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Indian Accounting Standard (Ind AS) 102
Share-based Payment
(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 share-based payment transaction. In particular, 
it requires an entity to reflect in its profit or loss and financial position the 
effects of share-based payment transactions, including expenses associated 
with transactions in which share options are granted to employees.
Scope
2 An entity shall apply this Standard in accounting for all share-based 
payment transactions, whether or not the entity can identify specifically 
some or all of the goods or services received, including:
(a) equity-settled share-based payment transactions,
(b) cash-settled share-based payment transactions, and
(c) transactions in which the entity receives or acquires goods or services 
and the terms of the 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 share-based payment transaction may be settled by another group entity 
(or a shareholder of any group entity) on behalf of the entity receiving or 
acquiring the goods or services. Paragraph 2 also applies to an entity that
(a) receives goods or services when another entity in the same group 
(or a shareholder of any group entity) has the obligation to settle the 
share-based payment transaction, or 
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(b) has an obligation to settle a share-based payment transaction when 
another entity in the same group receives the goods or services
unless the transaction is clearly for a purpose other than payment for goods 
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 share-based payment 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 
because he/she is a holder of equity instruments of that particular class, the 
granting or exercise of that right is not subject to the requirements of this 
Standard.
5 As noted in paragraph 2, this Standard applies to share-based payment 
transactions in which an entity acquires or receives goods or services. 
Goods includes inventories, consumables, property, plant and equipment, 
intangible assets and other non-financial assets. However, an entity shall 
not apply this Standard to transactions in which the entity acquires 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, equity instruments granted to 
employees of the acquiree in their capacity as employees (eg in return for 
continued service) are within the scope of this Standard. Similarly, the 
cancellation, replacement or other modification of share-based payment
arrangements because of a business combination or other equity 
restructuring shall be accounted for in accordance with this Standard. Ind 
AS 103 provides guidance on determining whether equity instruments 
issued in a business combination are part of the consideration transferred 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 postcombination period (and therefore within the scope of this Standard). 
6 This Standard does not apply to share-based payment 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.
6A This Standard uses the term ‘fair value’ in a way that differs in some 
respects from the definition of fair value in Ind AS 113, Fair Value 
Measurement. Therefore, when applying Ind AS 102 an entity measures fair 
value in accordance with this Standard, not Ind AS 113.
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Recognition
7 An entity shall recognise the goods or services received or 
acquired in a share-based payment transaction when it obtains the 
goods or as the services are received. The entity shall recognise a 
corresponding increase in equity if the goods or services were 
received in an equity-settled share-based payment transaction, or 
a liability if the goods or services were acquired in a cash-settled sharebased payment transaction.
8 When the goods or services received or acquired in a share-based 
payment 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 
service. Goods might be consumed over a period of time or, in the case of 
inventories, sold at a later date, in which case an expense is recognised
when the goods are consumed or sold. However, sometimes it is necessary 
to recognise an expense before the goods or services are consumed or sold, 
because they do not qualify for recognition as assets. For example, an entity 
might acquire goods as part of the research phase of a project to develop a 
new product. Although those goods have not been consumed, they might 
not qualify for recognition as assets under the applicable Ind AS.
Equity-settled share-based payment transactions
Overview
10 For equity-settled share-based payment 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 the corresponding increase in 
equity, indirectly, by reference to1
the fair value of the equity 
instruments granted. 
11 To apply the requirements of paragraph 10 to transactions with employees 
and others providing similar services,
2
the entity shall measure the fair 
value of the services received by reference to the fair value of the equity 
instruments granted, because typically it is not possible to estimate reliably 
the fair value of the services received, as explained in paragraph 12. The 
 
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 this Standard, all references to employees also include others providing 
similar services.
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fair 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, without measuring 
directly the fair value of the equity instruments granted. Furthermore, 
shares or share options are sometimes granted as part of a bonus 
arrangement, rather than as a part of basic remuneration, eg as an incentive 
to the employees to remain in the entity’s employment or to reward them 
for their efforts in improving the entity’s performance. By granting shares 
or share options, in addition to other remuneration, the entity is paying 
additional remuneration to obtain additional benefits. 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 received can be estimated reliably. That fair value 
shall be measured at the date the entity obtains the goods or the 
counterparty renders service. In rare cases, if the entity rebuts this 
presumption because it cannot estimate reliably the fair value of the goods 
or services received, the entity shall measure the goods or services received, 
and the corresponding increase in equity, indirectly, by reference to the fair 
value of the equity instruments granted, measured at the date the entity 
obtains 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 the unidentifiable goods or services received (or to be 
received) as the difference between the fair value of the share-based 
payment and the fair value of any identifiable goods or services 
received (or to be received). The entity shall measure the unidentifiable 
goods or services received at the grant date. However, for cash-settled 
transactions, the liability shall be remeasured at the end of each reporting 
period until it is settled in accordance with paragraphs 30–33.
Transactions in which services are received
14 If the equity instruments granted vest immediately, the counterparty is not 
required to complete a specified period of service before becoming 
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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 equity. 
15 If the equity instruments granted do not vest until the counterparty 
completes a specified period of service, the entity shall presume that the 
services to be rendered by the counterparty as consideration for those equity 
instruments will be received in the future, during the vesting period. The 
entity shall account for those services as they are rendered by the 
counterparty during the vesting period, with a corresponding increase in 
equity. For example: 
(a) if an employee is granted share 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 when that performance 
condition is satisfied, 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 the expected vesting period. The entity shall 
estimate the length of the expected vesting period at grant date, based 
on the most likely outcome of the performance condition. If the 
performance condition is a market condition, the estimate of the length 
of the expected vesting period shall be consistent with 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 instruments granted
16 For transactions measured by reference to the fair value of the equity 
instruments granted, an entity shall measure the fair value of equity 
instruments granted at the measurement date, based on market prices if 
available, taking into account the terms and conditions upon which those 
equity instruments were granted (subject to the requirements of paragraphs 
19–22). 
17 If market prices are not available, the entity shall estimate the fair value of 
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the equity instruments granted using 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).
18 Appendix B contains further guidance on the measurement of the fair value 
of shares and share options, focusing on the specific terms and conditions 
that are common features of a grant of shares or share options to employees.
Treatment of vesting conditions 
19 A grant of equity instruments might be conditional upon satisfying 
specified vesting conditions. For example, a grant of shares or share options 
to an employee is typically conditional on the employee remaining in the 
entity’s employment 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 measurement 
of the transaction amount so that, ultimately, the amount recognised for 
goods or services received as consideration for the equity instruments 
granted shall be based on the number of equity instruments that eventually 
vest. Hence, on a cumulative basis, no amount is recognised for goods or 
services received if the equity instruments granted do not vest because of 
failure to satisfy a vesting condition, eg the counterparty fails to complete a 
specified service period, or a performance condition 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 entity shall revise the estimate 
to equal the number of equity instruments that ultimately vested, subject to 
the requirements of paragraph 21. 
21 Market conditions, such as a target share price upon which vesting (or 
exercisability) is conditioned, shall be taken into account when estimating
the fair value of the equity instruments granted. Therefore, for grants of 
equity instruments with market conditions, the entity shall recognise 
the goods or services received from a counterparty who satisfies 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.
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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 from a counterparty that satisfies 
all vesting conditions that are not market conditions (eg services 
received from an employee who remains in service for the specified 
period of service), irrespective of whether those non-vesting conditions 
are satisfied.
Treatment of a reload feature
22 For options with a reload feature, the reload feature shall not be taken into 
account when estimating the fair value of options granted at the 
measurement date. Instead, a reload option shall be accounted for as 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 options, the options are not exercised. 
However, this requirement does not preclude the entity from recognising a 
transfer within equity, ie a transfer from one component of equity to 
another. 
If the fair value of the equity instruments cannot be estimated reliably3
24 The requirements in paragraphs 16–23 apply when the entity is required to 
measure a share-based payment transaction by reference to the fair value of 
the equity instruments granted. In rare cases, the entity may be unable to 
estimate reliably the fair 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 options, the share-based payment arrangement 
is finally settled when the options are exercised, are forfeited (eg upon 
cessation of employment) or lapse (eg at the end of the option’s life). 
 
3
 For example, in case of share options granted to employees, the credit given to an appropriate 
equity account, say, ‘share options outstanding account’ (upon receiving the services) may be 
transferred to another appropriate equity account, say, ‘General Reserves’ when the options are not 
exercised.
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(b) recognise the goods or services received based on the number of equity 
instruments that ultimately vest or (where applicable) are ultimately 
exercised. To apply this requirement to share options, for example, the 
entity shall recognise the goods or services received during the vesting 
period, if any, in accordance with paragraphs 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 equity instruments that ultimately 
vested. After vesting date, the entity shall reverse the amount 
recognised for goods or services received if the share options are later 
forfeited, or lapse at the end of the share option’s life. 
25 If an entity applies paragraph 24, it is not necessary to apply paragraphs 26–
29, because any modifications to the terms and conditions on which the 
equity instruments were granted will be taken into account when applying 
the intrinsic value method set out in paragraph 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, ie as a deduction from equity, except 
to the extent that the payment exceeds the intrinsic value of the equity 
instruments, measured at the repurchase date. Any such excess shall be 
recognised as an expense. 
Modifications to the terms and conditions on which equity 
instruments were granted, including cancellations and 
settlements
26 An entity might modify the terms and conditions on which the equity 
instruments were granted. For example, it might reduce the exercise price of 
options granted to employees (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 
share-based payment transactions with employees. However, the 
requirements shall also be applied to share-based payment 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 
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paragraphs 27–29 to grant date shall instead refer to the date the entity 
obtains the goods or the counterparty renders service.
27 The entity shall 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. 
This applies 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. In addition, the entity shall 
recognise the effects of modifications that increase the total fair value of the 
share-based payment 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 for the cancellation or settlement as an 
acceleration of vesting, and shall therefore recognise immediately the 
amount that otherwise would have been recognised for services 
received over the remainder of the vesting period. 
(b) any payment made to the employee on the cancellation or settlement of 
the grant shall be accounted for as the repurchase of an equity interest, 
ie as a deduction from equity, except to the extent that the payment 
exceeds the fair value of the equity instruments granted, measured at 
the repurchase date. Any such excess shall be recognised as an 
expense. However, if the share-based payment 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 identifies the 
new equity instruments granted as replacement equity instruments for 
the cancelled equity instruments, the entity shall account for the 
granting of replacement equity instruments in the same way as a 
modification of the original grant of equity instruments, in accordance 
with paragraph 27 and the guidance in Appendix B. The incremental 
fair value granted is the difference between the fair value of the 
replacement equity instruments and the net fair value of the cancelled 
equity instruments, 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 
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equity instruments, the entity shall account for those new equity 
instruments as a new grant of equity instruments.
28A If an entity or counterparty can choose whether to meet a non-vesting 
condition, the entity shall treat the entity’s or counterparty’s failure to meet 
that non-vesting condition during the vesting period as a cancellation.
29 If an entity repurchases vested equity instruments, the payment made to the 
employee shall be accounted for as a deduction from equity, except to the 
extent that the payment exceeds the fair value of the equity instruments 
repurchased, measured at the repurchase date. Any such excess shall be 
recognised as an expense. 
Cash-settled share-based payment transactions
30 For cash-settled share-based payment 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 
recognised in profit or loss for the period. 
31 For example, an entity might grant share appreciation rights to employees 
as part of their remuneration package, whereby the employees will become 
entitled to a future cash payment (rather than an equity instrument), based 
on the increase in the entity’s share price from a specified level over a 
specified period of time. Or an entity might grant to its employees a right to 
receive a future cash payment by granting to them a right to shares 
(including 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 evidence to the contrary, the entity shall 
presume that the services rendered by the employees in exchange for the 
share appreciation rights have been received. Thus, the entity shall 
recognise immediately the services received and a liability to pay for them. 
If the share appreciation rights do not vest until the employees have 
completed a specified period of service, the entity shall recognise the 
services received, and a liability to pay for them, as the employees render 
service during that period. 
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.
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Share-based payment transactions with cash alternatives
34 For share-based payment transactions in which the terms of the 
arrangement provide either the entity or the counterparty with the 
choice of whether the entity settles the transaction in cash (or other 
assets) or by issuing equity instruments, the entity shall account for 
that transaction, or the components of that transaction, as a cashsettled share-based payment transaction if, and to the extent that, the 
entity has incurred a liability to settle in cash or other assets, or as an 
equity-settled share-based payment transaction if, and to the extent 
that, no such liability has been incurred. 
Share-based payment transactions in which the terms of the 
arrangement provide the counterparty with a choice of 
settlement
35 If an entity has granted the counterparty the right to choose whether a sharebased payment 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 which the fair value of the goods or 
services received is measured directly, the entity shall measure the equity 
component of the compound financial instrument as the difference between 
the fair value of the goods or services received and the fair value of the debt 
component, at the date when the goods or services are received.
36 For other transactions, including transactions with employees, the entity 
shall measure the fair value of the compound financial instrument at the 
measurement date, taking 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, share-based payment transactions in which the 
counterparty has the choice of settlement are often structured so that the fair 
value of one settlement alternative is the same as the other. For example, 
the counterparty might have the choice of receiving share options or cashsettled share appreciation rights. In such cases, the fair value of the equity 
 
4
In paragraphs 35–43, all references to cash also include other assets of the entity.
52
component is zero, and hence the fair value of the compound financial 
instrument is the same as the fair value of the debt component. Conversely, 
if the fair values of the 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 those goods or services, as the 
counterparty supplies goods or renders service, in accordance with the 
requirements applying to cash-settled share-based payment transactions 
(paragraphs 30–33). For the equity component (if any), the entity shall 
recognise the goods or services received, and an increase in equity, as the 
counterparty supplies goods or renders service, in accordance with the 
requirements applying to equity-settled share-based payment transactions 
(paragraphs 10–29). 
39 At the date of settlement, the entity shall remeasure 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 forfeited the right to 
receive equity instruments. However, this requirement does not preclude the 
entity from recognising a transfer within equity, ie a transfer from one 
component of equity to another. 
Share-based payment transactions in which the terms of the 
arrangement provide the entity with a choice of settlement
41 For a share-based payment transaction in which the terms of the 
arrangement provide an entity with the choice of whether to settle in cash or 
by issuing equity instruments, the entity shall determine whether it has a 
present obligation to settle in cash and account for the share-based payment 
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 shall account for the 
transaction in accordance with the requirements applying to cash-settled 
share-based payment transactions, in paragraphs 30–33. 
43 If no such obligation exists, the entity shall account for the transaction in 
accordance with the requirements applying to equity-settled share-based 
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payment transactions, in paragraphs 10–29. Upon settlement: 
(a) if the entity elects to settle in cash, the cash payment shall be accounted 
for as the repurchase of an equity interest, ie as a deduction from 
equity, except as noted in (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 would otherwise 
have been issued, or the difference between the fair value of the equity 
instruments issued and the amount of cash that would otherwise have 
been paid, whichever is applicable. 
Share-based payment transactions among group entities
43A For share-based payment transactions among group entities, in its separate 
or individual financial statements, the entity receiving the goods or services 
shall measure the goods or services received as either an equity-settled or a 
cash-settled share-based payment transaction by assessing:
(a) the nature of the 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 share-based payment transaction.
43B The entity receiving the goods or services shall measure the goods or 
services received as an equity-settled share-based payment transaction 
when:
(a) the awards granted are its own equity instruments, or 
(b) the entity has no obligation to settle the share-based payment 
transaction. 
The entity shall subsequently remeasure such an equity-settled share-based 
payment transaction only for changes in non-market vesting conditions in 
accordance with paragraphs 19–21. In all other circumstances, the entity 
receiving the goods or services shall measure the goods or services received 
as a cash-settled share-based payment transaction.
43C The entity settling a share-based payment transaction when another entity in 
the group receives the goods or services shall recognise the transaction as 
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an equity-settled share-based payment transaction only if it is settled in the 
entity’s own equity instruments. Otherwise, the transaction shall be 
recognised as a cash-settled share-based payment transaction.
43D Some group transactions involve repayment arrangements that require one 
group entity to pay another group entity for the provision of the share-based 
payments to the suppliers of goods or services. In such cases, the entity that 
receives the goods or services shall account for the share-based payment
transaction in accordance with paragraph 43B regardless of intragroup 
repayment arrangements.
Disclosures
44 An entity shall disclose information that enables users of the financial 
statements to understand the nature and extent of share-based 
payment arrangements that existed during the period. 
45 To give effect to the principle in paragraph 44, the entity shall disclose at 
least the following: 
(a) a description of each type of share-based payment arrangement that 
existed at any time during the period, including the general terms and 
conditions of each arrangement, such as vesting requirements, the 
maximum term of options granted, and the method of settlement (eg 
whether in cash or equity). An entity with substantially similar types of 
share-based payment 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) expired during the period; 
(vi) outstanding at the end of the period; and 
(vii)exercisable at the end of the period. 
(c) for share options exercised during the period, the weighted average 
share price at the date of exercise. If options were exercised on a 
regular basis throughout the period, the entity may instead disclose the 
55
weighted average share price during the period. 
(d) for share options outstanding at the end of the period, the range of 
exercise prices and weighted average remaining contractual 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 determined. 
47 If the entity has measured the fair value of goods or services received as 
consideration for equity instruments of the entity indirectly, by reference to 
the fair value of the equity instruments granted, to give effect to the 
principle in paragraph 46, the entity shall disclose at least the following: 
(a) for share options granted during the period, the weighted average fair 
value of those options at the measurement date and information on how 
that fair value was measured, including: 
(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 
(iii) whether and how any other features of the option grant were 
incorporated into the measurement of fair value, such as a market 
condition. 
(b) for other equity instruments granted during the period (ie other than 
share options), the number and weighted average fair value of those
equity instruments at the measurement date, and information on how 
that fair value was measured, including: 
(i) if fair value was not measured on the basis of an observable market 
price, how it was determined; 
(ii) 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 
56
granted were incorporated into the measurement of fair value. 
(c) for share-based payment 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 the requirements set out in (a) and (b) 
above, where applicable. 
48 If the entity has measured directly the fair value of goods or services 
received during the period, the entity shall disclose how that fair value was 
determined, eg whether fair value was measured at a market price for those 
goods or services. 
49 If the entity has rebutted the presumption in paragraph 13, it shall disclose 
that fact, and give an explanation of why the presumption was rebutted. 
50 An entity shall disclose information that enables users of the financial 
statements to understand the effect of share-based payment 
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 share-based 
payment 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 disclosure of that 
portion of the total expense that arises from transactions accounted for 
as equity-settled share-based payment transactions; 
(b) for liabilities arising from share-based payment transactions: 
(i) the total carrying amount at the end of the period; and 
(ii) the total intrinsic value at the end of the period of liabilities for 
which the counterparty’s right to cash or other assets had vested by 
the end of the period (eg vested share appreciation rights). 
52 If the information required to be disclosed by this Ind AS does not satisfy 
the principles in paragraphs 44, 46 and 50, the entity shall disclose such 
additional information as is necessary to satisfy them. 
57
 
Appendix A
Defined terms
This appendix is an integral part of the Ind AS.
cash-settled share-based
payment transaction
A share-based payment transaction in which the 
entity acquires goods or services by incurring a 
liability to transfer cash or other assets to the 
supplier of those goods or services for amounts that 
are based on the price (or value) of equity 
instruments (including shares or share options) of 
the entity or another group entity.
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 
authority and responsibility for planning, directing 
and controlling the activities of the entity, including 
non-executive directors.
equity instrument A contract that evidences a residual interest in the 
assets of an entity after deducting all of its 
liabilities.5
equity instrument 
granted
The right (conditional or unconditional) to an equity 
instrument of the entity conferred by the entity on 
another party, under a share-based payment 
arrangement.
equity-settled share-based 
payment transaction
A share-based payment transaction in which the 
entity
(a) receives goods or services as consideration for its 
own equity instruments (including shares or 
share options), or
 
5
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 (ie an 
outflow of cash or other assets of the entity).
58
(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) agree to a share-based 
payment arrangement, being when the entity and 
the counterparty have a shared understanding of the 
terms and conditions of the arrangement. At grant 
date the entity confers on the counterparty the right 
to cash, other assets, or equity instruments of the 
entity, provided the specified vesting conditions, if 
any, are met. If that agreement is subject to an 
approval process (for example, by shareholders), 
grant date is the date when that approval is obtained.
intrinsic value The difference between 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 Rs. 15, on a share with a fair value 
of Rs. 20, has an intrinsic value of Rs. 5.
market condition A performance condition upon which the exercise 
price, vesting or exercisability of an equity 
instrument depends that is related to the market 
price (or value) of the entity’s equity instruments
(or the equity instruments of another entity in the 
same group), such as:
(a) attaining a specified share price or a 
specified amount of intrinsic value of a 
share option; or 
(b) achieving a specified target that is based on 
the market price (or value) of the entity’s 
equity instruments (or the equity 
instruments of another entity in the same 
group) relative to an index of market prices 
of equity 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.
59
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 providing similar
services), the measurement date is the date the entity 
obtains the goods or the counterparty renders 
service.
performance condition A vesting condition that requires:
(a) the counterparty to complete a specified 
period of service (ie a service condition); the 
service requirement can be explicit or 
implicit; and
(b) specified performance target(s) to be met 
while the counterparty is rendering the 
service required in (a).
The period of achieving the performance target(s):
(a) shall not 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 instruments of 
another entity in the same group (including 
shares and share options) (ie a market 
condition).
A performance target might relate either to the 
performance of the entity as a whole or to some part 
of the entity (or part of the group), such as a division 
or an individual employee.
60
reload feature A feature that provides for an automatic grant of 
additional share options whenever the option holder 
exercises previously granted options using the 
entity’s shares, rather than cash, to satisfy 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 target to be met.
share-based payment 
arrangement
An agreement between the entity (or another group6
entity or any shareholder of any group entity) and 
another party (including an employee) that entitles 
the other party to receive
(a) cash or other assets of the entity for amounts 
that are based on the price (or value) of equity 
instruments (including shares or share 
options) of the entity or another group entity, 
or
(b) equity instruments (including shares or 
share options) of the entity or another group 
entity,
provided the specified vesting conditions, if any,
are met.
share-based payment 
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 share-based payment 
arrangement, or
(b) incurs an obligation to settle the transaction 
with the supplier in a share-based payment 
arrangement when another group entity 
receives those goods or services.
 
6 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.
61
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 determinable price for a specified period of 
time.
vest To become an entitlement. Under a share-based 
payment arrangement, a counterparty’s right to 
receive cash, other assets or equity instruments of 
the entity vests when the counterparty’s entitlement 
is no longer conditional on the satisfaction of any 
vesting conditions
vesting condition A condition that determine whether the entity 
receives the services that entitle the counterparty to 
receive cash, other assets or equity instruments of 
the entity, under a share-based payment 
arrangement. 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 share-based payment 
arrangement are to be satisfied.
62
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 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 (eg 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 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 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 options
B4 For share options granted to employees, in many cases market prices are not 
available, because the options granted are subject to terms and conditions 
63
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 BlackScholes-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 (eg 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 
64
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 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 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 
65
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 nontransferable. 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 (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 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 
66
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 volatility
B22 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 
67
(12% – 30%) and 42 per cent (12% + 30%) is approximately twothirds. 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 × e–0.18) and Rs.152.20 (Rs.100 × 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, ie 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 entities
B26 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 
68
which the shares of those entities were publicly traded.
Unlisted entities
B27 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 dividends
B31 Whether expected dividends should be taken into account when measuring 
the fair value of shares or options granted depends on whether the 
counterparty 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, 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 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 
69
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 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 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 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 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 
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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 
arrangements
B42 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 (eg 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 
recognised 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 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, which is recognised over the remainder of 
the original vesting period. If the modification occurs after vesting date, 
the incremental fair value granted is recognised 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.
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(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 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 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 recognised 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 recognised 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.
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Share-based payment transactions among group entities 
B45 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 discusshow 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 intragroup 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 intragroup 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 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 cashsettled 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 its employees; and
(b) an entity’s employees are granted rights to equity instruments of the 
entity (eg 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 equitysettled. 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:
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(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 parent
B51 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 
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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 employees
B56 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 entities
B59 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 
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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, 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 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 recognised on 
a cumulative basis for the services received from that employee in the 
financial statements of any group entity.
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Appendix 1
Note: 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 
1. The transitional provisions given in IFRS 2 and portions related thereto 
have not been given in Ind AS 102, since all transitional provisions related 
to Indian ASs, wherever considered appropriate, have been included in Ind 
AS 101, First-time Adoption of Indian Accounting Standards corresponding 
to IFRS 1, First-time Adoption of International Financial Reporting 
Standards. 
2. Cross-reference to paragraphs B1-B4 of IFRS 3 contained in paragraph 5 of 
IFRS 2 has been modified as cross-reference to Appendix C of Ind AS 103 
in paragraph 5 of Ind AS 102. This is consequential to the insertion of 
Appendix C in Ind AS 103 to deal with business combination of entities 
under common control.
3. Different terminology is used in the Standard. eg, the term ‘balance sheet’ 
is used instead of ‘Statement of financial position’.
4. Paragraph number 3 appears as ‘Deleted’ in IFRS 2. In order to maintain 
consistency with paragraph numbers of IFRS 2, the paragraph number is 
retained in Ind AS 102.

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