Equity-settled
Measure employee services at grant-date fair value; do not remeasure after grant.
Standard orientation
What Ind AS 102 is designed to achieve
Require an entity to recognise the goods or services received in share-based payment transactions and the corresponding increase in equity or liability.
Scope: Applies to equity-settled, cash-settled and choice-of-settlement share-based payments, including employee awards and group arrangements. It excludes instruments issued as consideration in a business combination and contracts within specified financial-instrument guidance.
Cash-settled
Recognise a liability remeasured to fair value through P&L until settlement.
Vesting conditions
Service and non-market conditions affect quantity; market and non-vesting conditions affect grant-date fair value.
Group plans
Classification depends on the receiving entity obligation and the nature of instruments granted.
Reading method: Requirements are paraphrased and grouped where they form one integrated rule. Apply the current notified standard for final conclusions.
Full standard map
Paragraph-by-paragraph register
| Paragraphs | Requirement and simple decode |
|---|---|
| 1 | Objective Requires recognition of share-based payment effects, including employee option expense. |
| 2–6 | Scope Covers equity-settled, cash-settled and settlement-choice arrangements; excludes business-combination consideration and specified financial-instrument contracts. |
| 7–9 | Recognition principle Recognise goods or services when received, with corresponding equity or liability; expense unless another standard requires asset recognition. |
| 10–13 | Equity-settled measurement Measure services by reference to fair value of goods/services when reliable; for employees use equity-instrument fair value at grant date. |
| 13A–13B | Unidentifiable goods or services When identifiable consideration is less than fair value of equity instruments, recognise unidentifiable goods or services for the difference. |
| 14–15 | Immediate and service-period vesting Recognise immediately when vested at grant date; otherwise recognise over the vesting period. |
| 16–18 | Fair value at grant date Estimate fair value using market prices or valuation techniques consistent with market-participant assumptions. |
| 19–21 | Vesting conditions Service and non-market performance conditions affect the number expected to vest; market conditions are incorporated into fair value. |
| 21A | Non-vesting conditions Incorporate non-vesting conditions into fair value and continue recognition when the counterparty satisfies all vesting conditions. |
| 22–23 | Post-grant treatment Do not reverse expense for failure of market or non-vesting conditions when other vesting conditions are met; equity is not remeasured after vesting. |
| 24–25 | Unreliable fair value in rare cases Use intrinsic value remeasured until settlement when fair value cannot be estimated reliably. |
| 26–29 | Modifications Recognise at least the original grant-date fair value if vesting conditions are met and recognise incremental fair value for beneficial modifications. |
| 28–29 | Cancellations and settlements Treat cancellation during vesting as accelerated vesting; payments reduce equity up to fair value of repurchased instruments and excess is expense. |
| 30–33 | Cash-settled awards Recognise liability at fair value and remeasure each reporting date and settlement date, with changes in P&L. |
| 33A–33D | Cash-settled vesting conditions Apply service/non-market quantity adjustments and incorporate market/non-vesting conditions into liability fair value. |
| 34–40 | Counterparty settlement choice Account for a compound instrument containing debt and equity components when the counterparty chooses settlement. |
| 41–43 | Entity settlement choice Classify as cash-settled when a present obligation to settle in cash exists; otherwise classify as equity-settled. |
| 43A–43D | Group share-based payments Receiving and settling entities classify based on their own rights and obligations, even when another group entity settles. |
| 44–45 | Disclosure objective Enable users to understand nature, extent and valuation of arrangements. |
| 46–48 | Arrangement disclosures Describe plans, numbers and weighted-average exercise prices, option movements and modifications. |
| 49–52 | Valuation and expense disclosures Disclose valuation models, inputs, total expense, liabilities and intrinsic values. |
| 53–59 | Transition and effective-date history Addresses application to awards granted, modified or settled around transition and later amendments. |
| Appendix A | Definitions Defines grant date, measurement date, vesting conditions, market/non-market conditions, performance targets and share-based payment arrangement. |
| Appendix B | Application guidance Covers option-pricing models, expected volatility, dividends, early exercise, reload features and group arrangements. |
Major areas decoded
Technical requirements in simple language
Grant date
Grant date occurs only when both parties share an understanding of terms and necessary approvals are obtained; service commencement can precede grant date.
Condition classification
Service and non-market performance conditions true up the quantity. Market and non-vesting conditions are priced into fair value and normally do not trigger reversal.
Equity versus liability
The legal label “option” is insufficient. Cash alternatives, past practice and settlement obligations can create a liability.
Modification accounting
A beneficial modification creates incremental fair value in addition to the original expense; an adverse modification does not reduce original cost.
Cancellation
Employee cancellation or entity cancellation accelerates unrecognised expense, subject to treatment of forfeiture for failure to satisfy vesting conditions.
Group awards
The parent and subsidiary can classify the same award differently in their separate financial statements.
Tax withholding net settlement
An equity-classified award can retain equity classification for a statutory tax-withholding net-settlement feature when conditions are met.
Visual learning
Finin2min decision map
Editable SVG and high-resolution PNG versions are included in this batch.
Exceptions and highlights
What professionals frequently overlook
- Equity instruments issued to acquire a business are governed by Ind AS 103, although replacement employee awards may fall under Ind AS 102.
- Employee equity-settled awards use grant-date fair value, not service-date intrinsic value.
- Equity-settled awards are not remeasured after grant date.
- Cash-settled liabilities are remeasured every reporting date.
- Failure of a market condition does not reverse expense if service conditions are met.
- Failure of a service or non-market condition reverses expense for awards that do not vest.
- Adverse modifications do not reduce the original grant-date expense.
- Group entities can reach different classification conclusions for the same award.
Practical application
Transaction examples
Fact pattern
Treatment
Reason
Employee stock options vesting after three years
Grant-date fair value over service period
Employee service is measured by reference to equity-instrument fair value.
Cash SARs
Liability remeasured each period
Settlement amount varies with share price.
Revenue target not achieved
Reverse non-market-condition expense
The award does not vest due to a non-market performance condition.
Share-price target not achieved after service completed
Do not reverse
The market condition was included in grant-date fair value.
Exercise price reduced during vesting
Recognise incremental fair value
It is a beneficial modification.
Parent grants parent shares to subsidiary employees
Subsidiary often equity-settled if no settlement obligation
Parent records settlement under group-plan rules.
Accounting mechanics
Illustrative journal entries
Entries are simplified and may require tax, fair-value or presentation adjustments.
Equity-settled employee award
Dr Employee compensation expense
Cr Share-based payment reserve
Cash-settled award
Dr Employee compensation expense
Cr Share-based payment liability
Remeasure cash-settled liability
Dr / Cr Share-based payment expense
Cr / Dr Share-based payment liability
Exercise of equity award
Dr Cash
Dr Share-based payment reserve
Cr Share capital
Cr Securities premium
CA / finance / boardroom cases
Applied case studies
1. Grant date after approval
Applied caseEmployees begin service on 1 April, board approves terms then, but shareholder approval is required and obtained on 30 June.
Finin2min analysis: Grant date is normally 30 June when approval and shared understanding exist. Recognise service from commencement using an estimate until grant-date fair value is fixed.
2. Market and service conditions
Applied caseOptions vest after three years of service if share price reaches ₹500. Employees complete service but target fails.
Finin2min analysis: Recognise the full grant-date fair-value expense because the market condition is priced into valuation and service was completed.
3. Cancellation by employee
Applied caseEmployees pay a deposit and can cancel options voluntarily during vesting.
Finin2min analysis: Treat cancellation as accelerated vesting unless it represents failure to satisfy a vesting condition.
4. Group cash obligation
Applied caseParent grants parent shares but subsidiary is contractually required to pay parent cash equal to settlement value.
Finin2min analysis: The subsidiary may have a cash-settled obligation, while the parent applies group-plan accounting based on its own settlement obligation.
5. Tax withholding
Applied caseEmployer withholds shares equal to statutory employee tax and remits cash to authorities.
Finin2min analysis: The award may remain equity-settled if the net-settlement feature is limited to the statutory withholding obligation.
Global comparison
Ind AS versus IFRS and US GAAP
| Topic | Ind AS | IFRS | US GAAP |
|---|---|---|---|
| Employee equity awards | Grant-date fair value, no remeasurement. | Broadly aligned with IFRS 2. | ASC 718 is similar but differs in forfeitures, classification and tax accounting. |
| Cash-settled awards | Fair-value liability remeasured through P&L. | Aligned. | US GAAP liability awards also remeasure, with detailed differences. |
| Forfeitures | Estimate service/non-market vesting outcomes and true up. | Aligned with IFRS 2. | US GAAP permits a policy election to account for forfeitures as they occur. |
| Group awards | Entity-specific classification under group guidance. | Aligned. | US group-plan accounting differs. |
| Modification | Incremental fair value for beneficial changes; no reduction for adverse changes. | Aligned. | US modification framework has different exceptions and triggers. |
Implementation lens
Implications for key stakeholders
HR/Compensation
Maintain award terms, service status and modifications.
Valuation
Support option model, volatility, life, dividends and market conditions.
Tax
Track tax deductions, withholding and deferred tax.
Consolidation
Reconcile parent and subsidiary group-plan entries.
Audit committee
Challenge classification, grant date and modifications.
Quality-control watchlist
Common errors and exam traps
- Using intrinsic value instead of fair value for employee equity awards.
- Using board approval date when shareholder approval is substantive.
- Remeasuring equity-settled awards after grant date.
- Failing to remeasure cash-settled liabilities.
- Reversing expense for failure of a market condition.
- Not reversing for failure of a service condition.
- Ignoring incremental fair value on beneficial modification.
- Reducing expense for an adverse modification.
- Treating cancellation as ordinary forfeiture.
- Using one classification for all group entities.
- Ignoring statutory tax-withholding settlement rules.
- Omitting valuation assumptions and movement disclosures.
Finin2min Q&A
Frequently asked questions
1. When is grant date?
When the entity and counterparty share an understanding of terms and all necessary approvals are obtained.
2. Are equity awards remeasured?
No, not after grant date for employee equity-settled awards.
3. Are cash awards remeasured?
Yes, until settlement.
4. What happens when a market target fails?
Expense is not reversed if other vesting conditions are met.
5. How are beneficial modifications treated?
Recognise incremental fair value in addition to original grant-date cost.
6. Can parent and subsidiary classify differently?
Yes, based on each entity’s rights and obligations.
Two-minute revision
Finin2min cheat sheet
IDENTIFY SETTLEMENT → EQUITY: GRANT-DATE FV / CASH: REPORTING-DATE FV → CLASSIFY CONDITIONS → TRUE UP QUANTITY → ACCOUNT MODIFICATIONS
October 2026 update: Ind AS 102 Share-Based Payments for ESOPs
Finin2min 2-Minute Summary
- Employee equity-settled awards are generally measured by reference to the grant-date fair value of the equity instruments granted and recognised as services are received over the vesting period.
- Service and non-market performance vesting conditions affect the number of awards expected to vest rather than the grant-date fair value; market conditions are reflected in fair value.
- Cash-settled share-based payment liabilities are remeasured at each reporting date and at settlement, with changes recognised in profit or loss.
- Once an equity-settled award has vested, failure to exercise the option does not reverse the employee-service cost already recognised.
- Modifications, cancellations, settlements and group awards require separate accounting; the payroll/ESOP register alone is not enough.
The grant file drives years of expense
Finance should archive the board/shareholder approvals, grant letter, vesting schedule, exercise price, service conditions, performance targets, market conditions, expected life, volatility and other valuation assumptions. For employee equity-settled awards, grant-date fair value is normally fixed for measurement; subsequent share-price movement does not remeasure the original equity award.
The expense is recognised as employee services are received. If vesting requires three years of service, the expected cost is spread over that service period based on the awards expected to vest for service and non-market conditions. Estimates of those awards are updated as facts change and trued up at vesting.
Market conditions and cash settlement behave differently
A market condition, such as a target share price, is reflected in grant-date fair value. If the employee satisfies the other vesting conditions, the cost is not reversed merely because the market target fails. Non-market performance and service conditions are handled through the estimate of awards that vest.
Cash-settled plans create a liability rather than equity. That liability is remeasured at fair value at each reporting date until settlement, so the P&L can remain volatile. A group scheme can also produce different classifications in parent and subsidiary financial statements depending on which entity has the obligation to settle.
Worked example: three-year ESOP grant
An employee receives 9,000 options subject to three years of service. The grant-date fair value is Rs 30 per option. If management initially expects 90% of the service-based awards to vest, the cumulative service cost is based on that estimate and updated each reporting date. If actual vesting differs because employees leave, the cumulative amount is trued up. A later rise in the company's share price does not remeasure the original equity-settled grant-date fair value.
ESOP close checklist
- Reconcile the ESOP register to approved scheme and grant documents.
- Identify grant date only after required approvals and shared understanding of terms are in place.
- Separate market, non-market and service conditions.
- Update expected forfeitures/vesting for non-market conditions.
- Remeasure cash-settled liabilities at each reporting date.
- Review modifications, cancellations and group settlements for incremental or accelerated cost.
Is an employee ESOP revalued every year because the company's share price changes?
An equity-settled employee award is generally measured at grant-date fair value and is not remeasured simply for later share-price changes.
What happens when employees leave before service vesting?
The expected number of awards vesting for service conditions is updated, and the cumulative recognised cost is adjusted.
Are cash-settled awards fixed at grant-date fair value?
No. The liability is remeasured until settlement.
Can ESOP expense be reversed if vested options later expire unexercised?
For equity-settled awards, the recognised employee-service amount is not reversed merely because vested options are not exercised.
Official sources
- ICAI - Ind AS 102 official 2025-26 compendium PDF
- ICAI - Compendium of Indian Accounting Standards 2025-26
- Finin2min Ind AS Hub - broader standard-level reference.
Validation register
Primary and authoritative sources
ICAI Compendium 2025–26 — Volume IPrimary or authoritative validation source.
Open source ↗
Open source ↗
IFRS Foundation — IFRS 2Primary or authoritative validation source.
Open source ↗
Open source ↗
ICAI Ind AS 102 learning modulePrimary or authoritative validation source.
Open source ↗
Open source ↗
Review date: 26 June 2026. Recheck later MCA notifications and ICAI compendiums before applying to a later reporting period.
Source and review trail
Use the current official instrument, portal or regulator publication before acting. Page-specific references are listed below.
- Primary category
- Accounting, Audit & Ind AS
- Official starting point
- www.icai.org
Page source links
MCA-notified Ind AS 102: primary-text control
For Ind AS 102, the Companies (Indian Accounting Standards) Rules and the MCA-notified text control the Indian financial statements. ICAI educational material and IFRS resources can assist interpretation, but they do not replace this notified Indian text or later MCA amendments.
Grant-date measurement and vesting conditions
Separate market and non-market conditions, identify equity- versus cash-settled terms, and preserve the valuation model, forfeiture assumptions and modification history for every award population.
- Freeze the reporting date, applicable Ind AS roadmap and current MCA amendments.
- Map the recognition, measurement, presentation and disclosure requirements to entity-specific contracts and ledger populations.
- Retain management judgements, source data, model controls and reviewer evidence.
- Reconcile the note disclosures to the financial statements and audit file, including prior-period comparatives.
Exam and advisory check
For Ind AS 102, a correct answer begins with the scope and facts, identifies the grant-date measurement and vesting conditions issue, applies the notified paragraphs, quantifies the accounting entry, and then states the required presentation and disclosures. A conclusion based only on an international summary should be checked for Indian carve-outs and amendment dates.
Finin2min summary: anchor the analysis in the MCA-notified Ind AS 102, document judgements and reconcile every conclusion to the books and disclosures.