Accounting for Cancellation and Settlement of Employee Stock Option Plan under Ind AS 102

Para 28 of Ind AS 102, Share-Based Payment, discusses in detail the modifications to the terms and conditions on which equity instruments were granted, including cancellations and settlements. This para states that where 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 recognize immediately the amount that otherwise would have been recognized 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, i.e. 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 recognized as an expense.

This story sheds light on the above provision of the standard with the help of a case study wherein a company has withdrawn its employee share options after the completion of three years but before the vesting period of 4 years. The reason for the withdrawal of the share option is a significant fall in the market price of the share of the company due to the change in management. To know how the new management accounted for this cancellation or settlement of the stock option.

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