{"id":19933,"date":"2020-11-22T10:30:41","date_gmt":"2020-11-22T05:00:41","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=19933"},"modified":"2020-11-21T16:44:39","modified_gmt":"2020-11-21T11:14:39","slug":"guidelines-to-account-for-share-based-payments","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/guidelines-to-account-for-share-based-payments\/","title":{"rendered":"ICAI Unveiled Guidelines to Account for Share-based Payments"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The Institute of Chartered Accountants of India (ICAI) has\nunveiled certain guidelines related to Accounting for Share-based Payments. The\nannounced guidance note encloses accounting principles for all categories of\nshare-based payments for the company.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Applicability of the Guidance\nNote <\/h2>\n\n\n\n<p>It should be noted that the guidance note w.r.t related to Accounting for Share-based Payments applies to those entities which follow the accounting standards under Companies Rules, 2006, as amended u\/s 133 of <em><strong>Companies Act, 2013<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Companies_Act_2013\"><em><strong>[1]<\/strong><\/em><\/a><\/sup>.<\/p>\n\n\n\n<p>The guidance note clearly states that a share-oriented payment can be accounted for by adopting the intrinsic value method or fair value method. This guidance note paves the reporting principles and financial accounting for share-based payment plans including, ESPPs, SARs, and ESOPs. Moreover, it also encompasses the scope of share-based payments with individuals other than employees. The term \u201cemployee\u201d here indicates the director of the company.&nbsp;<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-58-1024x768.png\" alt=\"Classification of Employees Share-based Payment Plans\" class=\"wp-image-19945\" width=\"478\" height=\"358\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-58-1024x768.png 1024w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-58-300x225.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-58-768x576.png 768w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-58.png 1200w\" sizes=\"(max-width: 478px) 100vw, 478px\" \/><\/figure><\/div>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/shares-issue-through-employee-stock-option-plan\/\">Process for Shares Issue through Employee Stock Option Plan<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">ICAI Takes on Share-Based\nPayments <\/h2>\n\n\n\n<p>According to the announced note of ICAI, there has been a\nsignificant spike in the volume of share-based payment in the recent past, as\nmany companies used it to render remuneration benefits to their employees.\nApart from that, the employers also used such payments to incentivize their employees\nto reward them for their exceptional performance in their respective areas of\noperations.&nbsp;<\/p>\n\n\n\n<p>Value investors always seek to purchase assets that trade below\ntheir intrinsic value or to sell assets that have a lower market value as\ncompared to the current market value. For example, when trading stocks, their\nintrinsic value is come out to be the difference between their market value and\nthe option price quoted by the issuer.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Share-Based Payments Transactions among Group Companies<\/h3>\n\n\n\n<p>For share-based payment transactions among group companies, in\nits individual or independent financial statements, the company receiving goods\nand services will measure them as either cash-settled or equity-settled payment\ntransaction by accessing:-<\/p>\n\n\n\n<ul><li>Its obligations and rights<\/li><li>The nature of awards<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Intrinsic Value Method Vs Fair Value Method&nbsp;<\/h3>\n\n\n\n<p>The intrinsic value generally represents the difference between\nthe book value of assets and liabilities. This method is not future dependent\nand it does not deem as an indicator that reflects the company\u2019s profitability.\nThe intrinsic value works on the account of preciseness and availability of\nfigures that exist in the balance sheet. This indicates that the intrinsic\nvalue method only takes those figures into account that is available in the\nbalance sheet.&nbsp;The intrinsic value method revolves around the accounting\nguidelines and principles which are usually considered as one of its\ndisadvantages.&nbsp;<\/p>\n\n\n\n<div class=\"shadow1\"><strong>Example:- <\/strong> Suppose the exercise price of an equity share is capped at Rs 100 against the quoted market price Rs 125. The intrinsic value of such shares comes out to be Rs 25 on the valuation day. Now let suppose that the quoted price is not been estimated on the grant date. In such an event, the share prices will be taken on the nearest date. <\/div>\n\n\n\n<p>However, the same method does not apply to the non-listed\ncompany because the share value is not quoted on a stock exchange. In such a\ncase, the share value is determined by the independent valuer.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Fair Value Method<\/h4>\n\n\n\n<p>In general, the Fair value method a sale price agreed by both\nthe seller and buyer which permits them to enter the transaction freely. Fair\nvalue exhibits the assets and liabilities of the company when an associated\nfirm\u2019s financial statement is merged with the parent organization.&nbsp;<\/p>\n\n\n\n<p>The mathematical expression of the fair value method is as\nfollow:&nbsp;Fair value = Intrinsic value + Yield value\/2<\/p>\n\n\n\n<p>The fair market value w.r.t an asset alters widely depending on\nthe demand and the offer in the market.&nbsp;The intrinsic method, on the\ncontrary, is less unstable and intact much of its value irrespective of the\nturbulence in the economy as a whole.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>Nowadays majority of companies in the country is engaged with share-based payment transactions. But unfortunately such type of transactions has been plagued with accounting issues. ICAI has been well-aware of such anomalies and that is the reason why they rolled out the detailed guidance note regarding Accounting for Share-based Payments.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/procedure-requirements-for-the-issue-of-sweat-equity-share\/\">Issue of Sweat Equity Shares<\/a><\/mark><\/p>\n\n\n<a href=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/61670research50201gn-sbp.pdf\" class=\"pdfemb-viewer\" style=\"\" data-width=\"max\" data-height=\"max\"  data-toolbar=\"bottom\" data-toolbar-fixed=\"off\">61670research50201gn-sbp<br\/><\/a>\n<p class=\"wp-block-pdfemb-pdf-embedder-viewer\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Institute of Chartered Accountants of India (ICAI) has unveiled certain guidelines related to Accounting for Share-based Payments. The announced guidance note encloses accounting principles for all categories of share-based payments for the company. Applicability of the Guidance Note It should be noted that the guidance note w.r.t related to Accounting for Share-based Payments applies [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":19946,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[128,153],"tags":[1237],"acf":{"service_id":"230"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":4904,"readingTime":3,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19933"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=19933"}],"version-history":[{"count":6,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19933\/revisions"}],"predecessor-version":[{"id":19950,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19933\/revisions\/19950"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/19946"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=19933"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=19933"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=19933"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}