Accounting for Compound Share-Based Payment Option Under Ind AS 102

Para 35 of Ind AS 102 states that if an entity has granted the counterparty the right to choose whether a share-based payment transaction is settled in cash or by issuing equity instruments, the entity has granted a compound financial instrument. Such compound financial instrument includes a debt component (i.e. the counterparty’s right to demand payment in cash) and an equity component (i.e. 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.

In this story, a company has issued a share-based option to its employees which can be exercised in cash or equity. It discusses the accounting for compound financial instruments when recognizing the options given to employees at the end of vesting period and (a) employees exercised the option of receiving cash (b) employees exercised the option of receiving shares as per Ind AS 102.

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