Solutions to Recent Examination Questions on Share Based Payments

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Dec. 22
On 01.07.2018 AMLA, CILOY & TULSI Lid. grants 100 options to each of its 2100 employees at Rs. 60 when the
market price isRs. 200. The vesting date is 31st March, 2021 and the exercise date is 31st March, 2022. At the
end of year 1, the company found that 100 employees had left. Fair Value of a share issued under ESOP
was Rs. 93. At the end of year 2, the company found that 50 employees had left. Fair Value of a share issued
under ESOP was Rs. 104. At the end of year 3, the company found that 192 employees had left. Fair Value of
a share issued under ESOP was Rs. 80. Only 1700 employees exercised their options on 3lst March, 2022.
The face value of equity share is Rs. 10 per share.
* Calculate Expenses to be recognised year l by Fair Value Method.
* Calculate Expenses to be recognised in Year 2 by Fair Value Method.
* Calculate Expenses to be recognised Year 3 by Fair Value Method.
* Calculate Value of Options Forfeited.

Analysis:
Beg. 1 year end 2nd year end 3rd year end 4th year End
01.07.18 31.3.19 31.3.20 31.3.21 Exercise date
31.03.22
9 months 21 months 33 months

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 CFR - CMA Final

Grant Date
No. of EEs :2,100
Options per EE = 100

Fair Value Rs. = 93 - 60 = 33 104 - 60 = 44 80 - 60 = 20

MP 200 - EP 60 = 140
Actual left 100 80 192
Expected to leave 470 120 -
2,100 x.90 x .90 x.90 = 2,100 x .95 x .95 x
1530 .95 = 1,800
2,100 - 1,530 = 470 2,100 - 1,800 = 300

Expected to leave
300 - 100 -80 = 120
Exercised 1,700

Recognisation of Expenses/ liability

End of Year 1 End of Year 2 End of Year 3
EEs in the beginning 2,100 2,100 -100 2,100 - 100 - 80
Less: actually Left (100) (80) (192)
x No. of options per EE x 100 X100 x 100
x Fair Value of option x Rs.33 x Rs.44 x Rs.20
Rs.66,00,000 Rs.84,48,000 Rs. 34,56,000
Proportion 9/33 21/33 33/33
Cumulative Expenses Rs. 18,00,000 Rs.53,76,000 Rs.34,56,000
Previously Recognised Rs.0 Rs.18,00,000 Rs.53,76,000
Expenses recognised in the current Rs.18,00,000 Rs.35,76,000 Rs.(19,20,000)
year

Answers as per Suggested Answers:

Year 1 end = Year 2 end = Year 3 end = Expense to be Recognised in each year 18,00,000 35,76,000
(19,20,000)
Value of Options Forfeited = Rs. 56,000
Dec. 21
On 1.4.2017 OM Ltd grants 50 options to each of its 2100 employees at Rs 70 when the Market price is
Rs 110 . The vesting date is 31st March,2020 and the exercise date is 31st March,2021. At the end of
year 1,the company found that 100 employees had left and estimated the expected annual forfeitures
rate at 10%. Earning per Share and Price - Earning Ratio were Rs 26 and 5 respectively. At the end of
year 2,the company found that the actual annual forfeitures rate was at 4% and re-estimated the
expected annual forfeitures rate at 5%. Earning per Share and Price - Earning Ratio were Rs 27.5 and 4

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Solutions to Recent Examination Questions on Share Based Payments

respectively. At the end of year 3,the company found that the actual annual forfeitures rate was at 10%.
Earning per Share and Price -Earning Ratio were Rs 18 and 5 respectively. Only 1700 employees
exercised their options on 31st March,2021. The face value of equity share is Rs 10 per share. Calculate
Expenses to be recognised in year 1 by Fair Value Method.
12 x 4 = 48 Marks ONE LAQ
Calculate Expenses to be recognised in year 2 by Fair Value Method.
Calculate Expenses to be recognised in year 3 by Fair Value Method.

Calculate Value of Options Forfeited. (i) (ii) (iii) (iv)

Answer: (i) (ii) (iii) (iv) Expenses to be recognised in the first year = Rs. 16,20,000 Expenses to be
recognised in the Second year = 8,12,000 Expenses to be recognised in the Third year = Rs. 7,04,000
expense to be derecognised) Rs. Value of Options Forfeited = Rs. 28,000

P/E Ratio is calculated by dividing the market price of a share by the earnings per share. For instance, the market
price of a share of the Company ABC is Rs 90 and the earnings per share are Rs 10. P/E = 90 / 9 = 10. Now, it can
be seen that the P/E ratio of ABC Ltd. is ten, which means that investors are willing to pay Rs 10 for every rupee
of company earnings.

Recognition and Calculation of ECE

End of Year 1 End of Year 2 End of Year 3
EEs in the beginning 2,100 2,100 2,100
Less: actually Left at the (100) (180) (372)
end of year (100 in first year (100 +80 + 192
and 80* ) actually left t the
*2,100 - 100 = end of the year )
2,000 x 4% that is *2,100 - 100 - 80
80 =1920 x 10% that
is 192
Less: Expected to leave (380) (96) (0)
Expected to leave in next At the end of year Vesting period
two years i,e , two, remaining EEs end is reached
2,100 - 100 = 2,000 are = 2,100 - 100 - now.
X10 % = 200 80 = 1,920
+ 10% of 2,000-200 = Now entity is of the
180 opinion that 5%
would leave .
So expected to leave
would be:
96
1,620 1,824 1,728
x No. of Options per EE 50 x 50 x 50

X Fair Value of option ` 60 ` 40 ` 20

Fair value is difference of Fair value is Fair value is
MP and Exercise Price . we difference of MP and difference of MP

3
 CFR - CMA Final

have to find out MP at the Exercise Price . we and Exercise Price .

end of the year . we can find have to find out MP at we have to find out
it out by multiplying EPS the end of the year . MP at the end of the
with PE ratio and that we can find it out by year . we can find it
would be 26 x 5 = 130. multiplying EPS with out by multiplying
So FV will be 130 - 70 = 60 PE ratio and that EPS with PE ratio
would be 27.5 x 4 = and that would be
110. 18 x 5 = 90.
So FV will be 110 - 70 So FV will be 90 -
= 40 70 = 20
Total Rs.48,60,000 Rs.36,48,000 Rs. 17,28,000
Proportion 1/3 2/3 3/3
Cumulative Expenses Rs. 16,20,000 Rs.24,32,000 Rs.17,28,000
Previously Recognised Rs.0 Rs.16,20,000 Rs.24,32,000
Expenses recognised/ (de- Rs.16,20,000 Rs.8,12,000 (Rs.7,04,200)
recognised) in the current
year
Since options vested on 1,728 EEs while only 1,700 exercised it means options Forfeited = 28
And value shall be = 28 EEs x 50 options x FV 20 = Rs. 28,000

Similar to June 23 - Old & New Syllabus Question (Modified)

On 1.4.2019 Amala, Giloy and Tulsi Ltd grants 200 options to each of its 2100 employees at Rs 120
when the Market price is Rs 400 . The vesting date is 31st March,2022 and the exercise date is 31st
March,2023.
At the end of year 1, the company found that 100 employees had left and estimated the expected
annual forfeitures rate at 10%. Fair value of a share issued under ESOP was Rs. 186.
At the end of year 2, the company found that 80 employees had left and re-estimated the expected
annual forfeitures rate at 5%. Fair Value of a share issued under ESOP was 208.
At the end of year 3, the company found that 192 employees had left. Fair Value of a share issued
under ESOP was R 160.
Only 1,700 employees exercised their options on 31st March,2023.
The face value of equity share is 10 per share.
As per Ind AS 102:
(a) Calculate Expenses to be recognised in year 1 by Fair Value Method.
(b) Calculate Expenses to be recognised in year 2 by Fair Value Method.
(c) Calculate Expenses to be recognised in year 3 by Fair Value Method.
(d) Calculate Value of Options Forfeited.
Detailed Solution :
Recognition and Calculation of ECE
End of Year 1 End of Year 2 End of Year 3
EEs in the beginning 2,100 2,100 2,100
Less: actually Left at the (100) (100 + 80) (100 + 80 + 192)
end of year

4
Solutions to Recent Examination Questions on Share Based Payments

Less: Expected to leave (380) (96) (-)

Expected to leave in 1,920 x 5% that is Vesting period
next two years i.e. , 96 end is reached
2,100 - 100 = 2,000 now.
X10 % = 200
+ 10% of 2,000-200 =
180
1,620 1824 1,728
x No. of Options per EE 200 x 200 x 200

X Fair Value of option ` 66 X `88 x` 40

Fair value is difference Fair value is Fair value is
of MP and Exercise difference of MP difference of MP
Price . So FV will be and Exercise Price . and Exercise
186 - 120 = 66 So FV will be 208 - Price . So FV
120 = 88 will be
160-120 = 40
Total Rs.213,84,000 Rs.321,02,400 Rs. 138,24,000
Proportion 1/3 2/3 3/3
Cumulative Expenses Rs. 71,28,000 Rs.214,01,600 Rs. 138,24,000
Previously Recognised Rs.0 Rs.71,28,000 Rs. 214,01,600
Expenses recognised/ (de- Rs.71,28,000 Rs. 142,73,600 (Rs.75,77,600)
recognised) in the current
year
Since options vested on 1,728 EEs while only 1,700 exercised it means options Forfeited = 28
And value shall be = 28 EEs x 200 options x FV 40 = Rs. 2,24,000

June 23 - New Syllabus Question

On 1.7.2019 Amala, Giloy and Tulsi Ltd grants 200 options to each of its 2100 employees at Rs 120
when the Market price is Rs 400 . The vesting date is 31st March,2022 and the exercise date is 31st
March,2023.
At the end of year 1, the company found that 100 employees had left and estimated the expected
annual forfeitures rate at 10%. Fair value of a share issued under ESOP was Rs. 186.
At the end of year 2, the company found that 80 employees had left and re-estimated the expected
annual forfeitures rate at 5%. Fair Value of a share issued under ESOP was 208.
At the end of year 3, the company found that 192 employees had left. Fair Value of a share issued
under ESOP was R 160.
Only 1,700 employees exercised their options on 31st March,2023.
The face value of equity share is 10 per share.
As per Ind AS 102:
(a) Calculate Expenses to be recognised in year 1 by Fair Value Method.
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 CFR - CMA Final

(b) Calculate Expenses to be recognised in year 2 by Fair Value Method.

(c) Calculate Expenses to be recognised in year 3 by Fair Value Method.
(d) Calculate Value of Options Forfeited.
Detailed Solution :
Recognition and Calculation of ECE
End of Year 1 End of Year 2 End of Year 3
EEs in the beginning 2,100 2,100 2,100
Less: actually Left at the (100) (100 + 80) (100 + 80 + 192)
end of year
Less: Expected to leave (380) (96) (-)
Expected to leave in 1,920 x 5% that is Vesting period
next two years i.e. , 96 end is reached
2,100 - 100 = 2,000 now.
X10 % = 200
+ 10% of 2,000-200 =
180
1,620 1824 1,728
x No. of Options per EE 200 x 200 x 200

X Fair Value of option ` 66 X `88 x` 40

Fair value is difference Fair value is Fair value is
of MP and Exercise difference of MP difference of MP
Price . So FV will be and Exercise Price . and Exercise
186 - 120 = 66 So FV will be 208 - Price . So FV
120 = 88 will be
160-120 = 40
Total Rs.213,84,000 Rs.321,02,400 Rs. 138,24,000
Proportion 9/33 21/33 33/33
Cumulative Expenses Rs. 58,32,000 Rs.204,28,800 Rs. 138,24,000
Previously Recognised Rs.0 Rs.58,32,000 Rs.204,28,800
Expenses recognised/ (de- Rs.58,32,000 Rs. 145,96,800 (Rs.66,04,800)
recognised) in the current
year
Since options vested on 1,728 EEs while only 1,700 exercised it means options Forfeited = 28
And value shall be = 28 EEs x 200 options x FV 40 = Rs. 2,24,000

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Solutions to Recent Examination Questions on Share Based Payments

June 23 - Old Syllabus Question

On 1.7.2019 Amala, Giloy and Tulsi Ltd grants 100 options to each of its 2100 employees at Rs 60
when the Market price is Rs 200 . The vesting date is 31st March,2022 and the exercise date is 31st
March,2023.
At the end of year 1, the company found that 100 employees had left and estimated the expected
annual forfeitures rate at 10%. Fair value of a share issued under ESOP was Rs. 93.
At the end of year 2, the company found that 80 employees had left and re-estimated the expected
annual forfeitures rate at 5%. Fair Value of a share issued under ESOP was 104.
At the end of year 3, the company found that 192 employees had left. Fair Value of a share issued
under ESOP was R 80.
Only 1,700 employees exercised their options on 31st March,2023.
The face value of equity share is 10 per share.
As per Ind AS 102:
(a) Calculate Expenses to be recognised in year 1 by Fair Value Method.
(b) Calculate Expenses to be recognised in year 2 by Fair Value Method.
(c) Calculate Expenses to be recognised in year 3 by Fair Value Method.
(d) Calculate Value of Options Forfeited.
Detailed Solution :
Recognition and Calculation of ECE
End of Year 1 End of Year 2 End of Year 3
EEs in the beginning 2,100 2,100 2,100
Less: actually Left at the (100) (100 + 80) (100 + 80 + 192)
end of year
Less: Expected to leave (380) (96) (-)
Expected to leave in 1,920 x 5% that is Vesting period
next two years i.e. , 96 end is reached
2,100 - 100 = 2,000 now.
X10 % = 200
+ 10% of 2,000-200 =
180
1,620 1,824 1,728
x No. of Options per EE 100 x 100 x 100

X Fair Value of option ` 33 X `44 x` 20

Fair value is difference Fair value is Fair value is
of MP and Exercise difference of MP difference of MP
Price . So FV will be 93 and Exercise Price . and Exercise
- 60 = 33 So FV will be 104 - Price . So FV
60 = 44 will be
80-60 = 20
Total Rs.53,46,000 Rs.80,25,600 Rs. 34,56,000
Proportion 9/33 21/33 33/33

7
 CFR - CMA Final

Cumulative Expenses Rs. 14,58,000 Rs.51,07,200 Rs. 34,56,000

Previously Recognised Rs.0 Rs.14,58,000 Rs.51,07,200
Expenses recognised/ (de- Rs.14,58,000 Rs. 36,49,200 (Rs.16,51,200)
recognised) in the current
year
Since options vested on 1,728 EEs while only 1,700 exercised it means options Forfeited = 28
And value shall be = 28 EEs x 100 options x FV 20 = Rs. 56,000
End of year 1 End of Year 2 End of year 3
ECE (P/L) Dr. 14,58,000 36,49,200 SBP ( Equity) 1,13,333
To, SBP Reserve (Equity) 14,58,000 36,49,200 To ECE (PL) 1,13,333

When options would be SBPR (Equity) Dr. 34,00,000

exercised:
To Equity 34,00,000
1,700 x 100 x 20

SBPR (Equity) Dr. 56,000

To PL 56,000

res & Rights Issue