equal, although a two-year option is worth more than a one-year option, it is not worth twice as much. That means that calculating estimated option value on the basis of a single weighted average life that includes widely differing individual lives would overstate the total fair value of the share options granted. Separating options granted into several groups, each of which has a relatively narrow range of lives included in its weighted average life, reduces that overstatement.B21. Similar considerations apply when using a binomial or similar model. For example, the experience of an entity that grants options broadly to all levels of employees might indicate that top-level executives tend to hold their options longer than middle-management employees hold theirs and that lower-level employees tend to exercise their options earlier than any other group. In addition, employees who are encouraged or required to hold a minimum amount of their employer's equity instruments, including options, might on average exercise options later than employees not subject to that provision. In those situations, separating options by groups of recipients with relatively homogeneous exercise behaviour will result in a more accurate estimate of the total fair value of the share options granted.Expected volatilityB22. Expected volatility is a measure of the amount by which a price is expected to fluctuate during a period. The measure of volatility used in option pricing models is the annualised standard deviation of the continuously compounded rates of return on the share over a period of time. Volatility is typically expressed in annualised terms that are comparable regardless of the time period used in the calculation, for example, daily, weekly or monthly price observations.B23. The rate of return (which may be positive or negative) on a share for a period measures how much a shareholder has benefited from dividends and appreciation (or depreciation) of the share price.B24. The expected annualised volatility of a share is the range within which the continuously compounded annual rate of return is expected to fall approximately two-thirds of the time. For example, to say that a share with an expected continuously compounded rate of return of 12 per cent has a volatility of 30 per cent means that the probability that the rate of return on the share for one year will be between-18 per cent (12% - 30%) and 42 per cent (12% + 30%) is approximately two-thirds. If the share price is Rs.100 at the beginning of the year and no dividends are paid, the year-end share price would be expected to be between Rs.83.53 (Rs.100 x e-0.18) and Rs. 152.20 (Rs. 100 x e0.42) approximately two-thirds of the time.B25. Factors to consider in estimating expected volatility include:

(a)implied volatility from traded share options on the entity's shares, or other traded instruments of the entity that include option features (such as convertible debt), if any.

(b)the historical volatility of the share price over the most recent period that is generally commensurate with the expected term of the option (taking into account the remaining contractual life of the option and the effects of expected early exercise).

(c)the length of time an entity's shares have been publicly traded. A newly listed entity might have a high historical volatility, compared with similar entities that have been listed longer. Further guidance for newly listed entities is given below.

(d)the tendency of volatility to revert to its mean, i.e. its long-term average level, and other factors indicating that expected future volatility might differ from past volatility. For example, if an entity's share price was extraordinarily volatile for some identifiable period of time because of a failed takeover bid or a major restructuring, that period could be disregarded in computing historical average annual volatility.

(e)appropriate and regular intervals for price observations. The price observations should be consistent from period to period. For example, an entity might use the closing price for each week or the highest price for the week, but it should not use the closing price for some weeks and the highest price for other weeks. Also, the price observations should be expressed in the same currency as the exercise price.

Newly listed entitiesB26. As noted in paragraph B25, an entity should consider historical volatility of the share price over the most recent period that is generally commensurate with the expected option term. If a newly listed entity does not have sufficient information on historical volatility, it should nevertheless compute historical volatility for the longest period for which trading activity is available. It could also consider the historical volatility of similar entities following a comparable period in their lives. For example, an entity that has been listed for only one year and grants options with an average expected life of five years might consider the pattern and level of historical volatility of entities in the same industry for the first six years in which the shares of those entities were publicly traded.Unlisted entitiesB27. An unlisted entity will not have historical information to consider when estimating expected volatility. Some factors to consider instead are set out below.B28. In some cases, an unlisted entity that regularly issues options or shares to employees (or other parties) might have set up an internal market for its shares. The volatility of those share prices could be considered when estimating expected volatility.B29. Alternatively, the entity could consider the historical or implied volatility of similar listed entities, for which share price or option price information is available, to use when estimating expected volatility. This would be appropriate if the entity has based the value of its shares on the share prices of similar listed entities.B30. If the entity has not based its estimate of the value of its shares on the share prices of similar listed entities, and has instead used another valuation methodology to value its shares, the entity could derive an estimate of expected volatility consistent with that valuation methodology. For example, the entity might value its shares on a net asset or earnings basis. It could consider the expected volatility of those net asset values or earnings.Expected dividendsB31. Whether expected dividends should be taken into account when measuring the fair value of shares or options granted depends on whether the counter-party is entitled to dividends or dividend equivalents.B32. For example, if employees were granted options and are entitled to dividends on the underlying shares or dividend equivalents (which might be paid in cash or applied to reduce the exercise price) between grant date and exercise date, the options granted should be valued as if no dividends will be paid on the underlying shares, i.e. the input for expected dividends should be zero.B33. Similarly, when the grant date fair value of shares granted to employees is estimated, no adjustment is required for expected dividends if the employee is entitled to receive dividends paid during the vesting period.B34. Conversely, if the employees are not entitled to dividends or dividend equivalents during the vesting period (or before exercise, in the case of an option), the grant date valuation of the rights to shares or options should take expected dividends into account. That is to say, when the fair value of an option grant is estimated, expected dividends should be included in the application of an option pricing model. When the fair value of a share grant is estimated, that valuation should be reduced by the present value of dividends expected to be paid during the vesting period.B35. Option pricing models generally call for expected dividend yield. However, the models may be modified to use an expected dividend amount rather than a yield. An entity may use either its expected yield or its expected payments. If the entity uses the latter, it should consider its historical pattern of increases in dividends. For example, if an entity's policy has generally been to increase dividends by approximately 3 per cent per year, its estimated option value should not assume a fixed dividend amount throughout the option's life unless there is evidence that supports that assumption.B36. Generally, the assumption about expected dividends should be based on publicly available information. An entity that does not pay dividends and has no plans to do so should assume an expected dividend yield of zero. However, an emerging entity with no history of paying dividends might expect to begin paying dividends during the expected lives of its employee share options. Those entities could use an average of their past dividend yield (zero) and the mean dividend yield of an appropriately comparable peer group.Risk-free interest rateB37. Typically, the risk-free interest rate is the implied yield currently available on zero-coupon government issues of the country in whose currency the exercise price is expressed, with a remaining term equal to the expected term of the option being valued (based on the option's remaining contractual life and taking into account the effects of expected early exercise). It may be necessary to use an appropriate substitute, if no such government issues exist or circumstances indicate that the implied yield on zero-coupon government issues is not representative of the risk-free interest rate (for example, in high inflation economies). Also, an appropriate substitute should be used if market participants would typically determine the risk-free interest rate by using that substitute, rather than the implied yield of zero-coupon government issues, when estimating the fair value of an option with a life equal to the expected term of the option being valued.Capital structure effectsB38. Typically, third parties, not the entity, write traded share options. When these share options are exercised, the writer delivers shares to the option holder. Those shares are acquired from existing shareholders. Hence the exercise of traded share options has no dilutive effect.B39. In contrast, if share options are written by the entity, new shares are issued when those share options are exercised (either actually issued or issued in substance, if shares previously repurchased and held in treasury are used). Given that the shares will be issued at the exercise price rather than the current market price at the date of exercise, this actual or potential dilution might reduce the share price, so that the option holder does not make as large a gain on exercise as on exercising an otherwise similar traded option that does not dilute the share price.B40. Whether this has a significant effect on the value of the share options granted depends on various factors, such as the number of new shares that will be issued on exercise of the options compared with the number of shares already issued. Also, if the market already expects that the option grant will take place, the market may have already factored the potential dilution into the share price at the date of grant.B41. However, the entity should consider whether the possible dilutive effect of the future exercise of the share options granted might have an impact on their estimated fair value at grant date. Option pricing models can be adapted to take into account this potential dilutive effect.Modifications to equity-settled share-based payment arrangementsB42. Paragraph 27 requires that, irrespective of any modifications to the terms and conditions on which the equity instruments were granted, or a cancellation or settlement of that grant of equity instruments, the entity should recognise, as a minimum, the services received measured at the grant date fair value of the equity instruments granted, unless those equity instruments do not vest because of failure to satisfy a vesting condition (other than a market condition) that was specified at grant date. In addition, the entity should recognise the effects of modifications that increase the total fair value of the share-based payment arrangement or are otherwise beneficial to the employee.B43. To apply the requirements of paragraph 27:

(a)if the modification increases the fair value of the equity instruments granted (e.g. by reducing the exercise price), measured immediately before and after the modification, the entity shall include the incremental fair value granted in the measurement of the amount recognized for services received as consideration for the equity instruments granted. The incremental fair value granted is the difference between the fair value of the modified equity instrument and that of the original equity instrument, both estimated as at the date of the modification. If the modification occurs during the vesting period, the incremental fair value granted is included in the measurement of the amount recognized for services received over the period from the modification date until the date when the modified 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. If the modification occurs after vesting date, the incremental fair value granted is recognized immediately, or over the vesting period if the employee is required to complete an additional period of service before becoming unconditionally entitled to those modified equity instruments.

(b)similarly, if the modification increases the number of equity instruments granted, the entity shall include the fair value of the additional equity instruments granted, measured at the date of the modification, in the measurement of the amount recognized for services received as consideration for the equity instruments granted, consistently with the requirements in (a) above. For example, if the modification occurs during the vesting period, the fair value of the additional equity instruments granted is included in the measurement of the amount recognized for services received over the period from the modification date until the date when the additional equity instruments vest, in addition to the amount based on the grant date fair value of the equity instruments originally granted, which is recognized over the remainder of the original vesting period.

(c)if the entity modifies the vesting conditions in a manner that is beneficial to the employee, for example, by reducing the vesting period or by modifying or eliminating a performance condition (other than a market condition, changes to which are accounted for in accordance with (a) above), the entity shall take the modified vesting conditions into account when applying the requirements of paragraphs 19-21.

B44. Furthermore, if the entity modifies the terms or conditions of the equity instruments granted in a manner that reduces the total fair value of the share-based payment arrangement, or is not otherwise beneficial to the employee, the entity shall nevertheless continue to account for the services received as consideration for the equity instruments granted as if that modification had not occurred (other than a cancellation of some or all the equity instruments granted, which shall be accounted for in accordance with paragraph 28). For example:

(a)if the modification reduces the fair value of the equity instruments granted, measured immediately before and after the modification, the entity shall not take into account that decrease in fair value and shall continue to measure the amount recognized for services received as consideration for the equity instruments based on the grant date fair value of the equity instruments granted.

(b)if the modification reduces the number of equity instruments granted to an employee, that reduction shall be accounted for as a cancellation of that portion of the grant, in accordance with the requirements of paragraph 28.

(c)if the entity modifies the vesting conditions in a manner that is not beneficial to the employee, for example, by increasing the vesting period or by modifying or adding a performance condition (other than a market condition, changes to which are accounted for in accordance with (a) above), the entity shall not take the modified vesting conditions into account when applying the requirements of paragraphs 19-21.

[Accounting for a modification of a share-based payment transaction that changes its classification from cash-settled to equity-settled [Inserted by Notification No. G.S.R. 258(E), dated 17.3.2017 (w.e.f. 16.2.2015).]B44A If the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as such from the date of the modification. Specifically:

(a)The equity-settled share-based payment transaction is measured by reference to the fair value of the equity instruments granted at the modification date. The equity-settled share-based payment transaction is recognized in equity on the modification date to the extent to which goods or services have been received.

(b)The liability for the cash-settled share-based payment transaction as at the modification date is derecognized on that date.

(c)Any difference between the carrying amount of the liability derecognized and the amount of equity recognized on the modification date is recognized immediately in profit or loss.

B44B If, as a result of the modification, the vesting period is extended or shortened, the application of the requirements in paragraph B44A reflect the modified vesting period. The requirements in paragraph B44A apply even if the modification occurs after the vesting period.B44C A cash-settled share-based payment transaction may be canceled or settled (other than a transaction canceled by forfeiture when the vesting conditions are not satisfied). If equity instruments are granted and, on that grant date, the entity identifies them as a replacement for the canceled cash-settled share-based payment, the entity shall apply paragraphs B44A and B44B.]Share-based payment transactions among group entitiesB45. Paragraphs 43A-43C address the accounting for share-based payment transactions among group entities in each entity's separate or individual financial statements. Paragraphs B46-B61 discuss how to apply the requirements in paragraphs 43A-43C. As noted in paragraph 43D, share-based payment transactions among group entities may take place for a variety of reasons depending on facts and circumstances. Therefore, this discussion is not exhaustive and assumes that when the entity receiving the goods or services has no obligation to settle the transaction, the transaction is a parent's equity contribution to the subsidiary, regardless of any intra-group repayment arrangements.B46. Although the discussion below focuses on transactions with employees, it also applies to similar share-based payment transactions with suppliers of goods or services other than employees. An arrangement between a parent and its subsidiary may require the subsidiary to pay the parent for the provision of the equity instruments to the employees. The discussion below does not address how to account for such an intra-group payment arrangement.B47. Four issues are commonly encountered in share-based payment transactions among group entities. For convenience, the examples below discuss the issues in terms of a parent and its subsidiary.Share-based payment arrangements involving an entity's own equity instrumentsB48. The first issue is whether the following transactions involving an entity's own equity instruments should be accounted for as equity-settled or as cash-settled in accordance with the requirements of this Standard:

(a)an entity grants to its employees rights to equity instruments of the entity (e.g. share options), and either chooses or is required to buy equity instruments (i.e. treasury shares) from another party, to satisfy its obligations to its employees; and

(b)an entity's employees are granted rights to equity instruments of the entity (e.g. share options), either by the entity itself or by its shareholders, and the shareholders of the entity provide the equity instruments needed.

B49. The entity shall account for share-based payment transactions in which it receives services as consideration for its own equity instruments as equity-settled. This applies regardless of whether the entity chooses or is required to buy those equity instruments from another party to satisfy its obligations to its employees under the share-based payment arrangement. It also applies regardless of whether:

(a)the employee's rights to the entity's equity instruments were granted by the entity itself or by its shareholder(s); or

(b)the share-based payment arrangement was settled by the entity itself or by its shareholder(s).

B50. If the shareholder has an obligation to settle the transaction with its investee's employees, it provides equity instruments of its investee rather than its own. Therefore, if its investee is in the same group as the shareholder, in accordance with paragraph 43C, the shareholder shall measure its obligation in accordance with the requirements applicable to cash-settled share-based payment transactions in the shareholder's separate financial statements and those applicable to equity-settled share-based payment transactions in the shareholder's consolidated financial statements.Share-based payment arrangements involving equity instruments of the parentB51. The second issue concerns share-based payment transactions between two or more entities within the same group involving an equity instrument of another group entity. For example, employees of a subsidiary are granted rights to equity instruments of its parent as consideration for the services provided to the subsidiary.B52. Therefore, the second issue concerns the following share-based payment arrangements:

(a)a parent grants rights to its equity instruments directly to the employees of its subsidiary: the parent (not the subsidiary) has the obligation to provide the employees of the subsidiary with the equity instruments; and

(b)a subsidiary grants rights to equity instruments of its parent to its employees: the subsidiary has the obligation to provide its employees with the equity instruments.

A parent grants rights to its equity instruments to the employees of its subsidiary [paragraph B52(a)]B53. The subsidiary does not have an obligation to provide its parent's equity instruments to the subsidiary's employees. Therefore, in accordance with paragraph 43B, the subsidiary shall measure the services received from its employees in accordance with the requirements applicable to equity-settled share-based payment transactions, and recognise a corresponding increase in equity as a contribution from the parent.B54. The parent has an obligation to settle the transaction with the subsidiary's employees by providing the parent's own equity instruments. Therefore, in accordance with paragraph 43C, the parent shall measure its obligation in accordance with the requirements applicable to equity-settled share-based payment transactions.A subsidiary grants rights to equity instruments of its parent to its employees [paragraph B52(b)]B55. Because the subsidiary does not meet either of the conditions in paragraph 43B, it shall account for the transaction with its employees as cash-settled. This requirement applies irrespective of how the subsidiary obtains the equity instruments to satisfy its obligations to its employees.Share-based payment arrangements involving cash-settled payments to employeesB56. The third issue is how an entity that receives goods or services from its suppliers (including employees) should account for share-based arrangements that are cash-settled when the entity itself does not have any obligation to make the required payments to its suppliers. For example, consider the following arrangements in which the parent (not the entity itself) has an obligation to make the required cash payments to the employees of the entity:

(a)the employees of the entity will receive cash payments that are linked to the price of its equity instruments.

(b)the employees of the entity will receive cash payments that are linked to the price of its parent's equity instruments.

B57. The subsidiary does not have an obligation to settle the transaction with its employees. Therefore, the subsidiary shall account for the transaction with its employees as equity-settled, and recognise a corresponding increase in equity as a contribution from its parent. The subsidiary shall remeasure the cost of the transaction subsequently for any changes resulting from non-market vesting conditions not being met in accordance with paragraphs 19-21. This differs from the measurement of the transaction as cash-settled in the consolidated financial statements of the group.B58. Because the parent has an obligation to settle the transaction with the employees, and the consideration is cash, the parent (and the consolidated group) shall measure its obligation in accordance with the requirements applicable to cash-settled share-based payment transactions in paragraph 43C.Transfer of employees between group entitiesB59. The fourth issue relates to group share-based payment arrangements that involve employees of more than one group entity. For example, a parent might grant rights to its equity instruments to the employees of its subsidiaries, conditional upon the completion of continuing service with the group for a specified period. An employee of one subsidiary might transfer employment to another subsidiary during the specified vesting period without the employee's rights to equity instruments of the parent under the original share-based payment arrangement being affected. If the subsidiaries have no obligation to settle the share-based payment transaction with their employees, they account for it as an equity-settled transaction. Each subsidiary shall measure the services received from the employee by reference to the fair value of the equity instruments at the date the rights to those equity instruments were originally granted by the parent as defined in Appendix A, and the proportion of the vesting period the employee served with each subsidiary.B60. If the subsidiary has an obligation to settle the transaction with its employees in its parent's equity instruments, it accounts for the transaction as cash-settled. Each subsidiary shall measure the services received on the basis of grant date fair value of the equity instruments for the proportion of the vesting period the employee served with each subsidiary. In addition, each subsidiary shall recognise any change in the fair value of the equity instruments during the employee's service period with each subsidiary.B61. Such an employee, after transferring between group entities, may fail to satisfy a vesting condition other than a market condition as defined in Appendix A, e.g. the employee leaves the group before completing the service period. In this case, because the vesting condition is service to the group, each subsidiary shall adjust the amount previously recognized in respect of the services received from the employee in accordance with the principles in paragraph 19. Hence, if the rights to the equity instruments granted by the parent do not vest because of an employee's failure to meet a vesting condition other than a market condition, no amount is recognized on a cumulative basis for the services received from that employee in the financial statements of any group entity.Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 102 and the corresponding International Financial Reporting Standard (IFRS) 2, Share-based Payment, issued by the International Accounting Standards Board.Comparison with IFRS 2, Share-based Payment

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Union of India - Section

Section 63D in The Companies (Indian Accounting Standards) Rules, 2015