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Share-based Payment

Ind AS - 102 - B. Indian Accounting Standards (Ind AS) - Companies Law - Ind AS - 102 - Indian Accounting Standard (Ind AS) 102 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.). Objective 1 The objective of this Standard is to specify the financial reporting by an entity when it undertakes a transaction. In particular, it requires an entity to reflect in its profit or loss and .....

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arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments, except as noted in paragraphs 3A-6. In the absence of specifically identifiable goods or services, other circumstances may indicate that goods or services have been (or will be) received, in which case this Standard applies. 3 [Refer Appendix 1] 3A A transaction may be settled by another group enti .....

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ods or services supplied to the entity receiving them. 4 For the purposes of this Standard, a transaction with an employee (or other party) in his/her capacity as a holder of equity instruments of the entity is not a transaction. For example, if an entity grants all holders of a particular class of its equity instruments the right to acquire additional equity instruments of the entity at a price that is less than the fair value of those equity instruments, and an employee receives such a right b .....

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uires goods as part of the net assets acquired in a business combination as defined by Ind AS 103, Business Combinations, in a combination of entities or businesses under common control as described in Appendix C of Ind AS 103, or the contribution of a business on the formation of a joint venture as defined by Ind AS 111, Joint Arrangements. Hence, equity instruments issued in a business combination in exchange for control of the acquiree are not within the scope of this Standard. However, equit .....

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red in exchange for control of the acquiree (and therefore within the scope of Ind AS 103) or are in return for continued service to be recognised in the post-combination period (and therefore within the scope of this Standard). 6 This Standard does not apply to transactions in which the entity receives or acquires goods or services under a contract within the scope of paragraphs 8-10 of Ind AS 32, Financial Instruments: Presentation, or paragraphs 2.4-2.7 of Ind AS 109, Financial Instruments. 6 .....

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ds or services were received in an equity-settled transaction, or a liability if the goods or services were acquired in a cash-settled transaction. 8 When the goods or services received or acquired in a transaction do not qualify for recognition as assets, they shall be recognised as expenses. 9 Typically, an expense arises from the consumption of goods or services. For example, services are typically consumed immediately, in which case an expense is recognised as the counterparty renders servic .....

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they might not qualify for recognition as assets under the applicable Ind AS. Equity-settled transactions Overview 10 For equity-settled transactions, the entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and th .....

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value of those equity instruments shall be measured at grant date. 12 Typically, shares, share options or other equity instruments are granted to employees as part of their remuneration package, in addition to a cash salary and other employment benefits. Usually, it is not possible to measure directly the services received for particular components of the employee s remuneration package. It might also not be possible to measure the fair value of the total remuneration package independently, with .....

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its. Estimating the fair value of those additional benefits is likely to be difficult. Because of the difficulty of measuring directly the fair value of the services received, the entity shall measure the fair value of the employee services received by reference to the fair value of the equity instruments granted. 13 To apply the requirements of paragraph 10 to transactions with parties other than employees, there shall be a rebuttable presumption that the fair value of the goods or services rec .....

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the goods or the counterparty renders service. 13A In particular, if the identifiable consideration received (if any) by the entity appears to be less than the fair value of the equity instruments granted or liability incurred, typically this situation indicates that other consideration (ie unidentifiable goods or services) has been (or will be) received by the entity. The entity shall measure the identifiable goods or services received in accordance with this Standard. The entity shall measure .....

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ed 14 If the equity instruments granted vest immediately, the counterparty is not required to complete a specified period of service before becoming unconditionally entitled to those equity instruments. In the absence of evidence to the contrary, the entity shall presume that services rendered by the counterparty as consideration for the equity instruments have been received. In this case, on grant date the entity shall recognise the services received in full, with a corresponding increase in eq .....

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are options conditional upon completing three years service, then the entity shall presume that the services to be rendered by the employee as consideration for the share options will be received in the future, over that three-year vesting period. (b) if an employee is granted share options conditional upon the achievement of a performance condition and remaining in the entity s employment until that performance condition is satisfied, and the length of the vesting period varies depending on whe .....

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th the assumptions used in estimating the fair value of the options granted, and shall not be subsequently revised. If the performance condition is not a market condition, the entity shall revise its estimate of the length of the vesting period, if necessary, if subsequent information indicates that the length of the vesting period differs from previous estimates. Transactions measured by reference to the fair value of the equity instruments granted Determining the fair value of equity instrumen .....

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g a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an arm s length transaction between knowledgeable, willing parties. The valuation technique shall be consistent with generally accepted valuation methodologies for pricing financial instruments, and shall incorporate all factors and assumptions that knowledgeable, willing market participants would consider in setting the price (subject to the requirements of paragraphs 19-22) .....

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ent for a specified period of time. There might be performance conditions that must be satisfied, such as the entity achieving a specified growth in profit or a specified increase in the entity s share price. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the shares or share options at the measurement date. Instead, vesting conditions shall be taken into account by adjusting the number of equity instruments included in the meas .....

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ndition is not satisfied, subject to the requirements of paragraph 21. 20 To apply the requirements of paragraph 19, the entity shall recognise an amount for the goods or services received during the vesting period based on the best available estimate of the number of equity instruments expected to vest and shall revise that estimate, if necessary, if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates. On vesting date, the enti .....

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all other vesting conditions (eg services received from an employee who remains in service for the specified period of service), irrespective of whether that market condition is satisfied. Treatment of non-vesting conditions 21A Similarly, an entity shall take into account all non-vesting conditions when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with non-vesting conditions, the entity shall recognise the goods or services received fr .....

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a new option grant, if and when a reload option is subsequently granted. After vesting date 23 Having recognised the goods or services received in accordance with paragraphs 10-22, and a corresponding increase in equity, the entity shall make no subsequent adjustment to total equity after vesting date. For example, the entity shall not subsequently reverse the amount recognised for services received from an employee if the vested equity instruments are later forfeited or, in the case of share op .....

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value of the equity instruments granted at the measurement date, in accordance with the requirements in paragraphs 16- 22. In these rare cases only, the entity shall instead: (a) measure the equity instruments at their intrinsic value, initially at the date the entity obtains the goods or the counterparty renders service and subsequently at the end of each reporting period and at the date of final settlement, with any change in intrinsic value recognised in profit or loss. For a grant of share o .....

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raphs 14 and 15, except that the requirements in paragraph 15(b) concerning a market condition do not apply. The amount recognised for goods or services received during the vesting period shall be based on the number of share options expected to vest. The entity shall revise that estimate, if necessary, if subsequent information indicates that the number of share options expected to vest differs from previous estimates. On vesting date, the entity shall revise the estimate to equal the number of .....

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graph 24. However, if an entity settles a grant of equity instruments to which paragraph 24 has been applied: (a) if the settlement occurs during the vesting period, the entity shall account for the settlement as an acceleration of vesting, and shall therefore recognise immediately the amount that would otherwise have been recognised for services received over the remainder of the vesting period. (b) any payment made on settlement shall be accounted for as the repurchase of equity instruments, i .....

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ployees (ie reprice the options), which increases the fair value of those options. The requirements in paragraphs 27-29 to account for the effects of modifications are expressed in the context of transactions with employees. However, the requirements shall also be applied to transactions with parties other than employees that are measured by reference to the fair value of the equity instruments granted. In the latter case, any references in paragraphs 27-29 to grant date shall instead refer to t .....

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cancellation or settlement of that grant of equity instruments. In addition, the entity shall recognise the effects of modifications that increase the total fair value of the arrangement or are otherwise beneficial to the employee. Guidance on applying this requirement is given in Appendix B. 28 If a grant of equity instruments is cancelled or settled during the vesting period (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied): (a) the entity shall account .....

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measured at the repurchase date. Any such excess shall be recognised as an expense. However, if the arrangement included liability components, the entity shall remeasure the fair value of the liability at the date of cancellation or settlement. Any payment made to settle the liability component shall be accounted for as an extinguishment of the liability. (c) if new equity instruments are granted to the employee and, on the date when those new equity instruments are granted, the entity identifi .....

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s, at the date the replacement equity instruments are granted. The net fair value of the cancelled equity instruments is their fair value, immediately before the cancellation, less the amount of any payment made to the employee on cancellation of the equity instruments that is accounted for as a deduction from equity in accordance with (b) above. If the entity does not identify new equity instruments granted as replacement equity instruments for the cancelled equity instruments, the entity shall .....

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value of the equity instruments repurchased, measured at the repurchase date. Any such excess shall be recognised as an expense. Cash-settled transactions 30 For cash-settled transactions, the entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the entity shall remeasure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value re .....

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shares to be issued upon the exercise of share options) that are redeemable, either mandatorily (eg upon cessation of employment) or at the employee s option. 32 The entity shall recognise the services received, and a liability to pay for those services, as the employees render service. For example, some share appreciation rights vest immediately, and the employees are therefore not required to complete a specified period of service to become entitled to the cash payment. In the absence of evid .....

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d. 33 The liability shall be measured, initially and at the end of each reporting period until settled, at the fair value of the share appreciation rights, by applying an option pricing model, taking into account the terms and conditions on which the share appreciation rights were granted, and the extent to which the employees have rendered service to date. transactions with cash alternatives 34 For transactions in which the terms of the arrangement provide either the entity or the counterparty .....

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counterparty with a choice of settlement 35 If an entity has granted the counterparty the right to choose whether a transaction is settled in cash4 or by issuing equity instruments, the entity has granted a compound financial instrument, which includes a debt component (ie the counterparty s right to demand payment in cash) and an equity component (ie the counterparty s right to demand settlement in equity instruments rather than in cash). For transactions with parties other than employees, in .....

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king into account the terms and conditions on which the rights to cash or equity instruments were granted. 37 To apply paragraph 36, the entity shall first measure the fair value of the debt component, and then measure the fair value of the equity component- taking into account that the counterparty must forfeit the right to receive cash in order to receive the equity instrument. The fair value of the compound financial instrument is the sum of the fair values of the two components. However, tra .....

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he settlement alternatives differ, the fair value of the equity component usually will be greater than zero, in which case the fair value of the compound financial instrument will be greater than the fair value of the debt component. 38 The entity shall account separately for the goods or services received or acquired in respect of each component of the compound financial instrument. For the debt component, the entity shall recognise the goods or services acquired, and a liability to pay for tho .....

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the liability to its fair value. If the entity issues equity instruments on settlement rather than paying cash, the liability shall be transferred direct to equity, as the consideration for the equity instruments issued. 40 If the entity pays in cash on settlement rather than issuing equity instruments, that payment shall be applied to settle the liability in full. Any equity component previously recognised shall remain within equity. By electing to receive cash on settlement, the counterparty f .....

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present obligation to settle in cash and account for the transaction accordingly. The entity has a present obligation to settle in cash if the choice of settlement in equity instruments has no commercial substance (eg because the entity is legally prohibited from issuing shares), or the entity has a past practice or a stated policy of settling in cash, or generally settles in cash whenever the counterparty asks for cash settlement. 42 If the entity has a present obligation to settle in cash, it .....

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c) below. (b) if the entity elects to settle by issuing equity instruments, no further accounting is required (other than a transfer from one component of equity to another, if necessary), except as noted in (c) below. (c) if the entity elects the settlement alternative with the higher fair value, as at the date of settlement, the entity shall recognise an additional expense for the excess value given, ie the difference between the cash paid and the fair value of the equity instruments that woul .....

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awards granted, and (b) its own rights and obligations. The amount recognised by the entity receiving the goods or services may differ from the amount recognised by the consolidated group or by another group entity settling the transaction. 43B The entity receiving the goods or services shall measure the goods or services received as an equity-settled transaction when: (a) the awards granted are its own equity instruments, or (b) the entity has no obligation to settle the transaction. The entity .....

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y s own equity instruments. Otherwise, the transaction shall be recognised as a cash-settled transaction. 43D Some group transactions involve repayment arrangements that require one group entity to pay another group entity for the provision of the s to the suppliers of goods or services. In such cases, the entity that receives the goods or services shall account for the transaction in accordance with paragraph 43B regardless of intragroup repayment arrangements. Disclosures 44 An entity shall di .....

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t (eg whether in cash or equity). An entity with substantially similar types of arrangements may aggregate this information, unless separate disclosure of each arrangement is necessary to satisfy the principle in paragraph 44. (b) the number and weighted average exercise prices of share options for each of the following groups of options: (i) outstanding at the beginning of the period; (ii) granted during the period; (iii) forfeited during the period; (iv) exercised during the period; (v) expire .....

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tual life. If the range of exercise prices is wide, the outstanding options shall be divided into ranges that are meaningful for assessing the number and timing of additional shares that may be issued and the cash that may be received upon exercise of those options. 46 An entity shall disclose information that enables users of the financial statements to understand how the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was det .....

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(i) the option pricing model used and the inputs to that model, including the weighted average share price, exercise price, expected volatility, option life, expected dividends, the risk-free interest rate and any other inputs to the model, including the method used and the assumptions made to incorporate the effects of expected early exercise; (ii) how expected volatility was determined, including an explanation of the extent to which expected volatility was based on historical volatility; and .....

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whether and how expected dividends were incorporated into the measurement of fair value; and (iii) whether and how any other features of the equity instruments granted were incorporated into the measurement of fair value. (c) for arrangements that were modified during the period: (i) an explanation of those modifications; (ii) the incremental fair value granted (as a result of those modifications); and (iii) information on how the incremental fair value granted was measured, consistently with t .....

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ion that enables users of the financial statements to understand the effect of transactions on the entity s profit or loss for the period and on its financial position. 51 To give effect to the principle in paragraph 50, the entity shall disclose at least the following: (a) the total expense recognised for the period arising from transactions in which the goods or services received did not qualify for recognition as assets and hence were recognised immediately as an expense, including separate d .....

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s not satisfy the principles in paragraphs 44, 46 and 50, the entity shall disclose such additional information as is necessary to satisfy them. 1 This Standard uses the phrase by reference to rather than at , because the transaction is ultimately measured by multiplying the fair value of the equity instruments granted, measured at the date specified in paragraph 11 or 13 (whichever is applicable), by the number of equity instruments that vest, as explained in paragraph 19. 2 In the remainder of .....

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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 (ie an outflow of cash or other assets of the entity). 6A group is defined in Appendix A of Ind AS 110, Consolidated Financial Statements, .....

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tity. employees and others providing similar services Individuals who render personal services to the entity and either (a) the individuals are regarded as employees for legal or tax purposes, (b) the individuals work for the entity under its direction in the same way as individuals who are regarded as employees for legal or tax purposes, or (c) the services rendered are similar to those rendered by employees. For example, the term encompasses all management personnel, ie those persons having au .....

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eives goods or services as consideration for its own equity instruments (including shares or share options), or (b) receives goods or services but has no obligation to settle the transaction with the supplier. fair value The amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm s length transaction. grant date The date at which the entity and another party (including an employee) agr .....

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the fair value of the shares to which the counterparty has the (conditional or unconditional) right to subscribe or which it has the right to receive, and the price (if any) the counterparty is (or will be) required to pay for those shares. For example, a share option with an exercise price of ₹ 15, on a share with a fair value of ₹ 20, has an intrinsic value of ₹ 5. market condition A performance condition upon which the exercise price, vesting or exercisability of an equity .....

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instruments of other entities. A market condition requires the counterparty to complete a specified period of service (ie a service condition); the service requirement can be explicit or implicit. measurement date The date at which the fair value of the equity instruments granted is measured for the purposes of this Ind AS. For transactions with employees and others providing similar services, the measurement date is grant date. For transactions with parties other than employees (and those prov .....

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ot extend beyond the end of the service period; and (b) may start before the service period on the condition that the commencement date of the performance target is not 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 same group (ie a non-market condition); or (b) the price (or value) of the entity s equity instruments or the equity .....

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tisfy the exercise price. reload option A new share option granted when a share is used to satisfy the exercise price of a previous share option. service condition A vesting condition that requires the counterparty to complete a specified period of service during which services are provided to the entity. If the counterparty, regardless of the reason, ceases to provide service during the vesting period, it has failed to satisfy the condition. A service condition does not require a performance ta .....

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vided the specified vesting conditions, if any, are met. transaction A transaction in which the entity (a) receives goods or services from the supplier of those goods or services (including an employee) in a arrangement, or (b) incurs an obligation to settle the transaction with the supplier in a arrangement when another group entity receives those goods or services. share option A contract that gives the holder the right, but not the obligation, to subscribe to the entity s shares at a fixed or .....

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angement. A vesting condition is either a service condition or a performance condition. vesting period The period during which all the specified vesting conditions of a arrangement are to be satisfied. Appendix B Application guidance This appendix is an integral part of the Ind AS. Estimating the fair value of equity instruments granted B1 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 th .....

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rties other than employees at the date the entity obtains the goods or the counterparty renders service. Shares B2 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 accor .....

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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 accoun .....

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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 li .....

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e 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 pr .....

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rcised 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 .....

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nts) 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 models B11 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 p .....

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ch 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 oth .....

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without considering the extent to which the past experience is expected to be reasonably predictive of future experience. Expected early exercise B16 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 exerci .....

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xpected 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 (eg 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 ty .....

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d 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 .....

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ption 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 .....

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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 e .....

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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 .....

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s 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 .....

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aordinarily 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 .....

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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 entities B27 An unlisted entity will not .....

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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 v .....

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rlying 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, ie 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 ve .....

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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 div .....

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egin 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 rate B37 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 va .....

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terest 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 effects B38 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 h .....

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n 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 .....

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cellation 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 arrangement or are otherwise .....

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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 recognised 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, .....

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al equity instruments granted, measured at the date of the modification, in the measurement of the amount recognised 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 recognised for services received over the period from the modification date until the d .....

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ance 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 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 modifica .....

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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 th .....

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ransactions 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 intragroup repayment arrangements. B46 Although the discussion below focuses on transactions with employees, it also applies to similar transaction .....

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ts involving an entity s own equity instruments B48 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 (eg share options), and either chooses or is required to buy equity instruments (ie treasury shares) from another party, to satisfy its obligations to it .....

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party to satisfy its obligations to its employees under the 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 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 .....

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he 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 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 equi .....

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ces received from its employees in accordance with the requirements applicable to equity-settled 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 transactions. .....

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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 e .....

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anges 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 transactions in paragrap .....

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o equity instruments of the parent under the original arrangement being affected. If the subsidiaries have no obligation to settle the 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 p .....

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uity 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, eg 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 recognised in respect of the services received from the employee in acco .....

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