Ind As 19

CHAPTER 8
1
IND AS ON LIABILITIES
OF THE FINANCIAL
STATEMENTS
UNIT 1:
INDIAN ACCOUNTING STANDARD 19: EMPLOYEE
BENEFITS
LEARNING OUTCOMES
After studying this unit, you will be able to:
 State the objective and scope of Ind AS 19
 Define the terms relating to employee benefits, classification of plans,
net defined benefit liability (asset) and defined benefit cost
 Examine the four categories of employee benefits (short-term, post-
employment, other long- term and termination benefits)
 Recognise and measure all short term employee benefits, short term
paid absences and account for profit sharing and bonus plans
 Distinguish between defined contribution plans and defined benefit plans
 Account for multiemployer plans, state plans and insured benefits
 Recognise and measure defined benefit plans that share risks between
entities under common control
 Recognise, measure and disclose defined contribution plans
 Account for the constructive obligation plans under defined benefit plan
© The Institute of Chartered Accountants of India

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 Apply actuarial valuations in recognition and measurement of defined
benefit plans
 Remeasure the net defined benefit liability (asset) using the current fair
value of plan assets and current actuarial assumptions
 Determine past service cost, or a gain or loss on settlement,
 Recognise the components of defined benefit cost
 Present and disclose employee benefits in the financial statements as
per Ind AS 19

INDIAN ACCOUNTING STANDARD 19 8.3
UNIT OVERVIEW
Ind AS 19
Definitions Employee
relating to Benefits
Short-term Post-employment Other Long-term Termination

Employee Employee Benefits Employee Benefits Benefits
benefits Benefits
Defined Defined
Contribution Benefit Recognition And
Classification Plans Measurement
of plans Plans
Recognition Recognition
Disclosure
Net defined Recognition
benefit liability Measurement
Measurement Multi-employer
Plans*
Defined Disclosure Measurement Disclosure
benefit costs State Plans*
Accounting for the
Disclosure Insured Benefits*
Constructive
Recognition and Obligation
Measurement
Present Value of
Defined Benefit
Curtailments And Obligations and Current
Settlements
Service Cost
Presentation Actuarial valuation
Recognition and
Disclosure Measurement: of Plan
Assets
Curtailments and
Settlements of a
defined benefit plan
*Note: These plans may also be considered as Defined Contribution Plans.

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1.1 OBJECTIVE OF IND AS 19

 The objective of this standard is to prescribe the accounting and disclosure for employee
benefits.
 Ind AS 19 requires an entity to recognise:
(a) a liability for the services received from an employee; and
(b) an expense for consumption of economic benefits arising from the service provided by
an employee in exchange for employee benefits.
Financial statements are prepared on the accrual basis of accounting. Under this basis, the
effects of transactions and other events are recognised when they occur (and not when cash
or its equivalent is received or paid) and they are recorded in the accounting records and
reported in the financial statements of the periods to which they relate. Financial statements
prepared on the accrual basis inform users not only of past transactions involving the payment
and receipt of cash but also of obligations to pay cash in the future and of resources that
represent cash to be received in the future.
When employees provide services to their employer during a period, their services lead to
generation of benefits (revenues or profits or increased efficiency), directly or indirectly, for their
employers for that period. The underlying assumption of accrual requires that for the benefit
earned in a particular period, the costs incurred in earning that benefit need to be recognised
entirely. Adherence to this requirement of the framework is what is addressed by Ind AS 19.
Provides service i.e. work
 Entity should recognise liability for Employee

Benefits paid and to be paid in the future in
respect of services provided by the employee.
Employee  As benefit from the service provided by the Employer
employee is consumed, the entity should
recognize the related employee benefit
expense.
Provides benefits e.g. salary, leave encashment, gratuity, pension etc.

1.2 SCOPE
The concept of ‘Employee Benefits’ has evolved over the years to encompass more than just the
salaries, wages and social welfare contributions. The companies of today – established or start-
ups – provide a host of benefits to its employees including, but not limited to, Employees’ Stock
Option Plans, jubilee bonuses, long-term disability benefits etc. In fact, companies like Google
even provide unusual benefits such as ‘death benefits’, which involve paying the deceased’s
spouse or domestic partner 50% of their salary for 10 years after death of the employee.
 This Standard shall be applied by an employer in accounting for all employee benefits
except those to which Ind AS 102, Share-based Payment, is applicable (e.g. Employees
Stock Option Plans).
 This Standard does not deal with reporting by employee benefit plans.
 Employee benefits to which this Standard applies include those provided
 under formal plans/agreements between an entity and its individual employees/group
of employees/their representatives,
 as required by law or as required by any type of industry arrangements whereby an
entity is required to contribute to any nation/state/industry or other multi-employer
plans; or
 by those informal practices that give rise to a constructive obligation. Informal
practices give rise to a constructive obligation where the entity has no realistic
alternative but to pay employee benefits.
Example of a constructive obligation - Where a change in the entity’s informal
practices would cause unacceptable damage to its relationship with employees.
1.3 EMPLOYEE BENEFITS

Employee benefits include:
(i) short employee benefits,
(ii) post-employment benefits,
(iii) other long term employee benefits and
(iv) termination benefits.
All these categories have different characteristics and hence the Standard has specified
separate accounting requirements for each such category.

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Short Term Benefits
Employee Benefits
Post Employee Benefits
Other Long Term Benefits
Termination Benefits
 Employee benefits include benefits provided either to

 employees; or
 their dependants; or
 their beneficiaries.
 Employee benefits may be settled by payments (or the provision of goods or services)
made either directly
 directly to the employees; or
 to their spouses; or
 to their children; or
 to their other dependants; or
 others, such as insurance companies.
 An employee may provide services to an entity on a
 full-time; or
 part-time; or
 permanent; or
 casual; or
 temporary
basis.
Note: For the purpose of this Standard, employees include directors and other management
personnel.

Employee benefits include

Payments in cash or equivalents Payments by provision of goods or services
Employee benefits are paid to

Dependants of Beneficiaries of Others such as
Employees
employees employees insurance companies
Employees include
Directors and other
Full-time Part time Permanent Casual Temporary
management
employees employees employees employees employees
personnel
1.4 DEFINITIONS
1.4.1 Definitions of employee benefits
1. Employee Benefits: All forms of consideration given by an entity in exchange for service
rendered by employees or for the termination of employment.
2. Short-term Employee Benefits: Employee benefits (other than termination benefits) that
are expected to be settled wholly before twelve months after the end of the annual
reporting period in which the employees render the related service.
Example : Wages, salaries, social security contributions (PF / ESI), paid annual leave /
sick leave.
3. Post-employment Benefits: Employee benefits (other than termination benefits and short-
term employee benefits) that are payable after the completion of employment.
Example : Pensions, lumpsum payments on retirement.
4. Other long-term employee benefits are all employee benefits other than short-term
employee benefits, post-employment benefits and termination benefits.
Example : Long-term paid absences such as long-service leave or sabbatical leave,
jubilee or other long-service benefits.
5. Termination benefits are employee benefits provided in exchange for the termination of
an employee’s employment as a result of either:

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(a) an entity’s decision to terminate an employee’s employment before the normal
retirement date; or
(b) an employee’s decision to accept an offer of benefits in exchange for the termination
of employment.
Example : VRS compensation or Retrenchment compensation
Expected to be settled wholly before twelve months

Short-term Benefits after the end of the annual reporting period in which
the employees render the related service
Types of Employee Benefits
Post Employment Payable after the completion of employment (other

Benefits than termination benefits and short-term benefits)
Other Long-term Other than short-term, post-employment and

Employee Benefits termination benefits
Provided in exchange for the termination of an

Termination Benefits employee’s employment
1.4.2 Definitions relating to classification of plans

1. Post-employment Benefit Plans: These plans are formal or informal arrangements
under which an entity provides post-employment benefits for one or more employees.
Under these plans, the benefits are given to the employees after employment, like gratuity,
pension, provident fund etc.
Note: Defined contribution plans and defined benefit plans are two categories of post-
employment benefits plans.
2. Defined Contribution Plans: They are post-employment benefit plans under which an
entity pays fixed contributions into a separate entity (a Fund) and will have no legal or
constructive obligation to pay further contributions if the fund does not hold sufficient
assets to pay all employee benefits relating to employee service in the current and prior
periods.
In these plans, the contribution is defined i.e. contribution is fixed and known to the entity.
Example : Provident Fund contribution by the employer to the Employees’ Provident Fund
Organisation under Ministry of Labour & Employment, Government of India.
3. Defined Benefit Plans: Post-employment benefit plans other than defined contribution
plans.
Example: Gratuity.

4. Multi-employer Plans: Defined contribution plans (other than state plans) or defined
benefit plans (other than state plans) that:
(a) pool the assets contributed by various entities that are not under common control; and
(b) use those assets to provide benefits to employees of more than one entity, on the
basis that contribution and benefit levels are determined without regard to the identity
of the entity that employs the employees.
1.4.3 Definitions relating to the net defined benefit liability (asset)
1. Net defined benefit liability (asset): The deficit or surplus, adjusted for any effect of
limiting a net defined benefit asset to the asset ceiling.
2. Deficit or surplus:
(a) the present value of the defined benefit obligation less
(b) the fair value of plan assets (if any).
3. Asset ceiling: The present value of any economic benefits available in the form of refunds
from the plan or reductions in future contributions to the plan.
4. Present value of a defined benefit obligation: Present value, without deducting any plan
assets, of expected future payments required to settle the obligation resulting from
employee service in the current and prior periods.
5. Plan assets comprise:
(a) assets held by a long-term employee benefit fund; and
(b) qualifying insurance policies.
6. Assets held by a long-term employee benefit fund: Assets (other than non-transferable
financial instruments issued by the reporting entity) that:
(a) are held by an entity (a fund) that is legally separate from the reporting entity and
exists solely to pay or fund employee benefits; and
(b) are available to be used only to pay or fund employee benefits, are not available to
the reporting entity’s own creditors (even in bankruptcy), and cannot be returned to
the reporting entity, unless either:
(i) the remaining assets of the fund are sufficient to meet all the related employee
benefit obligations of the plan or the reporting entity; or
(ii) the assets are returned to the reporting entity to reimburse it for employee benefits
already paid.
7. Qualifying Insurance Policy: Insurance policy issued by an insurer that is not a related
party (as defined in Ind AS 24, Related Party Disclosures) of the reporting entity, if the
proceeds of the policy:

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(a) can be used only to pay or fund employee benefits under a defined benefit plan; and
(b) are not available to the reporting entity’s own creditors (even in bankruptcy) and
cannot be paid to the reporting entity, unless either:
(i) the proceeds represent surplus assets that are not needed for the policy to meet all
the related employee benefit obligations; or
(ii) the proceeds are returned to the reporting entity to reimburse it for employee
benefits already paid.
8. Fair Value: The price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. (Ind AS 113,
Fair Value Measurement.)
1.4.4 Definitions relating to defined benefit cost
1. Service cost comprises:
(a) Current service cost, which is the increase in the present value of the defined benefit
obligation resulting from employee service in the current period;
(b) Past service cost, which is the change in the present value of the defined benefit
obligation for employee service in prior periods, resulting from a plan amendment (the
introduction or withdrawal of, or changes to, a defined benefit plan) or a curtailment (a
significant reduction by the entity in the number of employees covered by a plan); and
(c) any gain or loss on settlement.
2. Net interest on the net defined benefit liability (asset): The change during the period in
the net defined benefit liability (asset) that arises from the passage of time.
3. Remeasurements of the net defined benefit liability (asset) comprise:
(a) actuarial gains and losses;
(b) the return on plan assets, excluding amounts included in net interest on the net
defined benefit liability (asset); and
(c) any change in the effect of the asset ceiling, excluding amounts included in net
interest on the net defined benefit liability (asset).
4. Actuarial gains and losses are changes in the present value of the defined benefit
obligation resulting from:
(a) experience adjustments (the effects of differences between the previous actuarial
assumptions and what has actually occurred); and
(b) the effects of changes in actuarial assumptions.

5. Return on plan assets: Interest, dividends and other income derived from the plan assets,
together with realised and unrealised gains or losses on the plan assets,
Less:
(a) any costs of managing plan assets; and
(b) any tax payable by the plan itself, other than tax included in the actuarial assumptions
used to measure the present value of the defined benefit obligation.
6. Settlement: A transaction that eliminates all further legal or constructive obligations for
part or all of the benefits provided under a defined benefit plan, other than a payment of
benefits to, or on behalf of, employees that is set out in the terms of the plan and included
in the actuarial assumptions.
1.5 SHORT-TERM EMPLOYEE BENEFITS

 Short-term employee benefits include items expected to be settled wholly before twelve
months after the end of the annual reporting period in which the employees render the
related services.
 It includes
(a) wages, salaries and social security contributions;
(b) paid annual leave and paid sick leave;
(c) profit-sharing and bonuses; and
(d) non-monetary benefits (such as medical care, housing, cars and free or subsidised
goods or services) for current employees.
Short-term employee benefits include
Wages, salaries Paid annual Profit-sharing Non-monetary benefits (such

and social leave and and bonuses as medical care, housing, cars
security paid sick and free or subsidised goods
contributions leave or services) for current
employees
 Reclassification of a short-term employee benefit is not required if the entity’s expectations

of the timing of settlement of such benefits change temporarily.

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 Reclassification may be considered-
o if the characteristics of the benefit change (such as a change from a non-accumulating
benefit to an accumulating benefit) or
o if a change in expectations of the timing of settlement is not temporary.
1.5.1 Recognition and measurement of short-term benefits
Accounting for short term benefits has two characteristics:
(a) short-term benefits are measured on an undiscounted basis; and
(b) they don’t involve any actuarial valuation for their measurement.
The undiscounted amount of short-term employee benefits expected to be paid in exchange for
that service shall be recognised:
(a) as a liability (accrued expense), after deducting any amount already paid.
If the amount already paid exceeds the undiscounted amount of the benefits, an entity shall
recognise that excess as an asset (prepaid expense) to the extent that the prepayment will
lead to, for example, a reduction in future payments or a cash refund; and
(b) as an expense, if it doesn’t form part of the cost of an asset as per any other Ind AS (e.g.
Ind AS 2, Inventories or Ind AS 16 Property, Plant and Equipment).
Note: Recognition of short-term employee benefit is in the form of either paid expenses or profit
sharing or bonus plans.
1.5.2 Short-term paid absences

An employer may compensate an employee for absence for various reasons including holidays,
sickness and short-term disability, maternity or paternity, jury service and military service.
Entitlement to paid absences (i.e. compensated balances) fall into two categories and are
recognized as follows:
(a) Accumulating paid absences - recognized when the employees render service that
increases their entitlement to future paid absences; and
(b) Non-accumulating paid absences - recognized when the absences occur.
1.5.2.1 Accumulating paid absences
 These are the absences that are carried forward and can be used in future periods if the
employee is not able to use them in current reporting period of the employer. They can be
either:
(i) Vesting: In this case, employees are entitled to a cash-payment for the unutilised
entitlement at the time of leaving the entity; and
(ii) Non-vesting: In this case, employees are not entitled to a cash payment for unused
entitlement on leaving.

 This obligation exists and is recognized, even if the paid (compensated) absences are non-
vesting. However, in case an employee leaves the entity before they use an accumulated
non-vesting entitlement, it will affect the measurement of this obligation.
 An entity shall measure the expected cost of accumulating paid (compensated) absences
as the additional amount that the entity expects to pay as a result of the unused
entitlement that has accumulated at the end of the reporting period.
Illustration 1: Vested Accumulating Benefits
Mr. Rajan is working for Infotech Ltd. Consider the following particulars:
Annual salary of Mr. Rajan = ₹ 30,00,000
Total working days in 20X0-20X1 = 300 days
Leaves allowed in 20X0-20X1 as per company policy = 10 days
Leaves utilized by Mr. Rajan in 20X0-20X1 = 8 days
The unutilized leaves are settled by way of payment and accordingly, carry forward of such
leaves to the subsequent period is not allowed.
Compute the total employee benefit expense for Infotech Ltd. in respect of 20X0-20X1.
Solution
Mr Rajan is entitled to a salary of 30,00,000 for 300 total working days.
Thus, per day salary works out to 30,00,000 ÷ 300 days = 10,000 per day
In the year 20X0-20X1, Mr. Rajan availed 8 out of 10 leaves allowed by the company.
Accordingly, leaves unutilized = 10 – 8 = 2 days
In line with the company policy, Infotech Ltd. will pay Mr. Rajan for the unutilized leave.
Thus, total expense for 20X0-20X1 = 30,00,000 + (2 days unutilized leaves x 10,000
per day) = 30,20,000.
*****
Illustration 2: Non-Vested Accumulating Benefits
Mr. Niranjan is working for Infotech Ltd. Consider the following particulars:
Year 20X0-20X1 Year 20X1-20X2
Annual salary 30,00,000 30,00,000
No. of working days during the year 300 days 300 days
Leave allowed 10 days 10 days
Leave taken 7 days 13 days
Leave unutilized carried forward to next year 3 days NIL

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Based on past experience, Infotech Ltd. assumes that Mr. Niranjan will avail the unutilized
leaves of 3 days of 20X0-20X1 in 20X1-20X2.
Infotech Ltd. contends that it will record 30,00,000 as employee benefits expense in each
of the years 20X0-20X1 and 20X1-20X2, stating that the leaves will, in any case, be utilized
by 20X1-20X2.
Comment on the accounting treatment proposed to be followed by Infotech Ltd. Also pass
journal entries for both the years.
Solution
Particulars Year 20X0- Year 20X1-
20X1 20X2
Annual Salary 30,00,000 30,00,000
No. of working days (A) 300 days 300 days
Leaves Allowed 10 days 10 days
Leaves Taken (B) 7 days 13 days
Therefore, number of days worked (A – B) 293 days 287 days
Expense proposed to be recognized by Infotech Ltd. 30,00,000 30,00,000
Based on the evaluation above, Mr. Niranjan has worked for 6 days more (293 days –
287 days) in 20X0-20X1 as compared to 20X1-20X2.
Since he has worked more in 20X0-20X1 as compared to 20X1-20X2, the accrual concept
requires that the expenditure to be recognized in 20X0-20X1 should be more as compared
to 20X1-20X2.
Thus, if Infotech Ltd. recognizes the same expenditure of 30,00,000 for each year, it
would be in violation of the accrual concept.
The expenditure to be recognized will be as under:
Particulars Year 20X0-20X1 Year 20X1-20X2
Annual salary (A) 30,00,000 30,00,000
No. of working days (B) 300 days 300 days
Salary cost per day (A ÷ B) 10,000 per day 10,000 per day
No. of days worked (from above) 293 days 287 days
Expense to be recognised:
In 20X0-20X1: 30,00,000 + [ 10,000 per day
x 3 days (leaves unutilized expected to be
utilized subsequently)] 30,30,000
In 20X1-20X2: 30,00,000 – [ 10,000 per day
– 3 days (excess leave utilized in 20X1-20X2)] 29,70,000

Journal Entry for 20X0-20X1

Employee Benefits Expense Account Dr. 30,30,000
To Bank Account 30,00,000
To Provision for Leave Encashment 30,000
Provision for Leave Encashment Account Dr. 30,000
*****
Illustration 3: Non-Vested Accumulating Benefits
Assume same information as in Illustration 2.
Based on past experience, Infotech Ltd. assumes that Mr. Niranjan will avail the unutilized
leaves of 2 days of 20X0-20X1 subsequently.
However, in 20X1-20X2, Mr. Niranjan availed in actual all 3 days of brought forward leave.
Compute the expense to be recognised in 20X0-20X1 and 20X1-20X2. Also pass journal
entries for both the years.
Solution
The expenditure to be recognized will be as under:
Particulars Year 20X0-20X1 Year 20X1-20X2
Annual salary (A) 30,00,000 30,00,000
No. of working days (B) 300 days 300 days
Salary cost per day (A ÷ B) 10,000 per day 10,000 per day
No. of days worked (from above) 293 days 287 days
Expense to be recognised:
In 20X0-20X1: 30,00,000 + [ 10,000 per
day x 2 days (leaves unutilized expected to
be utilized subsequently)] 30,20,000
In 20X1-20X2: 30,00,000 – [ 10,000 per
day x 3 days (excess leave utilized in 20X1-
20X2)] + 10,000 (additional expense due
to change in accounting estimate) 29,80,000
The additional 10,000 booked as an expense in 20X1-20X2 represents a change in

accounting estimate (i.e. as against the entity’s estimation that 2 days of unutilized leave

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would be utilized subsequently, actually 3 days were utilized subsequently), for which a
prospective effect needs to be given, in line with Para 36 of Ind AS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.
To Provision for Leave Encashment 20,000
Provision for Leave Encashment Account Dr. 20,000
*****
Illustration 4:
Sunderam Pvt. Ltd. has a headcount of 100 employees in 20X0-20X1. As per the
employee policy, the employees are entitled to:
 30 casual leaves out of which 10 casual leaves may be carried forward to the next
year; and
 10 sick leaves out of which 2 sick leaves may be carried forward as paid leave.
At 31 st March, 20X1, the average unused entitlement is 5 days per employee for casual
leaves and 1 day per employee for sick leave. On an average, it is found that the number
of such employees who would be claiming casual leaves would be 30 and 10 employees
who would claim sick leaves.
Compute the liability to be recognised in respect of sick leaves and casual leaves by the
entity at the end of the financial year 20X0-20X1.
Solution
Type of Leave Leaves c/f Average leaves No. of Liability
leave Entitlement permissible Unutilized Employees (F = D x E)
(A) (B) (C) (D) (E)
Casual 30 days 10 days 5 days 30 150 days
Leave salary
Sick 10 days 2 days 1 days 10 10 days
Leave salary
The entity will recognise liability in the books equal to 150 (30 x 5) days of paid casual
leaves and 10 (10 x 1) days of paid sick leaves.
*****

Illustration 5
An entity has 100 employees, who are each entitled to ten working days of paid sick leave
for each year. Unused sick leave may be carried forward for one financial year. Sick leave
is taken first out of the current year’s entitlement and then out of any balance brought
forward from the previous year (a LIFO basis).
At 31 st March 20X1, the average unused entitlement is two days per employee. Based on
past experience, the management expects that only 20% of the employees will use 1 day
from their carried forward leave. Salary per day is 2,500.
Compute the expenses in respect of the short-term compensated absences, if they are
assumed to be (a) vested short-term compensated absences, and (b) non-vested short-
term compensated absences.
Solution
Vested short-term compensated absences:
Employee Benefit Expense = 100 Employees x 2 Days x 2,500 = 5,00,000
Non-vested short-term compensated absences:

Employee Benefit Expense = 100 Employees x 20% x 1 Day x 2,500 = 50,000
*****
Illustration 6
Acer Ltd. has 350 employees (same as a year ago). The average staff attrition rates
observed during past 10 years represents 6% per annum. Acer Ltd. provides the following
benefits to all its employees:
Paid vacation - 10 days per year regardless of date of hiring. Compensation for paid
vacation is 100% of employee's salary and unused vacation can be carried forward for
1 year. As of 31 st March, 20X1, unused vacation carried forward was 3 days per employee,
average salary was 15,000 per day and accrued expense for unused vacation in
20X0-20X1 was ` 65,00,000. During 20X1-20X2, employees took 9 days of vacation in
average. Salary increases in 20X1-20X2 was 10%.
Analyse how would Acer Ltd. recognize liabilities and expenses for these benefits as of
31 st March, 20X2. Pass the journal entry to show the accounting treatment.

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Solution
Paid Vacation:
Step 1: Calculation of Unused Vacation in man-days as on 31 st March, 20X2:
A. No. of Employees in service for the whole year (94%):
Particulars Man-days
Unused vacation as on 31 st March, 20X1 3 days per employee
Entitlement to vacation for 20X1-20X2 10 days per employee
Average vacation availed in 20X1-20X2 (9) days per employee
Unused vacation as on 31 st March, 20X2 4 days per employee
(being unused leaves of 20X1-20X2 on FIFO basis)
Total Unused vacation as on 31 st March, 20X2 - (A) 1,316 man-days
(350 employees x 94% x 4 days per employee)
B. Newcomers (6%):
Particulars Man-days
Entitlement to vacation for 20X1-20X2 10 days per employee
Average vacation availed in 20X1-20X2 (9) days per employee
Unused vacation as on 31 st March, 20X2 1 day per employee
(being unused leaves of 20X1-20X2 on FIFO basis)
Total Unused vacation as on 31 st March, 20X2 - (B) 21 man-days
(350 employees x 6% x 1 day per employee)
Total unused vacation as on 31 st March, 20X2 (A + B) 1,337 man-days
Step 2: Calculation of average salary per day:
Particulars Amount ( )
Average salary per day as on 31 st March, 20X1 15,000
Salary increase in 20X1-20X2 10%
Average salary per day as on 31 st March, 20X2 16,500
Step 3: Calculation of provision for unused paid vacation:
Calculation of provision for unused paid vacation 20X1-20X2: 2,20,60,500
(1,337 man-days x 16,500)
Provision for unused paid vacation 20X0-20X1 65,00,000

Step 4: Accounting treatment

Provision for 20X1-20X2
Employee Benefits Expenses A/c Dr. 2,20,60,500
To Provision for Leave Encashment 2,20,60,500
Settlement of Liability of 20X0-20X1
Provision for Leave Encashment A/c Dr. 65,00,000
To Cash / Bank 65,00,000
*****
1.5.2.2 Non-accumulating paid absences:
 These are the absences that do not carry forward and they will lapse if the current period’s
entitlement is not used in full by the employee; and
 They do not entitle employees to a cash payment for unused entitlement on leaving the
entity.
Example: Sick pay (to the extent that unused past entitlement does not increase future
entitlement).
 An entity shall recognise no liability or expense until the time of the absence because the
employee service does not increase the amount of the benefit.
Vesting: When
employees are
entitled to a cash
payment for
When the unused entitlement
employees render on leaving the
service that entity
Accumulating increases their
entitlement to
future paid Non-vesting:
Short Term Paid absences which When employees
Absences are carried forward are not entitled to a
cash payment for
unused entitlement
When the on leaving
Non -Accumulating
absences occur
1.5.3 Profit-sharing and bonus plans

 Expected costs of profit-sharing and bonus plans shall be recognised when and only when:

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(a) the entity has a present legal or constructive obligation to make such payments as a
result of past events; and
(b) a reliable estimate of the obligation can be made by the entity.
 A present obligation exists when, and only when, an entity has no realistic alternative but to
make the payments in lieu of profits and bonuses to its employees.
 Under some profit-sharing plans, employees receive a share of the profit only if they remain
with the entity for a specified period. Such plans create a constructive obligation as
employees render service that increases the amount to be paid if they remain in service
until the end of the specified period. The measurement of such constructive obligations
reflects the possibility that some employees may leave without receiving profit-sharing
payments.
 An entity may have no legal obligation to pay a bonus. Nevertheless, in some cases, an
entity has a practice of paying bonuses. In such cases, the entity has a constructive
obligation because the entity has no realistic alternative but to pay the bonus. The
measurement of the constructive obligation reflects the possibility that some employees
may leave without receiving a bonus.
 An entity can make a reliable estimate of its legal or constructive obligation under a profit-
sharing or bonus plan when, and only when:
(a) the formal terms of the plan contain a formula for determining the amount of the
benefit;
(b) the entity determines the amounts to be paid before the financial statements are
approved for issue; or
(c) past practice gives clear evidence of the amount of the entity’s constructive obligation.
 An obligation under profit-sharing and bonus plans results from employee service and not
from a transaction with the entity’s owners. Hence, an entity recognises the cost of
profit-sharing and bonus plans not as a distribution of profit but as an expense.
Illustration 7
Laxmi Mills is a profit-making entity and has reported profit of ` 200 crore in the financial
year 20X1-20X2. According to its profit–sharing plan, it distributes and pays 5% as its
portion of profit to its employees if they complete 1 year with the organisation.
Under this plan, an entity is under an obligation to pay if the employees complete a
specified period with the organisation. Laxmi Mills has estimated that due to staff turnover
in the organisation, the estimated pay-out would be around 4.5%.
Compute the liability and expense of the company under this plan.

Solution
The company shall recognize a liability and an expense of an amount of 9 crores for the
financial year 20X1-20X2 (i.e. 4.5% of 200 crores).
*****
Illustration 8
Acer Ltd. has 350 employees (same as a year ago). The average staff attrition rates as
observed during past 10 years represents 6% per annum. Acer provides the following
benefits to all its employees:
Annual bonus - during past 10 years.
Acer paid bonus to all employees who were in service during the entire financial year.
Bonus was paid in June following the financial year-end. Amount of bonus for 20X1-20X2
paid in June 20X2 represented 1,25,000 per employee. Acer Ltd. used to increase
amount of bonus based on official inflation rate which is 8.5% for 20X2-20X3, although
there was no legal obligation to increase the bonus by such inflation rate.
Determine how would Acer Ltd. recognize liabilities and expenses for these employee
benefits as on 31 st March, 20X3. P ass the journal entry to show the accounting treatment.
Solution
Bonus paid for 20X1-20X2 1,25,000 per employee
Bonus for 20X2-20X3 - increased by inflation of 8.5%: 1,35,625 per employee
[1,25,000 x (100% + 8.5%)]
No. of employees in staff during the whole year [350 x (100- 329 employees
6%)]
Provision for Bonus for 20X2-20X3 4,46,20,625
Accounting Treatment:
Provision for Bonus for 20X2-20X3
Employee Benefits Expenses A/c Dr. 4,46,20,625
To Provision for Bonus 20X2-20X3 4,46,20,625
Note:
It is given that the company is under no legal obligation to increase the bonus by the official
inflation rate. However, the company has been increasing the bonus by the inflation rate
over the past years. This has given rise to a constructive obligation for Acer Ltd. Informal
practices, such as these, give rise to a constructive obligation where the entity has no
realistic alternative but to pay employee benefits. Accordingly, provision is made for the
amount considering the inflation rate.
*****

8.22 2.22 FINANCIAL REPORTING
 If profit-sharing and bonus payments are not settled wholly before the twelve months
after the end of the reporting period in which the employees render the related service,
those payments are considered as other long –term employee benefits.
1.5.4 Disclosure
 This Standard does not require specific disclosures about short-term employee benefits.
 However, other Ind AS may require disclosures.
Examples:
Ind AS 24 requires disclosures about employee benefits for key management
personnel.
Ind AS 1, Presentation of Financial Statements, requires disclosure of employee
benefits expense.
SHORT TERM EMPLOYEE BENEFITS
Recognition & Measurement

Disclosure
As a liability (accrued As an asset (if amount paid

exceeds the undiscounted As an expense (if not As per As per
expenses) after
amount of the benefits for forms part of cost of Ind AS 19 Other Ind AS
deducting amount
an asset)
paid the period)
Disclosure may be
No specific required like as per
Short term paid Profit sharing and disclosures Ind AS 1 &
absences bonus prescribed Ind AS 24
Types
Conditions
Accumulating Non -accumulating

and
An entity has a present A reliable estimate
legal or constructive of the obligation
obligation to pay as a can be made
Vesting Non vesting result of past event
No liability or exp.
recognized until the
Obligation is time of absence
Recognised as expenses and not
recognized as an as distribution of profits
additional amount

1.6 POST-EMPLOYMENT BENEFITS

 Post-employment benefits include:
(a) Retirement benefits such as pensions and lump sum payments on retirement; and
(b) Other post-employment benefit such as post-employment life insurance and post-
employment medical care.
 Depending upon the economic substance of the plan which is derived from its principal
terms and conditions, post-employment benefit plans are classified as
(i) either defined contribution plans
(ii) or defined benefit plans.
Retirement benefits such as pensions and

Post-employment lump sum payments on retirement
benefits
Other post -employment benefit plans such as
post-employment life insurance and post-
employment medical care
Defined Defined
contribution benefit
plans plans
1.6.1 Classification of post-employment Benefit Plans into Defined

Contribution Plan vs Defined Benefit Plans
Defined
Contribution
Plans Defined Benefit
Plans
1.6.1.1 Under defined contribution plans

(a) The entity’s legal or constructive obligation is limited to the amount that it agrees to
contribute to the fund.

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(b) Thus, the amount of the post-employment benefits received by the employee is determined
by the amount of contributions paid by an entity (and perhaps also the employee) to a post-
employment benefit plan or to an insurance company, together with investment returns
arising from the contributions.
(c) As a result of this, actuarial risk (which means that benefits will be less than expected) and
investment risk (that assets invested will be insufficient to meet expected benefits) fall, in
substance on the employee (and not on the entity like in defined benefit plan).
Exception:
There are cases where an entity’s obligation is not limited to the amount that it agrees to
contribute to the fund as the entity has a legal or constructive obligation. Examples of such
cases are listed below:
(a) a plan benefit formula that is not linked solely to the amount of contributions and requires
the entity to provide further contributions if assets are insufficient to meet the benefits in
the plan benefit formula;
(b) a guarantee, either indirectly through a plan or directly, of a specified return on
contributions; or
(c) informal practices that give rise to a constructive obligation.
For example, a constructive obligation may arise where an entity has a history of increasing
benefits for former employees to keep pace with inflation even where there is no legal
obligation to do so.
1.6.1.2 Under defined benefit plans
(a) The entity’s obligation is to provide the agreed benefits to current and former employees;
and
(b) Actuarial risk (that benefits will cost more than expected) and investment risk fall, in
substance, on the entity (and not on the employee like in the case of defined contribution
plan).
(c) Thus, if actuarial or investment experience are worse than expected, the entity’s obligation
may be increased.
The above differences can be summarized as follows:
S. No. Particulars Defined Contribution Plans Defined Benefit Plans

1. Entity’s The entity’s legal or constructive The entity’s obligation is to
obligation obligation is limited to the provide the agreed benefits
amount that it agrees to to current and former
contribute to the fund. employees.

2. Risk bearer Actuarial risk and investment risk Actuarial risk and investment
fall on the employee and not on risk fall on the entity and not
the entity. on the employee.
3. Change in the Generally, no change in the If actuarial or investment
obligation contribution of an entity is made experience are worse than
except in certain cases. expected, the entity’s
obligation may be increased
for providing to the employees.
4. Determination The amount of the post- Pre-determined / Agreed post-
of the amount employment benefits received by employment benefits are
of post- the employee is determined by received by the employee.
employment the amount of contributions paid
benefit by an entity and employee as
well.
Illustration 9
A company pays each employee a lump-sum one-time benefit upon retirement. This benefit is
computed based on the employee's years in service in the company and the final salary prior to
retirement. To cover its liabilities from this remuneration, the company contributes 3% of annual
gross salaries to the fund.
Comment whether this obligation represent a defined contribution plan or a defined benefit plan
and why?
Solution
Defined benefit plan
Reason: Although the Company pays contributions to the fund to cover its liabilities, amount of
remuneration is determined in advance and Company will have to carry the risk in case the
fund's assets are not sufficient to cover remuneration in full.
*****
Illustration 10
In accordance with applicable legislation, company contributes 12% and employees 12% of
annual gross salaries to the provident and pension fund. Upon retirement, the employees will
get the accumulated balance that is calculated based on employee's years of service and his
average salary for past 15 years before retirement. The pension will be paid out of the state
fund assets and the company has no further obligation except to make contributions.
Analyse whether this obligation represent a defined contribution plan or a defined benefit plan.

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Solution
Defined contribution plan
Reason: Although employee's pension is determined in advance by the formula (and thus
employees neither carry actuarial nor investment risks), Company's liability is limited to
contributions to the fund. In this case, as pension will be paid out of the state fund, it is a state
fund which carries all the risks.
*****
1.6.2 Multi-employer plans
 An entity shall classify a multi-employer plan as a defined contribution plan or a defined
benefit plan under the terms of the plan (including any constructive obligation that goes
beyond the formal terms).
 In the case of a multi-employer defined benefit plan, normally
 The amount of contributions is decided keeping in mind the amount of benefits that an
entity is required to pay in the same period and
 The future benefits that an entity gets during the current period will be paid out of
future contributions.
 Employers have no realistic means of withdrawing from the plan without paying a
contribution for the benefits earned.
 Employees’ benefits are determined by the length of their service in the entity as a
future amount which is required to be paid to them. Such a plan would create actuarial
risk to the entity (i.e. if the ultimate cost of benefits already earned at the end of the
reporting period is more than expected, the entity will have to either increase its
contributions or to persuade employees to accept a reduction in benefits).
 In case the multi-employer plan is a defined benefit plan, an entity shall:
(a) account for its proportionate share of the
(i) defined benefit obligation;
(ii) plan assets; and
(iii) cost associated with the plan
in the same way as for any other defined benefit plan; and
(b) disclose the information required.
 When sufficient information is not available to use defined benefit accounting for a multi-
employer plan that is a defined benefit plan, an entity shall:
(a) account for the plan as if it were a defined contribution plan;

(b) disclose:
(i) the fact that the plan is a defined benefit plan;
(ii) the reason why sufficient information is not available to enable the entity to
account for the plan as a defined benefit plan; and
(iii) the expected contributions to the plan for the next annual reporting period; and
(c) to the extent that a surplus or deficit in the plan may affect the amount of future
contributions, disclose:
(i) available information about that surplus or deficit;
(ii) the basis used to determine that surplus or deficit; and
(iii) the implications, if any, for the entity.
 The reasons that an entity is not able to term its plan as a defined benefit plan and has to
account for a plan as multi-employer defined contribution plan, this may occur if:
 the entity does not have access to sufficient information about the plan to satisfy the
requirements of this Standard; or
 the plan exposes the entities to actuarial risks associated with the current and former
employees of other entities, with the result that there is no consistent and reliable
basis for allocating the obligation, plan assets and cost to individual entities
participating in the plan.
 There may be a contractual agreement between the multi-employer plan and its
participants that determines how the surplus in the plan will be distributed to the
participants (or the deficit funded). A participant in a multi-employer plan with such an
agreement that accounts for the plan as a defined contribution plan shall recognise
 the asset or liability that arises from the contractual agreement and
 the resulting income or expense in profit or loss.
 In determining when to recognise, and how to measure, a liability relating to the wind-up of
a multi-employer defined benefit plan, or the entity’s withdrawal from a multi-employer
defined benefit plan, an entity shall apply Ind AS 37, Provisions, Contingent Liabilities and
Contingent Assets.
Example 1
Paras Pvt. Ltd. does not have sufficient information about a defined benefit plan and thus
accounts for the plan as if it were defined contribution plan.
In the plan, there is a contractual agreement between Paras Pvt. Ltd. and its participants to
share the deficit amongst all. The funding valuation shows a deficit of 500 million in the plan.
The plan has agreed under contract a schedule of contributions with the participating employers
in the plan that will eliminate the deficit over the next 10 years. The entity’s total contributions

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under the contract are 30 million.
As per Ind AS 19, Paras Pvt. Ltd. should recognise a liability for the contributions adjusted for
the time value of money and an equal expense in profit or loss.
1.6.3 Group administration plans
 A group administration plan is merely an aggregation of single employer plans combined to
allow participating employers to pool their assets for investment purposes and reduce
investment management and administration costs.
 The claims of different employers are segregated for the sole benefit of their own
employees. In other words, the individual identities of the employees and their entities are
preserved, unlike in case of multi-employer plans wherein the identity of the employees and
the entities are lost in the common pool.
 Group administration plans pose no particular accounting problems because information is
readily available to treat them in the same way as any other single employer plan. This is
because such plans do not expose the participating entities to actuarial risks associated
with the current and former employees of other entities.
 An entity should classify a group administration plan as a defined contribution plan or a
defined benefit plan in accordance with the terms of the plan (including any constructive
obligation that goes beyond the formal terms)
1.6.4 Defined benefit plans that share risks between entities under
common control
 Defined benefit plans that share risks between entities under common control, for example,
a parent and its subsidiaries, are not multi-employer plans.
 An entity who is participating in such a plan shall obtain information about the plan as a
whole on the basis of assumptions that it applies to the plan as a whole.
 The entity shall, in its separate or individual financial statements, recognise the net defined
benefit cost it charged, if there is a contractual agreement or stated policy for charging the
net defined benefit cost for the whole plan to individual group entities.
 In case there is no such agreement or policy, the net defined benefit cost shall be
recognised in the separate or individual financial statements of the group entity that is
legally the sponsoring employer for the plan.
 The other group entities shall, in their separate or individual financial statements, recognise
a cost equal to their contribution payable for the period.
 Participation in such kind of plan is a related party transaction for each individual group
entity. Therefore, following disclosures are required by an entity in its separate or

individual financial statements:

(a) the contractual agreement or stated policy according to which net defined benefit cost
has been charged by the individual entity or the fact that there is no such policy.
(b) the policy for determining the contribution to be paid by the entity.
(c) if the entity accounts for an allocation of the net defined benefit cost, then disclosure
has to be made for information about the whole plan.
(d) if the entity accounts for the contribution payable for the period, the information about
the plan also needs to be disclosed for the plan as a whole.
1.6.5 State plans
 A state plan is accounted for in the same way as a multi-employer plan.
 State plans are normally established by legislation to cover all entities (or all entities in a
particular category, for example, a specific industry) and are operated by national or local
government or by another body (for example, an autonomous agency created specifically
for this purpose) which is not subject to control or influence by the reporting entity.
 Some plans established by an entity provide both compulsory benefits, as a substitute for
benefits that would otherwise be covered under a state plan, and additional voluntary
benefits. Such plans are not state plans.
 State plans are characterised as defined benefit or defined contribution, depending on the
entity’s obligation under the plan.
 Many state plans are funded on a pay-as-you- go basis which implies that contributions are
set at a level that is expected to be sufficient to pay the required benefits falling due in the
same period. In such kind of a case, future benefits earned during the current period will be
paid out of future contributions.
 In most of the state plans, the entity has no legal or constructive obligation to pay those
future benefits as its only obligation as an entity is to pay the contributions as they fall due
and in case the entity does not employ members of the state plan, it will have no obligation
to pay the benefits earned by its own employees in previous years. For this reason, state
plans are normally defined contribution plans.
1.6.6 Insured benefits
 An entity normally pays insurance premiums for funding a post-employment benefit plan.
The entity shall treat such a plan as a defined contribution plan.
 The entity shall treat the plan as a defined benefit plan in case an entity has (either directly,
or indirectly through the plan) retained a legal or constructive obligation, either to pay:

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(a) the employee benefits directly when they fall due; or
(b) further amounts if the insurer does not pay all future employee benefits which are
relating to employee service in the current and prior periods.
 Where an entity is funding a post-employment benefit obligation and contributes to an
insurance policy under which the entity retains a legal or constructive obligation, in this
case the payment of the premiums does not amount to a defined contribution arrangement.
This can be either directly or indirectly through the plan, through the mechanism for setting
future premiums or through a related party relationship with the insurer. Hence the entity
shall:
(a) account for a qualifying insurance policy as a plan asset; and
(b) recognise other insurance policies as reimbursement rights.
 The entity has no obligation to pay benefits to the employees and the insurer has sole
responsibility for paying the benefits where an insurance policy is in the name of a
specified plan participant or a group of plan participants and the entity does not have any
legal or constructive obligation to cover any loss on the policy.
 The payment of fixed premiums under such kind of arrangement is a settlement of the
employee benefit obligation rather than an investment to meet the obligation. Therefore,
an entity treats such payments as contributions to a defined contribution plan.
1.7 ACCOUNTING FOR DEFINED CONTRIBUTION PLANS

 The reporting entity’s obligation for each period is determined by the amounts to be
contributed for that period.
 No actuarial assumptions are required to measure the obligation or the expense and there
is no possibility of any actuarial gain or loss.
 The obligations are measured on an undiscounted basis.
Exception:
Discounting is done where the obligation falls due after twelve months after the end of the
annual reporting period in which the employees render the related service.
1.7.1 Recognition and measurement

When an employee has rendered service to an entity during a period, the entity shall recognise
the contribution payable to a defined contribution plan in exchange for that service:
(a) as a liability (accrued expense), after deducting any contribution already paid.

In case the amount of contribution already paid under a defined contribution plan exceeds
the contribution due for service before the end of the reporting period, an entity shall
recognise that excess as an asset (prepaid expense) to the extent that the prepayment will
lead to, a reduction in future payments or a cash refund; and
(b) as an expense if not included in the cost of an asset as per other Ind AS (for example,
according to Ind AS 2 and Ind AS 16).
Where contributions to a defined contribution plan do not fall due wholly before twelve months
after the end of the annual reporting period in which the employees render the related service,
the contributions shall be discounted using the discount rate as specified in this Standard.
1.7.2 Disclosure
 An entity shall disclose the amount recognised as an expense for defined contribution
plans.
 An entity shall disclose information about contributions to defined contribution plans for key
management personnel where required as per Ind AS 24.
Illustration 11
Acer Ltd. provides lump-sum remuneration upon retirement to its employees. Remuneration is
paid out of the fund to which Acer Ltd. contributes 12% of annual gross salaries. Contributions
are made twice a year i.e. in November of the related financial year and in June after the
financial year-end. Total annual gross salaries for 20X0-X1 amounted to 50 crores.
Contribution made by Acer Ltd. in November 20X0 was ` 2.8 crores. Remuneration depends on
the number of employee's service and amount of cash in the fund at retirement date (Acer Ltd.
has no further obligations except for contributions).
How should this transaction appear in the financial statements of Acer Ltd. as of
31 st March 20X1?
Solution
1. Calculation of accrual for contributions in 20X0-20X1:
Annual gross salaries in 20X0-20X1: 50.00 crores
Amount of total contributions for 20X0-20X1 (12%): 6.00 crores
Contributions already made in November 20X0: 2.80 crores
Accrual ( 6 crores - 2.8 crores) 3.20 crores
2. Accounting Treatment:
Employee Benefits Expenses Account Dr. 6.00 crores
To Bank Account 2.80 crores
To Contribution Payable 3.20 crores

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The contribution of 6 crores will be debited to the statement profit and loss. The contribution
payable of 3.20 crores will appear as a liability as at 31 st March, 20X1.
*****
1.8 ACCOUNTING FOR DEFINED BENEFIT PLANS

Accounting for defined benefit plans is complex because -
 actuarial assumptions are required to measure the obligation and the expense;
 there is a possibility of actuarial gains and losses;
 the obligations are measured on a discounted basis because they may be settled many
years after the employees render the related service.
Illustration 12
Dinkar Ltd., a large IT company, accounts for gratuity on payment basis, and supports such
accounting policy by making the following disclosure in the Financial Statements:
“Due to high labour turnover, a large degree of uncertainty is involved in estimating the liability
of gratuity. Accordingly, the management opines that as the estimates of the uncertainty would
confuse the readers by complicating the financial statements, such liability would be recorded on
payment basis.”
The management opines that by making the above disclosures, the company is complying with
the requirements of all the Ind AS, as a disclosure to the effect of the above is given. The
management is also willing to specifically highlight the above aspect by making it conspicuous in
the financial statements.
Is the contention of management correct as per the provisions of Ind AS?
Solution
Gratuity represents a payment being made to an employee upon retirement / resignation from
the organization. The amount is determined in accordance with the provisions of the Gratuity
Act, 1972, which applies to Dinkar Ltd. Since the amount is determined pursuant to a formula
laid down under the statue, the gratuity payable represents a Defined Benefit Plan that is to be
paid to the employees, with the actuarial risk and investment risk both belonging to the
employer. Thus, Dinkar Ltd. must comply with Ind AS 19 and provide for the gratuity on an
annual basis.
In estimating the liability for gratuity, there would be several assumptions involved such as

mortality rate, staff attrition rate, salary at the time of retirement / resignation, discount rate etc.,
all of which have to be considered by Dinkar Ltd. The complexity involved in this exercise does
not provide Dinkar Ltd. with an excuse to avoid accrual accounting.
Dinkar Ltd. has stated that it would be willing to make a disclosure to the effect of the departure
from Ind AS 8 requirements. In terms of Para 19 of Ind AS 1, departure is permitted in
extremely rare circumstances wherein the management concludes that compliance with an Ind
AS requirement would be so misleading that it would conflict with the objective of the Financial
Statements set out in the Framework.
In the given case, compliance with Ind AS would not be a conflict, as the compliance with
Ind AS 19 would ensure that the accrual assumption laid down in the Framework is complied
with. Further, a disclosure cannot be a remedy for non-compliance. Therefore, the company
have to state that the Ind AS have not been complied with by the company in the preparation
and presentation of its Financial Statements.
Hence, the company will have to suitably modify the financial statements considering the
materiality and pervasiveness of the non-compliance.
*****
 Defined benefit plans can be:
 Unfunded; or
 Wholly or partly funded
by contributions by an entity, and sometimes its employees, into an entity, or fund,
that is legally separate from the reporting entity and from which the employee benefits
are paid.
 The payment of funded benefits when they fall due depends on
 the financial position and the investment performance of the fund; and
 an entity’s ability (and willingness) to make good any shortfall in the fund’s assets.
 Therefore, the entity, in substance, underwrites the actuarial and investment risks
associated with the plan.
 Hence the expense recognised for a defined benefit plan is not necessarily the amount of
the contribution due for the period.

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1.8.1.1 Steps involved in accounting by an entity for defined benefit plans
• PUCM (Projected Unit
Credit Method)
Determine the deficit or surplus • Discounting
• Fair value of plan assets
Determine the amount of the net • As the amount of the

defined benefit liability (asset) deficit or surplus
• Current service cost

Determine the amounts to be
• Past service cost
recognised in Profit or Loss
• Net interest
• Acturial Gain or Loss
Determine the remeasurements of
• Return on Plan Assets
the net defined benefit liability
(asset) • Any Change in effect of
Asset Ceiling
Step I: Determining the Deficit or Surplus

This involves:
(a) using actuarial techniques, the projected unit credit method, to make a reliable
estimate of the amount of benefit that employees have earned in return for their
service in the current and prior periods.
This requires an entity to -
(i) determine how much benefit is attributable to the current and prior periods
and
(ii) make estimates (actuarial assumptions) about
 demographic variables (such as employee turnover and mortality); and
 financial variables (such as future increases in salaries and medical
costs)
that will influence the cost of the benefit;
(b) discounting that benefit in order to determine the present value of the defined
benefit obligation; and the current service cost
(c) deducting the fair value of any plan assets from the present value of the defined
benefit obligation.

Step II: Determining the amount of the net defined benefit liability (asset)
Determining the amount of the net defined benefit liability (asset) as the amount of the
deficit or surplus determined in step I above, adjusted for any effect of limiting a net
defined benefit asset to the asset ceiling.
Step III: Determining amounts to be recognised in profit or loss:
(i) current service cost.
(ii) any past service cost and gain or loss on settlement.
(iii) net interest on the net defined benefit liability (asset).
Step IV: Determining the remeasurements of the net defined benefit liability (asset), to be
recognised in other comprehensive income, comprising:
(i) actuarial gains and losses;
(ii) return on plan assets, excluding amounts included in net interest on the net
(iii) any change in the effect of the asset ceiling, excluding amounts included in net
In case an entity has more than one defined benefit plan, the entity applies these procedures for
each material plan separately.
An entity shall determine the net defined benefit liability (asset) with sufficient regularity that the
amounts recognised in the financial statements do not differ materially from the amounts that
would be determined at the end of the reporting period.
1.8.2 Accounting for the constructive obligation
 Accounting for any constructive obligation will also be done by an entity that arises from the
entity’s informal practices.
 Constructive obligation arises due to informal practices where the entity has no realistic
alternative but to pay employee benefits.
Example - Where a change in the entity’s informal practices would cause unacceptable
damage to its relationship with employees
 The formal terms of a defined benefit plan may permit an entity to terminate its obligation
under the plan. Nevertheless, it is usually difficult for an entity to terminate its obligation
under a plan (without payment) if employees are to be retained.
 Hence accounting for post-employment benefits assumes that an entity which is currently
promising such benefits will continue to do so over the remaining working lives of
employees, in the absence of evidence to the contrary.

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1.8.3 Balance sheet
 An entity shall recognise the net defined benefit liability (asset) in the balance sheet.
 When an entity has a surplus in a defined benefit plan, it shall measure the net defined
benefit asset at the lower of:
(a) the surplus in the defined benefit plan; and
(b) the asset ceiling, determined using the discount rate.
 A net defined benefit asset may arise where a defined benefit plan has been overfunded or
in certain cases where actuarial gains are arisen. An entity recognises a net defined
benefit asset in such cases because:
(a) the entity controls a resource, which is the ability to use the surplus to generate future
benefits;
(b) that control is a result of past events (contributions paid by the entity and service
rendered by the employee); and
(c) future economic benefits are available to the entity in the form of a reduction in future
contributions or a cash refund, either directly to the entity or indirectly to another plan
in deficit. The asset ceiling is the present value of those future benefits.
the surplus in the

defined benefit
Measured at plan
Net Defined
the lower of
Benefit Asset
the asset ceiling,
determined using
the discount rate
Recognized as an Asset in the balance sheet
Comparison with recognition of Deferred Tax Asset under Ind AS 12 Income Taxes:
As per para 24 of Ind AS 12 Income Taxes, a deferred tax asset shall be recognised for all
deductible temporary differences to the extent that it is probable that taxable profit will be
available against which the deductible temporary difference can be utilised.
The principle of taxable profit being available for future utilization of deductible temporary
difference is essential under Ind AS 12 in order to recognise Deferred Tax Assets.
However, in Ind AS 19, no such principle of establishing probability is required as the Plan

Assets represent actual investments which are held by the entity (albeit through a separate
trust specially formed).
Illustration 13
How will the following information be presented in the Balance Sheet of Udyog Ltd.?
Particulars in lakhs
PV of Defined Benefit Obligations 3,500
Fair Value of Plan Assets 3,332
Solution
PV of Defined Benefit Obligations 3,500
Less: Fair Value of Plan Assets (3,332)
Deficit, to be treated as Net Defined Benefit Liability under Non-current
Liabilities as Provisions in the Balance Sheet 168
*****
Illustration 14
How will the following information be presented in the Balance Sheet of Udyog Ltd.?
PV of defined benefit obligations 2,750
Fair value of plan assets 2,975
Asset ceiling 175
Solution
PV of defined benefit obligations 2,750
Less: Fair value of plan assets (2,975)
Surplus, to be treated as net defined benefit asset 225
Asset ceiling as per Ind AS 19 175
Least of above is surplus to be treated as net defined benefit asset 175
under non-current assets in the Balance Sheet
*****

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1.9 RECOGNITION AND MEASUREMENT: PRESENT

VALUE OF DEFINED BENEFIT OBLIGATIONS AND
CURRENT SERVICE COST
The cost of a defined benefit plan is influenced by many variables, such as
 final salaries;
 employee turnover and mortality;
 employee contributions; and
 medical cost trends.
Hence the ultimate cost of the plan is uncertain and this uncertainty is likely to persist over a
long period of time.
In order to measure the present value of the post-employment benefit obligations and the related
current service cost, it is necessary to:
(a) apply an actuarial valuation method;
(b) attribute benefit to periods of service; and
(c) make actuarial assumptions.
1.9.1 Actuarial valuation method
 Projected Unit Credit Method (PUCM) is used by an entity to determine the present value of
its defined benefit obligations and the related current service cost and, where applicable,
past service cost.
 The Projected Unit Credit Method (which is also sometimes known as the accrued benefit
method pro-rated on service or as the benefit/years of service method) perceives each
period of service as which gives rise to an additional unit of benefit entitlement and
measures each unit separately to build up the final obligation.
Illustration 15
AJ Ltd is engaged in the business of trading of chemicals having a net worth of
150 crores. The company’s profitability is good and hence the company has introduced
various benefits for its employees to keep them motivated and to ensure that they stay with
the organization. The company is an associate of RJ Ltd which is listed on Bombay Stock
Exchange in India.
The company initially did not have any HR function but over the last 2 years, the
management set up that function and now HR department takes care of all the benefits

related to the employees and how they can be structured in a manner beneficial to both the
employees and the objectives of the company.
One of the employee benefits involves a lump sum payment to employee on termination of
service and that is equal to 1 per cent of final salary for each year of service. Consider the
salary in year 1 is 10,000 and is assumed to increase at 7 per cent (compound) each
year.
Taking a discount rate at 10 per cent per year, you are required to compute
(a) benefits attributed (year on year) and
(b) the obligation in respect of this benefit (year on year)
For an employee who is expected to leave at the end of year 5
Following assumptions may be taken to solve this:
 There are no changes in actuarial assumptions.
 No additional adjustments are needed to reflect the probability that the employee may
leave the entity at an earlier or later date.
Solution
a. Computation of benefit attributed to prior years and current year:
Amount in
Year 1 2 3 4 5
Benefit attributed to:
- Prior years - 131 262 393 524
- Current year (Refer W.N.1) 131 131 131 131 131
Total (i.e. current and prior years) 131 262 393 524 655
b. Computation of the obligation for an employee who is expected to leave at the

end of year 5 (taking discount rate of 10% p.a.) Amount in
Year 1 2 3 4 5
Opening obligation (A) - 89 196 324 475
Interest at 10% (B = A X 10%) - 9 20 32 47
Current service cost (C) (Refer WN 2) 89 98 108 119 131
Closing obligation D = (A+B+C) 89 196 324 475 653
Figures have been rounded off in the above table.

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Working Notes:
1. A lump sum benefit is payable on termination of service and equal to 1 per cent of
final salary for each year of service. The salary in year 1 is 10,000 and is
assumed to increase at 7 per cent (compound) each year.
The year on year salary would be as follows: Amount in
Year 1 2 3 4 5
Salary 10,000 10,700 11,449 12,250 13,108
(10,000 x (10,700 x (11,449 x (12,250 x
107%) 107%) 107%) 107%)
Accordingly, for the purpose of above-mentioned employee benefit, 1% of final

salary to be considered for each year of service would be 131.
2. Computation of current service cost: Amount in
Year 1 2 3 4 5
1% salary at the end of year 5 - - - - 131
PV factor at the end of each 0.683 0.751 0.826 0.909 1.000
year to be considered at 10%
p.a. (E)
PV at the end of each year 89 98 108 119 131
(131 x (131 x (131 x (131 x (131 x
E) E) E) E) E)
Accordingly, for the purpose of above-mentioned employee benefit, 1% of final

salary to be considered for each year of service would be 131.
*****
 An entity discounts the whole of a post-employment benefit obligation, even if part of the
obligation is expected to be settled before twelve months after the reporting period.
1.9.2 Attributing benefit to periods of service
 An entity shall attribute benefit to periods of service under the plan’s benefit formula, in
determining the present value of its defined benefit obligations and the related current
service cost, and, where applicable, past service cost.
 However, if an employee’s service in later years will lead to a materially higher level of
benefit than in earlier years, an entity shall attribute benefit on a straight-line basis from:
(a) the date when service by the employee first leads to benefits under the plan (whether
or not the benefits are conditional on further service) until

(b) the date when further service by the employee will lead to no material amount of
further benefits under the plan, other than from further salary increases.
 The Projected Unit Credit Method requires an entity to attribute benefit to the current period
(in order to determine current service cost) and the current and prior periods (in order to
determine the present value of defined benefit obligations).
An entity will attribute benefit to periods in which the obligation to provide post-employment
benefits arises as employees render services in return for post-employment benefits which
an entity expects to pay in future reporting periods.
 These kind of actuarial techniques allow an entity to measure that obligation with sufficient
reliability to justify recognition of a liability.
Example 2
A defined benefit plan provides a lump-sum benefit of 200 payable on retirement for each
year of service. A benefit of 200 is attributed to each year. The current service cost is
the present value of 200. The present value of the defined benefit obligation is the
present value of 200, multiplied by the number of years of service up to the end of the
reporting period.
If the benefit is payable immediately when the employee leaves the entity, the current
service cost and the present value of the defined benefit obligation reflect the date at which
the employee is expected to leave. Thus, because of the effect of discounting, they are
less than the amounts that would be determined if the employee left at the end of the
reporting period.
 Employee service gives rise to an obligation under a defined benefit plan even if the
benefits are conditional on future employment (in other words they are not vested).
 Employee service given the vesting date gives rise to a constructive obligation because, at
the end of each successive reporting period, the amount of future service that an employee
will have to render before becoming entitled to the benefit is reduced. An entity considers
the probability that some employees may not satisfy any vesting requirements in measuring
its defined benefit obligation.
 Although, certain post-employment benefits, for example, post- employment medical
benefits, become payable only if a specified event occurs when an employee is no longer
employed, an obligation is created when the employee renders service that will provide
entitlement to the benefit if the specified event occurs.
The probability that the specified event will occur affects the measurement of the obligation
but does not determine whether the obligation exists.

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Illustration 16
A plan pays a benefit of 150 for each year of service. The benefits vest after ten years of
service. Compute the benefit to be attributed each year?
Solution
1. A benefit of 150 is attributed to each year.
2. In each of the first ten years, the current service cost and the present value of the
obligation reflect the probability that the employee may not complete ten years of
service. This is because the benefits vest at a future date (i.e. after ten years of
service).
*****
Illustration 17
A plan pays a benefit of 150 for each year of service, excluding service before the age of
25. The benefits vest immediately. Compute the benefit to be attributed each year?
Solution
1. No benefit is attributed to the service before the age of 25 because service before that
date does not lead to benefits (conditional or unconditional).
2. A benefit of 150 is attributed to each subsequent year. There is no requirement to
reflect any probability of completion as the benefits vest immediately.
*****
 The obligation increases till the date when further service by the employee will lead to no
material amount of further benefits. Therefore, all benefit is attributed to periods ending on
or before that date. Benefit is attributed to individual accounting periods under the plan’s
benefit formula.
However, in case an employee renders service in later years which will lead to a materially
higher level of benefit than in earlier years, an entity will attribute benefit on a straight-line
basis until the date when further service by the employee will lead to no material amount of
further benefits. That is because the employee’s service throughout the entire period will
ultimately lead to benefit at that higher level.
Example 3
A plan pays a lump-sum retirement benefit of 4,000 to all employees who are still employed at
the age of 55 after twenty years of service, or who are still employed at the age of 65,
regardless of their length of service.

Category of Description Benefit attributed per year

Employee
Employees who join  These employees will be in  For these employees, the entity
before the age of 35 service for 20 years at the age attributes benefit of 200
of 55. Accordingly, the service ( 4,000 divided by 20 years)
leads to benefits at the age of each year from the age of 35 to
35 and are conditional of the age of 55.
further service.  The current service cost and
 However, service beyond the the present value of the
age of 55 leads to no material obligation should reflect the
amount of further benefits (i.e. probability of an employee not
benefit will still be the same). completing the necessary
service period.
Employees who join  These employees will not be in  For these employees, the entity
after the age of 35 service for 20 years at the age attributes benefit of 4,000 ÷
of 55 and must wait till the age (65 years – whatever age when
of 65, regardless of the years employment started may be 40,
of service. 45, 50…) to each year of
 The service leads to benefits at service from the start until the
the beginning of employment age of 65.
and service beyond age 65  The current service cost and
leads to no material amount of the present value of the
further benefits. obligation should reflect the
probability of an employee not
completing the necessary
service period.
Illustration 18
Amra Pvt. Ltd. has a plan for its employees where it has decided to pay a lump-sum benefit of
2,000 that will vest after ten years of service. However, that plan will provide no further
benefit for subsequent service.
Compute the benefit attributed for 10 years of service and for the period of service after 10
years?
Solution
1. In this case, as per the company’s plan, a benefit of 200 ( 2,000 ÷ 10 years) is
attributed to each of the first 10 years.
2. The current service cost in each of the first ten years reflects the probability that the
employee may not complete ten years of service. This is because the benefits vest at a
future date (i.e. after ten years of service).
No benefit is attributed to subsequent years.
*****

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Illustration 19
Sanat Pvt. Ltd. has a plan for the employees where employees are entitled to a benefit of 5% of
final salary for each year of service before the age of 55.
Compute the benefit attributed up to 55 years and after 55?
Solution
Benefit of 5% of estimated final salary is attributed to each year up to the age of 55. This is the
date when further service by the employee will lead to no material amount of further benefits
under the plan. No benefit is attributed to service after that age.
*****
Illustration 20
A post-employment medical plan reimburses 40 percent of an employee’s post-employment
medical costs if the employee leaves after more than ten and less than twenty years of service
and 50 per cent of those costs if the employee leaves after twenty or more years of service.
Determine how will the benefit be attributed to the years of service.
Solution
1. Under the Plan's Benefit Formula, the entity should attribute 4% of the present value of the
expected medical costs (40% ÷ 10 years) to each of the first ten years, and 1% (10% ÷ 10
years) to each of the second ten years.
2. For employees expected to leave within 10 years, no benefit is attributed.
3. The Current Service Cost in each year reflects the probability that the employee may not
complete the necessary period of service to earn part or all of the benefits.
*****
Illustration 21
A post-employment medical plan reimburses 10 percent of an employee’s post-employment
medical costs if the employee leaves after more than ten and less than twenty years of service
and 50 per cent of those costs if the employee leaves after twenty or more years of service.
Determine how will the benefit be attributed to the years of service.
Solution
1. Service in later years will lead to a materially higher level of benefit than in earlier year.
So, for employees expected to leave after 20 or more years, the entity should attribute
benefit on a straight-line basis under Para 71. Service beyond 20 years will lead to no
material amount of further benefits. So, the benefit attributed to each of the first 20 years
will be 2.5% of the Present Value of the Expected Medical Costs (50% ÷ 20 years).
2. For employees expected to leave between 10 and 20 years, the benefit attributed to each

of the first 10 years is 1% (10% ÷ 10 years) of the Present Value of the expected medical
costs. For these employees, no benefit is attributed to service between the end of the
tenth year and the estimated date of leaving.
3. For employees expected to leave within ten years, no benefit is attributed.
4. The Current Service Cost in each year reflects the probability that the employee may not
complete the necessary period of service to earn part or all of the benefits.
*****
Illustration 22
AKJ Ltd is a listed company engaged in the business of manufacturing of electronic equipment.
The company has various branch offices spread out across India and has 1,000 employees.
As per the statutory requirements, gratuity shall be payable to an employee on the termination of
his employment after he has rendered continuous service for not less than five years -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease.
The completion of continuous service of five years shall not be necessary where the termination
of the employment of any employee is due to death or disablement.
The amount payable is determined by a formula linked to number of years of service and last
drawn salary. The amount payable to an employee shall not exceed 10,00,000.
Compute the amount of employee benefit, if any, attributed to each year of service.
Solution
The amount of gratuity would be attributed to each year of service and calculated as follows:
Number of employees not likely to fulfil the eligibility criteria will be ignored.
Other employees will be grouped according to period of service they are expected to render
taking into account:
 mortality rate,
 disablement and
 resignation after 5 years.
Gratuity payable will be calculated in accordance with the formula prescribed in the governing
statute based on the period of service and the salary at the time of termination of employment,
assuming promotion, salary increases etc.
For those employees for whom the amount payable as per the formula does not exceed
10,00,000, over the expected period of service, the amount payable will be divided by the

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expected period of service and the resulting amount will be attributed to each year of the
expected period of service, including the period before the stipulated period of 5 years.
In case of the remaining employees, the amount as per the formula exceeds ₹ 10,00,000 over
the expected period of service of 10 years (say), and the amount of the threshold of ₹ 10,00,000
is reached at the end of 8 years (assumed) i.e. ₹ 1,25,000 (₹ 10,00,000 ÷ 8 years) is attributed
to each of the first 8 years. In this case, no benefit is attributed to subsequent two years. This
is because service beyond 8 years will lead to no material amount of further benefits.
*****
1.9.3 Actuarial assumptions
 Actuarial assumptions are an entity’s best estimates of the variables that will determine the
ultimate cost of providing post-employment benefits.
 Actuarial assumptions shall be unbiased and mutually compatible.
 Actuarial assumptions are unbiased if they are neither imprudent nor excessively
conservative.
 Actuarial assumptions are mutually compatible if they reflect the economic relationships
between factors such as inflation, salary increment rate and discount rates.
For example, all assumptions which depend on a particular inflation level (such as
assumptions about interest rates and salary and benefit increases) in any given future
period assume the same inflation level in that period.
 Actuarial assumptions comprise:
(a) demographic assumptions about the future characteristics of current and former
employees (and their dependants) who are eligible for benefits. Demographic
assumptions deal with matters such as:
(i) mortality, both during and after employment;
(ii) rates of employee turnover, disability and early retirement;
(iii) the proportion of plan members with dependants who will be eligible for benefits;
(iv) the proportion of plan members who will select each form of payment option
available under the plan terms; and
(v) claim rates under medical plans; and
(b) financial assumptions, dealing with items such as:
(i) the discount rate;
(ii) future salary and benefit levels;
(iii) in the case of medical benefits, future medical costs, including claim handling costs
(i.e. the costs that will be incurred in processing and resolving claims, including
legal and adjuster’s fees); and

(iv) taxes payable by the plan on contributions relating to service before the reporting
date or on benefits resulting from that service.
 An entity determines discount rate and other financial assumptions in nominal (stated)
terms unless estimates in real (inflation-adjusted) terms are more reliable. For example, in
a hyperinflationary economy, or where the benefit is index-linked and there is a deep
market in index-linked bonds of the same currency and term.
 Financial assumptions are based on market expectations, at the end of the reporting
period, for the period over which the obligations are to be settled.
1.9.3.1 Actuarial assumptions: mortality and discount rate
1. Mortality Assumptions
Entity is required to determine its mortality assumptions by reference to its best estimate of
the mortality of plan members both during and after employment.
In order to estimate the ultimate cost of the benefit an entity shall takes into consideration
the expected changes in mortality, for example by modifying standard mortality tables with
estimates of mortality improvements.
2. Discount Rate Assumptions
 The rate which is used to discount post-employment benefit obligations (both funded
and unfunded) is determined by reference to market yields on government bonds
at the end of the reporting period.
 Subsidiaries, associates, joint ventures and branches domiciled outside India
shall discount post-employment benefit obligations arising on account of post-
employment benefit plans using the rate determined by reference to market yields
at the end of the reporting period on high quality corporate bonds.
 In case, such subsidiaries, associates, joint ventures and branches are domiciled in
countries where there is no deep market in such bonds, the market yields (at the
end of the reporting period) on government bonds of that country shall be used.
 The currency and term of the government bonds shall be consistent with the currency
and estimated term of the post-employment benefit obligations as the pay-outs will
happen in same currency only.
 The discount rate reflects the estimated timing of benefit payments/time value of
money and not the actuarial or investment risk. This also does not reflect entity-
specific credit risk borne by the entity’s creditors.
 Thus, practically speaking, it is achieved by an entity by applying a single weighted
average discount rate that reflects the estimated timing and amount of benefit
payments and the currency in which the benefits are to be paid.

8.48 a
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 Where there is no deep market in government bonds with a sufficiently long maturity
to match the estimated maturity of all the benefit payments, an entity uses current
market rates of the appropriate term to discount shorter-term payments, and estimates
the discount rate for longer maturities by extrapolating current market rates along the
yield curve.
 Interest cost is computed by multiplying the discount rate as determined at the
start of the period by the present value of the defined benefit obligation
throughout that period and taking account of any material changes in the obligation.
1.9.3.2 Actuarial assumptions: salaries, benefits and medical costs
 Defined benefit obligations shall be measured on a basis that reflects:
(a) the benefits set out in the terms of the plan (or resulting from any constructive
obligation that goes beyond those terms) at the end of the reporting period;
(b) estimated future salary increases;
(a) the effect of any limit on the employer’s share of the cost of the future benefits;
(b) contributions from employees or third parties that reduce the ultimate cost to the entity
of those benefits; and
(e) estimated future changes in the level of any state benefits that affect the benefits
payable under a defined benefit plan, if, and only if, either:
(i) those changes were enacted before the end of the reporting period; or
(ii) historical data, or other reliable evidence, indicates that those state benefits will
change in some predictable manner, for example, in line with future changes in
general price levels or general salary levels.
 Estimates of future salary increases are calculated after taking account inflation, seniority,
promotion and other relevant factors, such as supply and demand in the employment
market.
 The formal terms of the plan (or a constructive obligation that goes beyond those terms)
require an entity to consider change in benefits for future periods; the measurement of the
obligation reflects those changes at the end of the reporting period will impact actuarial
gains and losses.
For examples when:
(a) entity has a history of increasing benefits, for example, to mitigate the effects of
inflation, and there is no indication that this practice will change in the future;
(b) the entity is obliged, by either the formal terms of a plan (or a constructive obligation
that goes beyond those terms) or legislation, to use any surplus in the plan for the
benefit of plan participants; or

(c) benefits vary in response to a performance target or other criteria. For example, the
terms of the plan may state that it will pay reduced benefits or require additional
contributions from employees if the plan assets are insufficient. The measurement of
the obligation reflects the best estimate of the effect of the performance target or other
criteria.
 Further, future benefit changes that are not set out in formal terms of the plan (or a
constructive obligation) at the end of the reporting period; will result in impacting past
service cost and current service cost for the period after change to the extent of such
change in benefits for the service.
 Some post-employment benefits are linked to variables such as the level of state retirement
benefits or state medical care. The measurement of such benefits reflects expected
changes in such variables, based on past history and other reliable evidence.
 Assumptions about medical costs shall take into account estimated future changes in the
cost of medical services, resulting from both inflation and specific changes in medical
costs.
 Post-employment medical benefits measurement requires assumptions about the level and
frequency of future claims and the cost of meeting those claims. Future medical costs are
estimated on the basis of historical data about the entity’s own experience and in case
some more data is required to analyse the data, this data is gathered as historical data
from other entities, insurance companies, medical providers or other sources. Estimates of
future medical costs would consider the effect of technological advances, changes in health
care utilisation or delivery patterns and changes in the health status of plan participants.
 The level and frequency of claims is particularly sensitive to the age, health status and sex
of employees (and their dependants) and may be sensitive to other factors such as
geographical location. Hence, this historical data is adjusted to the extent that the
demographic mix of the population which differs from that of the population used as a basis
for the historical data. Also it requires an adjustment where there is reliable evidence that
historical trends will not continue.
 Some post-employment health care plans also require employees to contribute to the
medical costs covered by the plan and thus estimates of future medical costs also take in
account of any such contributions which are based on the terms of the plan at the end of
the reporting period (or based on any constructive obligation that goes beyond those
terms). Changes in those employee contributions result in past service cost or, where
applicable, curtailments. The cost of meeting claims may be reduced by benefits from state
or other medical providers.

8.50 a
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Contributions from employees or third parties
Set out in the formal terms of the plan (or arise from a constructive obligation Discretionary
that goes beyond those terms)
Linked to service Not linked to service (for example,

reduce a deficit arising from loss of
plan asset or from actuarial loss)
Dependent on the Independent of the
number of years of number of years of
service service
(1)
Reduce service cost by Reduce service cost in the Affect re- Reduce service cost upon
being attributed to periods period in which the related measurements of the payment to the plan
of service [paragraph service is rendered net defined benefit (paragraph 92)
93(a)] [paragraph 93(b)] liability (asset)
[paragraph 93]
(1) This dotted arrow means that an entity is permitted to choose either accounting.
1.9.3.3 Past service cost and gains and losses on settlement

 When determining past service cost, or a gain or loss on settlement, an entity shall
remeasure the net defined benefit liability (asset) using the current fair value of plan assets
and current actuarial assumptions (including current market interest rates and other current
market prices) reflecting:
 the benefits offered under the plan and the plan assets before the plan amendment,
curtailment or settlement; and
 the benefits offered under the plan and the plan assets after the plan amendment,
curtailment or settlement.
 An entity need not distinguish between past service cost resulting from a plan amendment,
past service cost resulting from a curtailment and a gain or loss on settlement if these
transactions occur together. In some cases, a plan amendment occurs before a settlement,
such as when an entity changes the benefits under the plan and settles the amended
benefits later. In those cases, an entity recognises past service cost before any gain or
loss on settlement.
 When a plan amendment, curtailment or settlement occurs, an entity shall recognise and
measure any past service cost, or a gain or loss on settlement. In doing so, an entity shall
not consider the effect of the asset ceiling. An entity shall then determine the effect of the
asset ceiling after the plan amendment, curtailment or settlement and shall recognise any
change in that effect.

 A settlement occurs together with a plan amendment and curtailment if a plan is terminated
with the result that the obligation is settled and the plan ceases to exist. However, the
termination of a plan is not a settlement if the plan is replaced by a new plan that offers
benefits that are, in substance, the same.
1.9.3.3.1 Past service cost
 Change in the present value of the defined benefit obligation resulting from a plan
amendment or curtailment is known as past service cost.
 An entity shall recognise past service cost as an expense at the earlier of the following
dates:
(a) when the plan amendment or curtailment occurs; and
(b) when the entity recognises related restructuring costs (refer Ind AS 37 Provisions,
Contingent Liabilities and Contingent Assets) or termination benefits.
 Plan amendment happens when an entity introduces, or withdraws, a defined benefit plan
or changes the benefits payable under an existing defined benefit plan.
 Curtailment arises when an entity significantly reduces the number of employees covered
by a plan. A curtailment may arise from an isolated event, such as the closing of a plant,
discontinuance of an operation or termination or suspension of a plan.
 Past service cost may be either positive (when benefits are introduced or changed so that
the present value of the defined benefit obligation increases) or negative (when benefits
are withdrawn or changed so that the present value of the defined benefit obligation
decreases).
 In case, an entity reduces benefits payable under an existing defined benefit plan and, at
the same time, increases other benefits payable under the plan for the same employees,
the entity treats the change as a single net change.
 Past service cost excludes the following:
(a) the effect of differences between actual and previously assumed salary increases on
the obligation to pay benefits for service in prior years (there is no past service cost
because actuarial assumptions allow for projected salaries);
(b) underestimates and overestimates of discretionary pension increases when an entity
has a constructive obligation to grant such increases (there is no past service cost
because actuarial assumptions allow for such increases);
(c) estimates of benefit improvements that result from actuarial gains/ return on plan
assets that have been recognised in the financial statements if the entity is obliged, by
either the formal terms of a plan (or a constructive obligation that goes beyond those
terms) or legislation, to use any surplus in the plan for the benefit of plan participants,
even if the benefit increase has not yet been formally awarded (there is no past
service cost because the resulting increase in the obligation is an actuarial loss); and

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(d) the increase in vested benefits when, in the absence of new or improved benefits,
employees complete vesting requirements (there is no past service cost because the
entity recognised the estimated cost of benefits as current service cost as the service
was rendered).
1.9.3.3.2 Gains and losses on settlement
 A settlement occurs when an entity enters into a transaction that eliminates all further legal
or constructive obligation for part or all of the benefits provided under a defined benefit
plan (other than a payment of benefits to, or on behalf of, employees in accordance with
the terms of the plan and included in the actuarial assumptions).
For example, a one-off transfer of significant employer obligations under the plan to an
insurance company through the purchase of an insurance policy is a settlement; a lump
sum cash payment, under the terms of the plan, to plan participants in exchange for their
rights to receive specified post-employment benefits is not.
 The gain or loss on a settlement is the difference between:
(a) the present value of the defined benefit obligation being settled, as determined on the
date of settlement; and
(b) the settlement price, including any plan assets transferred and any payments made
directly by the entity in connection with the settlement.
 Gain or loss on the settlement of a defined benefit plan is recognised by the entity when
the settlement occurs.
1.10 RECOGNITION AND MEASUREMENT: PLAN ASSETS

1.10.1 Fair value of plan assets
 The fair value of any plan assets is deducted from the present value of the defined benefit
obligation in determining the deficit or surplus.
 Plan assets exclude unpaid contributions due from the reporting entity to the fund, as well
as any non-transferable financial instruments issued by the entity and held by the fund.
Plan assets are reduced by any liabilities of the fund that do not relate to employee
benefits, for example, trade and other payables and liabilities resulting from derivative
financial instruments.
 Where plan assets include qualifying insurance policies that exactly match the amount and
timing of some or all of the benefits payable under the plan, the fair value of those
insurance policies is deemed to be the present value of the related obligations, (subject to
any reduction required if the amounts receivable under the insurance policies are not
recoverable in full).

1.10.2 Reimbursements
 An entity will recognise its right to reimbursement as a separate asset when, and only
when, it is virtually certain that another party will reimburse some or all of the expenditure
required to settle a defined benefit obligation. The assets are measured at fair value by the
entity and in all other respects, an entity shall treat that asset in the same way as plan
assets. In the statement of profit and loss, the expense relating to a defined benefit plan
may be presented net of the amount recognised for a reimbursement.
 Sometimes, an entity is able to look to another party, such as an insurer, to pay part or all
of the expenditure required to settle a defined benefit obligation, there an entity accounts
for qualifying insurance policies in the same way as for all other plan assets. When an
insurance policy is not a qualifying insurance policy, that insurance policy is not a plan
asset.
 Further, when an insurance policy is not a qualifying insurance policy, that insurance policy
is not a plan asset. In such a scenario, an entity recognises its right to reimbursement
under the insurance policy as a separate asset, rather than as a deduction in determining
the defined benefit liability (asset) and in all other respects, the entity treats that asset in
the same way as plan assets.
 If the right to reimbursement arises under an insurance policy that exactly matches the
amount and timing of some or all of the benefits payable under a defined benefit plan, the
fair value of the reimbursement right is deemed to be the present value of the related
obligation.
1.11 COMPONENTS OF DEFINED BENEFIT COST

 An entity is required to recognise the components of defined benefit cost, except to the
extent that another Ind AS (refer Ind AS 2 and Ind AS 16) requires or permits their inclusion
in the cost of an asset, as follows:
(a) service cost in profit or loss;
(b) net interest on the net defined benefit liability (asset) in profit or loss; and
(c) remeasurements of the net defined benefit liability (asset) in other comprehensive
income.
 Remeasurements of the net defined benefit liability (asset) recognised in other
comprehensive income shall not be reclassified to profit or loss in a subsequent period.
However, the entity may transfer those amounts recognised in other comprehensive income
within equity.
Current service cost
 An entity shall determine current service cost using actuarial assumptions determined at

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the start of the annual reporting period. However, if an entity remeasures the net defined
benefit liability (asset), as discussed above, it shall determine current service cost for the
remainder of the annual reporting period after the plan amendment, curtailment or
settlement using the actuarial assumptions used to remeasure the net defined benefit
liability (asset) in accordance with paragraph 99(b) of Ind AS 19 (i.e. reflecting the benefits
offered under the plan and the plan assets after the plan amendment, curtailment or
settlement).
1.11.1 Net interest on the net defined benefit liability (asset)
 An entity shall determine net interest on the net defined benefit liability (asset) by
multiplying the net defined benefit liability (asset) by the discount rate specified for post-
employment benefit obligation.
 To determine net interest in accordance with paragraph mentioned above, an entity shall
use the net defined benefit liability (asset) and the discount rate determined at the start of
the annual reporting period. However, if an entity remeasures the net defined benefit
liability (asset), the entity shall determine net interest for the remainder of the annual
reporting period after considering the benefits offered under the plan and the plan asset
after the plan amendment, curtailment or settlement using:
(a) the net defined benefit liability (asset) ; and
(b) the discount rate used to remeasure the net defined benefit liability (asset).
Further, in applying this paragraph, the entity shall also take into account any changes in
the net defined benefit liability (asset) during the period resulting from contributions or
benefit payments.
 Net interest on the net defined benefit liability (asset) can be viewed as comprising interest
income on plan assets, interest cost on the defined benefit obligation and interest on the
effect of the asset ceiling.
 Interest income on plan assets is a component of the return on plan assets and is
determined by multiplying the fair value of the plan assets by the discount rate specified for
post-employment benefit obligation. An entity shall determine the fair value of the plan
assets at the start of the annual reporting period. However, if an entity remeasures the net
defined benefit liability (asset), the entity shall determine interest income for the remainder
of the annual reporting period after the plan amendment, curtailment or settlement using
the plan assets used to remeasure the net defined benefit liability (asset) reflecting the
benefits offered under the plan and the plan assets after the plan amendment, curtailment
or settlement). Further, in applying this paragraph, the entity shall also consider any
changes in the plan assets held during the period resulting from contributions or benefit
payments.

 The difference between the interest income on plan assets and the return on plan assets is
included in the remeasurement of the net defined benefit liability (asset).
 Interest on the effect of the asset ceiling is part of the total change in the effect of the asset
ceiling and is determined by multiplying the effect of the asset ceiling by the discount rate.
An entity shall determine the effect of the asset ceiling at the start of the annual reporting
period. However, if an entity remeasures the net defined benefit liability (asset), the entity
shall determine interest on the effect of the asset ceiling for the remainder of the annual
reporting period after the plan amendment, curtailment or settlement considering any
change in the effect of the asset ceiling. The difference between interest on the effect of
the asset ceiling and the total change in the effect of the asset ceiling is included in the
remeasurement of the net defined benefit liability (asset).
1.11.2 Remeasurements of the net defined benefit liability (asset)
 Remeasurements of the net defined benefit liability (asset) comprise:
(a) actuarial gains and losses;
(b) the return on plan assets, excluding amounts included in net interest on the net
(c) any change in the effect of the asset ceiling, excluding amounts included in net
 Actuarial gains and losses occur from increases or decreases in the present value of the
defined benefit obligation because of changes in actuarial assumptions and experience
adjustments. Following are the few causes of actuarial gains and losses:
(a) unexpectedly high or low rates of employee turnover, early retirement or mortality or
of increases in salaries, benefits (if the formal or constructive terms of a plan provide
for inflationary benefit increases) or medical costs;
(b) the effect of changes to assumptions concerning benefit payment options;
(c) the effect of changes in estimates of future employee turnover, early retirement, or
mortality or of increases in salaries, benefits (if the formal or constructive terms of a
plan provide for inflationary benefit increases) or medical costs; and
(d) the effect of changes in the discount rate.
 Actuarial gains and losses does not include changes in the present value of the defined
benefit obligation because of the introduction, amendment, curtailment or settlement of the
defined benefit plan, or changes to the benefits payable under the defined benefit plan.
Rather such changes shall result in past service cost or gains or losses on settlement.
 In measuring the return on plan assets, an entity deducts the costs of managing the plan
assets and any tax payable by the plan itself, other than tax included in the actuarial

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assumptions used to measure the defined benefit obligation. Other administration costs are
not deducted from the return on plan assets.
Illustration 23
Pratap Ltd. belongs to the ship-building industry. The company reviewed an Actuarial Valuation
for the first time for its pension scheme which revealed a surplus of 60 lakhs. It wants to
spread the same over the next 2 years by reducing the annual contribution to 20 lakhs instead
of 50 lakhs. The average remaining life of the employees is estimated to be 6 years.
Advise the Company in line with Ind AS 19.
Solution
1. Recognition: As per Ind AS 19, any Actuarial Gains and Losses should be recognized as a
re-measurement of the Net Defined Benefit Liability / (Asset) in "Other Comprehensive
Income".
2. Measurement and Presentation: In the given case, the amount of surplus from Pension
Scheme of 60 lakhs is an Actuarial Gain and should be recognized as a "re-
measurement" in "Other Comprehensive Income", and not to be adjusted from the amount
of annual contribution in future years.
3. Disclosure: The change relating to Actuarial Valuation for the Pension Scheme requires
disclosure under Ind AS 8. Disclosures required by Ind AS 19 should also be made in the
financial statements.
*****
Illustration 24
RKA Private Ltd is an old company established in 19XX. The company started with a very small
capital base and today it is one of the leading companies in India in its industry. The company
has an annual turnover of 11,000 crores and planning to get listed in the next year.
The company has a large employee base. The company provided a defined benefit plan to its
employees. Following is the information relating to the balances of the fund’s assets and
liabilities as at 1 st April, 20X1 and 31 st March, 20X2. in lacs
Particulars st
1 April, 20X1 st
31 March, 20X2
Present value of benefit obligation 1,400 1,580
Fair value of plan assets 1,140 1,275
For the financial year ended 31 st March, 20X2, service cost was 55 lacs. The company made
a contribution of an amount of 111 lacs to the plan. No benefits were paid during the year.
Consider a discount rate of 8%.
You are required to -
(a) Compute the balance(s) of the company to be included its balance sheet as on

31 st March, 20X2 and amounts to be recognized in the statement of profit and loss and
other comprehensive income for the year ended 31 st March, 20X2.
(b) Provide the journal entries in respect of amount(s) to be recognized.
Solution
(a) Extract of the Balance Sheet of RKA Private Ltd as at 31 st March, 20X2
in lacs
Closing net defined liability (1,580 – 1,275) lacs 305
Extract of the Statement of Profit or Loss of RKA Private Ltd for the year ended
31 st March, 20X2
Particulars in lacs
Service cost 55
Net interest (Refer W.N.1) 21
Profit or loss 76
Other comprehensive income:
Remeasurements (Refer W.N.2) 80
Total 156
(b) Journal entries in the books of RKA Private Ltd
Particulars in lacs in lacs

Profit & Loss Dr. 76
Other comprehensive income Dr. 80
To Cash (Contribution) 111
To Net defined benefit liability (Refer WN 3) 45
Working Notes:
1. Computation of Net interest taken to the Statement of Profit or Loss
= Discount rate x Opening net defined benefit liability
= 8% x (1,400 – 1,140) lacs
= 8% x 260 lacs = 21 lacs (Rounded off to nearest lacs)

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2. Computation of Remeasurements
Defined Benefit Obligation Account
Particulars in lacs Particulars in lacs
To Balance c/d (given) 1,580 By Balance b/d (given) 1,400
(closing balance) (opening balance)
By Current Service Cost 55
(given)
By Interest on Opening 112
Liability (1,400 x 8%)
By Actuarial loss (bal. figure) 13
1,580 1,580
OR
Statement to calculate Actuarial gain or loss on defined benefit liability:
Particulars in lacs
Opening balance of liability 1,400
Current service cost 55
Interest on opening liability (1,400 x 8%) 112
Actuarial loss (Bal. fig) 13
Closing balance of liability 1,580
Plan Assets Account

Particulars in lacs Particulars in lacs
To Balance b/d (given) 1,140 By Balance c/d (given) 1,275
(opening balance) (closing balance)
To Bank Account 111
(contribution for the year)
To Surplus / Actual Return
(bal. figure) 24
1,275 1,275
OR

Statement to calculate Actual return on plan assets:
Particulars in lacs
Opening balance of asset 1,140
Cash contribution 111
Actual return (Bal. fig) 24
Closing balance of asset 1,275
Net interest on opening balance of plan asset = 91 lacs (i.e. 1,140 lacs x 8%)
(Rounded off to nearest lacs)
Hence there is a decrease in plan assets due to remeasurement for which
computation is as follows:
Actual Return – Net interest on opening plan asset
= ₹ 24 lacs – ₹ 91 lacs = ₹ 67 lacs.
Net remeasurement would be computed as follows:
Actuarial loss on liability + Loss on return = 13 lacs + 67 lacs = 80 lacs.
3. Computation of increase/ decrease in net defined benefit liability:
Particulars in lacs
Opening net liability ( 1,400 lacs – 1,140 lacs) 260
Closing net liability 1,580 lacs – 1,275 lacs) 305
Increase in liability 45
*****
1.12 PRESENTATION
1.12.1 Offset
 An asset relating to one plan will be offset against a liability relating to another plan when,
and only when, the entity:
(a) has a legally enforceable right to use a surplus in one plan to settle obligations under
the other plan; and
(b) there is an intention either to settle the obligations on a net basis, or to realise the
surplus in one plan and settle its obligation under the other plan simultaneously.
 The offsetting criteria are similar to those established for financial instruments in Ind AS 32,
Financial Instruments: Presentation.

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1.12.2 Current / Non-current distinction
This Standard does not specify whether an entity should distinguish current and non-current
portions of assets and liabilities arising from post-employment benefits.
1.12.3 Components of defined benefit costs
This Standard does not specify how an entity should present current service cost and net
interest cost on net defined liability (asset). An entity presents those components in accordance
with Ind AS 1 Presentation of Financial Statements.
1.13 DISCLOSURE
An entity shall disclose information that enables users of financial statements to evaluate the
nature of its defined benefit plans and the financial effects of changes in those plans during the
period.
1.13.1 General
 An entity shall disclose information that:
(a) explains the characteristics of its defined benefit plans and risks associated with them;
(b) identifies and explains the amounts in its financial statements arising from its defined
benefit plans; and
(c) describes how its defined benefit plans may affect the amount, timing and uncertainty
of the entity’s future cash flows.
 If the disclosures provided in accordance with Ind AS 19 and other Ind AS are insufficient
to meet the required objectives, additional information necessary to meet those objectives
should be disclosed. For example, an entity might present an analysis of the present value
of the defined benefit obligation that distinguishes the nature, characteristics and risks of
the obligation. Such a disclosure could distinguish:
(a) between amounts owing to active members, deferred members, and pensioners;
(b) between vested benefits and accrued but not vested benefits; and
(c) between conditional benefits, amounts attributable to future salary increases and other
benefits.
1.13.2 Characteristics of defined benefit plans and risks associated
with them
An entity shall disclose:

(a) information about the characteristics of its defined benefit plans, including:
(i) the nature of the benefits provided by the plan (e.g. final salary defined benefit plan or
contribution-based plan with guarantee);
(ii) a description of the regulatory framework in which the plan operates (e.g. the level of
any minimum funding requirements, and any effect of the regulatory framework on the
plan, such as the asset ceiling); and
(iii) a description of any other entity’s responsibilities for the governance of the plan (e.g.
responsibilities of trustees or of board members of the plan).
(b) a description of the risks to which the plan exposes the entity, focused on any unusual,
entity specific or plan-specific risks, and of any significant concentrations of risk. For
example, if plan assets are invested primarily in one class of investments (e.g. property),
the plan may expose the entity to a concentration of property market risk; and
(c) a description of any plan amendments, curtailments and settlements.
1.13.3 Explanation of amounts in the financial statements
 An entity shall provide a reconciliation from the opening balance to the closing balance for
each of the following, if applicable:
(a) the net defined benefit liability (asset), showing separate reconciliations for:
(i) plan assets;
(ii) the present value of the defined benefit obligation; and
(iii) the effect of the asset ceiling; and
(b) any reimbursement rights. An entity shall also describe the relationship between any
reimbursement right and the related obligation.
 Each reconciliation listed above shall show each of the following, if applicable:
(a) current service cost;
(b) interest income or expense;
(c) remeasurements of the net defined benefit liability (asset), showing separately:
(i) the return on plan assets, excluding amounts included in interest in interest
income or expense;
(ii) actuarial gains and losses arising from changes in demographic assumptions;
(iii) actuarial gains and losses arising from changes in financial assumptions; and
(iv) changes in the effect of limiting a net defined benefit asset to the asset ceiling,
excluding amounts included in interest income or expense. An entity shall also

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disclose how it determined the maximum economic benefit available, i.e. whether
those benefits would be in the form of refunds, reductions in future contributions
or a combination of both;
(d) past service cost and gains and losses arising from settlements. If permitted by the
Standard (i.e., entity need not distinguish between past service cost resulting from a
plan amendment), past service cost and gains and losses arising from settlements
need not be distinguished if they occur together;
(e) the effect of changes in foreign exchange rates;
(f) contributions to the plan, showing separately those by the employer and by plan
participants;
(g) payments from the plan, showing separately the amount paid in respect of any
settlements; and
(h) the effects of business combinations and disposals.
 The fair value of the plan assets shall be disaggregated into classes that distinguish the
nature and risks of those assets, subdividing each class of plan asset into those that have
a quoted market price in an active market (as defined in Ind AS 113, Fair Value
Measurement) and those that do not.
For example, and considering the level of general disclosures, an entity might distinguish
between:
(i) cash and cash equivalents;
(ii) equity instruments (segregated by industry type, company size, geography etc);
(iii) debt instruments (segregated by type of issuer, credit quality, geography etc);
(iv) real estate (segregated by geography etc);
(v) derivatives (segregated by type of underlying risk in the contract, for example, interest
rate contracts, foreign exchange contracts, equity contracts, credit contracts, longevity
swaps etc);
(vi) investment funds (segregated by type of fund);
(vii) asset-backed securities; and
(viii) structured debt.
 An entity shall disclose:
(a) the fair value of the entity’s own transferable financial instruments held as plan assets;
and
(b) the fair value of plan assets that are property occupied by, or other assets used by,
the entity.

 An entity shall disclose the significant actuarial assumptions used to determine the present
value of the defined benefit obligation. Such disclosure shall be in absolute terms (e.g. as
an absolute percentage, and not just as a margin between different percentages and other
variables). When an entity provides disclosures in total for a grouping of plans, it shall
provide such disclosures in the form of weighted averages or relatively narrow ranges.
1.13.4 Amount, timing and uncertainty of future cash flows
 An entity shall disclose:
(a) a sensitivity analysis for each significant actuarial assumption as of the end of the
reporting period, showing how the defined benefit obligation would have been affected
by changes in the relevant actuarial assumption that were reasonably possible at that
date;
(b) the methods and assumptions used in preparing these sensitivity analyses and the
limitations of those methods; and
(c) changes from the previous period in the methods and assumptions used in preparing
the sensitivity analyses, and the reasons for such changes.
 To provide an indication of the effect of the defined benefit plan on the entity’s future cash
flows, an entity shall disclose:
(a) a description of any funding arrangements and funding policy that affect future
contributions;
(b) the expected contributions to the plan for the next annual reporting period;
(c) information about the maturity profile of the defined benefit obligation. This will
include the weighted average duration of the defined benefit obligation and may
include other information about the distribution of the timing of benefit payments, such
as a maturity analysis of the benefit payments.
1.13.5 Multi-employer plans
If an entity participates in a multi-employer defined benefit plan, it shall disclose:
(a) a description of the funding arrangements, including the method used to determine the
entity’s rate of contributions and any minimum funding requirements;
(b) a description of the extent to which the entity can be liable to the plan for other entities’
obligations under the terms and conditions of the multi-employer plan; and
(c) a description of any agreed allocation of a deficit or surplus on:
(i) wind-up of the plan; or
(ii) the entity’s withdrawal from the plan.

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(d) if the entity accounts for that plan as if it were a defined contribution plan in accordance
with general principles applicable to liabilities and an entities own equity instruments, it
shall disclose the following, in addition to the information required by (a)–(c) (refer section
1.13.2) and instead of the information required by paragraphs 139–147 (refer section
1.13.3 to 4):
(i) the fact that the plan is a defined benefit plan.
(ii) the reason why sufficient information is not available to enable the entity to account
for the plan as a defined benefit plan.
(iii) the expected contributions to the plan for the next annual reporting period.
(iv) information about any deficit or surplus in the plan that may affect the amount of future
contributions, including the basis used to determine that deficit or surplus and the
implications, if any, for the entity.
(v) an indication of the level of participation of the entity in the plan compared with other
participating entities. Examples of measures that might provide such an indication
include the entity’s proportion of the total contributions to the plan or the entity’s
proportion of the total number of active members, retired members, and former
members entitled to benefits, if that information is available.
1.13.6 Defined benefit plans that share risks between entities under
common control
If an entity participates in a defined benefit plan that shares risks between entities under
common control, it shall disclose:
(a) the contractual agreement or stated policy for charging the net defined benefit cost or the
fact that there is no such policy.
(b) the policy for determining the contribution to be paid by the entity.
(c) if the entity accounts for an allocation of the net defined benefit cost as mentioned in
section 1.6.3 above, all the information about the plan as a whole as discussed in sections
1.13.1 to 1.13.4.
(d) if the entity accounts for the contribution payable for the period as noted in section 1.6.3
above, the relevant information about the plan as a whole as mentioned in sections 1.13.1
to 1.13.4.
(e) The information required by (c) and (d) above can be disclosed by cross-reference to
disclosures in another group entity’s financial statements if:
(a) that group entity’s financial statements separately identify and disclose the information
required about the plan; and

(b) that group entity’s financial statements are available to users of the financial
statements on the same terms as the financial statements of the entity and at the
same time as, or earlier than, the financial statements of the entity.
1.13.7 Disclosure requirements in other Ind AS
 Where required by Ind AS 24 Related Party Disclosures, an entity discloses information
about:
(a) related party transactions with post-employment benefit plans; and
(b) post-employment benefits for key management personnel.
 Where required by Ind AS 37 Provisions, Contingent liabilities and Contingent Assets, an
entity discloses information about contingent liabilities arising from post-employment
benefit obligations.
1.14 OTHER LONG-TERM EMPLOYEE BENEFITS

 Other long-term employee benefits are those employee benefits which are not expected to
be settled wholly before twelve months after the end of the annual reporting period in which
the employees render the related service.
 Other long-term employee benefits include, For example:
(a) long-term paid absences such as long-service or sabbatical leave;
(b) jubilee or other long-service benefits;
(c) long-term disability benefits;
(d) profit-sharing and bonuses; and
(e) deferred remuneration.
 The measurement of other long-term employee benefits is not usually subject to the same
degree of uncertainty as the measurement of post-employment benefits. It is also there
that the introduction of, or changes to, other long-term employee benefits rarely causes a
material amount of past service cost. This method does not recognise remeasurements in
other comprehensive income as required under the accounting required for post-
employment benefits.
 For other long-term employee benefits, an entity shall recognise the net total of the
following amounts in profit or loss, except to the extent that another Standard requires or
permits their inclusion in the cost of an asset:

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(a) service cost;
(b) net interest on the net defined benefit liability (asset); and
(c) remeasurements of the net defined benefit liability (asset).
 One form of other long-term employee benefit is long-term disability benefit. If the level of
benefit depends on the length of service, an obligation arises when the service is rendered.
Measurement of that obligation reflects the probability that payment will be required and
the length of time for which payment is expected to be made. If the level of benefit is the
same for any disabled employee regardless of years of service, the expected cost of those
benefits is recognised when an event occurs that causes a long-term disability.
1.14.2 Disclosure
Though this Standard does not require specific disclosures about other long-term employee
benefits, other Standards may require disclosures.
For example:
a. Where the expense resulting from such benefits is material and so would require disclosure
in accordance with Ind AS 1.
b. When required by Ind AS 24, an entity discloses information about other long-term
employee benefits for key management personnel.
1.15 TERMINATION BENEFITS

 This Standard deals with termination benefits separately from other employee benefits
because the event which gives rise to an obligation is the termination of employment rather
than employee service.
 Termination benefits results from either:
(a) an entity’s decision to terminate the employment or
(b) an employee’s decision to accept an entity’s offer of benefits in exchange for
termination of employment.
 Termination benefits do not include employee benefits resulting from termination of
employment at the request of the employee without an entity’s offer, or as a result of
mandatory retirement requirements, because those benefits are post-employment benefits.
 Some entities provide a lower level of benefit for termination of employment at the request
of the employee (in substance, a post-employment benefit) than for termination of
employment at the request of the entity. The difference between the benefit provided for
termination of employment at the request of the employee and a higher benefit provided at
the request of the entity is a termination benefit.

 The form of the employee benefit does not determine whether it is provided in exchange for
service or in exchange for termination of the employee’s employment. Termination benefits
are typically lump sum payments, but sometimes also include
(a) enhancement of post-employment benefits, either indirectly through an employee
benefit plan or directly.
(b) salary until the end of a specified notice period if the employee renders no further
service that provides economic benefits to the entity.
 Indicators that an employee benefit is provided in exchange for services include the
following:
(a) the benefit is conditional on future service being provided (including benefits that
increase if further service is provided).
(b) the benefit is provided in accordance with the terms of an employee benefit plan.
 Employee benefits provided in accordance with the terms of an employee benefit plan are
termination benefits if they both result from an entity’s decision to terminate an employee’s
employment and are not conditional on future service being provided.
 Some employee benefits are provided regardless of the reason for the employee’s
departure. The payment of such benefits is certain (subject to any vesting or minimum
service requirements) but the timing of their payment is uncertain. Although such benefits
are described in some jurisdictions as termination indemnities or termination gratuities,
they are post-employment benefits rather than termination benefits, and an entity accounts
for them as post-employment benefits.
1.15.1 Recognition
 An entity is required to recognise a liability and expense for termination benefits at the
earlier of the following dates:
(a) when the entity can no longer withdraw the offer of those benefits; and
(b) when the entity recognises costs for a restructuring which is within the scope of
Ind AS 37 and involves the payment of termination benefits.
 For termination benefits payable as a result of an employee’s decision to accept an
offer of benefits in exchange for the termination of employment, the time when an
entity can no longer withdraw the offer of termination benefits is the earlier of:
(a) when the employee accepts the offer; and
(b) when a restriction (e.g. a legal, regulatory or contractual requirement or other
restriction) on the entity’s ability to withdraw the offer takes effect.

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 For termination benefits payable as a result of an entity’s decision to terminate an
employee’s employment, the entity can no longer withdraw the offer when the entity has
communicated to the affected employees a plan of termination meeting all of the following
criteria:
(a) Actions required to complete the plan indicate that it is unlikely that significant
changes to the plan will be made.
(b) The plan identifies the number of employees whose employment is to be terminated,
their job classifications or functions and their locations (but the plan need not identify
each individual employee) and the expected completion date.
(c) The plan establishes the termination benefits that employees will receive in sufficient
detail that employees can determine the type and amount of benefits they will receive
when their employment is terminated.
 Where an entity recognises termination benefits, the entity may also have to account for a
curtailment of retirement benefits or other employee benefits.
1.15.2 Measurement
An entity shall measure termination benefits on initial recognition, and shall measure and
recognise subsequent changes, in accordance with the nature of the employee benefit, provided
that if the termination benefits are an enhancement to post-employment benefits, the entity shall
apply the requirements for post-employment benefits. Otherwise:
(a) If the termination benefits are expected to be settled wholly before twelve months after the
end of the annual reporting period in which the termination benefit is recognised, the entity
shall apply the requirements for short-term employee benefits.
(b) If the termination benefits are not expected to be settled wholly before twelve months after
the end of the annual reporting period, the entity shall apply the requirements for other
long-term employee benefits.
Because termination benefits are not provided in exchange for service, the concepts relating to
the attribution of the benefit to periods of service as discussed for defined benefit plans are not
relevant.
Example 4: On Termination Benefits
As a result of a recent acquisition, an entity plans to close a factory in ten months and, at
that time, terminate the employment of all of the remaining employees at the factory.
Because the entity needs the expertise of the employees at the factory to complete some
contracts, it announces a plan of termination as follows.
Each employee who stays and renders service until the closure of the factory will receive on
the termination date a cash payment of 30,000. Employees leaving before closure of the
factory will receive 10,000.

There are 120 employees at the factory. At the time of announcing the plan, the entity
expects 20 of them to leave before closure. Therefore, the total expected cash outflows
under the plan are 3,200,000 (i.e. (20 × 10,000) + (100 × 30,000)). As required by
paragraph 160, the entity accounts for benefits provided in exchange for termination of
employment as termination benefits and accounts for benefits provided in exchange for
services as short-term employee benefits.
Termination benefits
The benefit provided in exchange for termination of employment is 10,000. This is the
amount that an entity would have to pay for terminating the employment regardless of
whether the employees stay and render service until closure of the factory or they leave
before closure. Even though the employees can leave before closure, the termination of all
employees’ employment is a result of the entity’s decision to close the factory and terminate
their employment (i.e. all employees will leave employment when the factory closes).
Therefore, the entity recognises a liability of 12,00,000 (i.e. 120 × 10,000) for the
termination benefits provided in accordance with the employee benefit plan at the earlier of
when the plan of termination is announced and when the entity recognises the restructuring
costs associated with the closure of the factory.
Benefits provided in exchange for service
The incremental benefits that employees will receive if they provide services for the full ten-
month period are in exchange for services provided over that period. The entity accounts for
them as short-term employee benefits because the entity expects to settle them before
twelve months after the end of the annual reporting period. In this example, discounting is
not required, so an expense of 2,00,000 (i.e. 20,00,000 ÷ 10) is recognised in each
month during the service period of ten months, with a corresponding increase in the carrying
amount of the liability.
1.15.3 Disclosure
This Standard does not require specific disclosures about termination benefits, other Ind AS may
require disclosures.
For example:
a. where required by Ind AS 24 an entity discloses information about termination benefits for
key management personnel.
b. Ind AS 1 requires disclosure of employee benefits expense.

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1.16 IND AS 19 — THE LIMIT ON A DEFINED BENEFIT

ASSET, MINIMUM FUNDING REQUIREMENTS AND
THEIR INTERACTION
1.16.1 Background
 Ind AS 19 limits the measurement of a net defined benefit asset to the lower of the surplus
in the defined benefit plant and asset ceiling (i.e. the present value of economic benefits
available in the form of refunds from the plan or reductions in future contributions to the
plan). Questions have arisen about when refunds or reductions in future contributions
should be regarded as available, particularly when a minimum funding requirement exists.
 Minimum funding requirements normally stipulate a minimum amount or level of
contributions that must be made to a plan over a given period. Therefore, a minimum
funding requirement may limit the ability of the entity to reduce future contributions.
 Further, the limit on the measurement of a defined benefit asset may cause a minimum
funding requirement to be onerous. Normally, a requirement to make contributions to a plan
would not affect the measurement of the defined benefit asset or liability. This is because
the contributions, once paid, will become plan assets and so the additional net liability is
nil. However, a minimum funding requirement may give rise to a liability if the required
contributions will not be available to the entity once they have been paid.
1.16.2 Scope
This Appendix applies to all post-employment defined benefits and other long-term employee
defined benefits. For the purpose of this Appendix, minimum funding requirements are any
requirements to fund a post-employment or other long-term defined benefit plan.
1.16.3 Issues
The issues addressed in this Appendix are:
(a) when refunds or reductions in future contributions should be regarded as available in
accordance with the definition of the asset ceiling.
(b) how a minimum funding requirement might affect the availability of reductions in future
contributions.
(c) when a minimum funding requirement might give rise to a liability.

1.16.4 Principles
1.16.4.1 Availability of a refund or reduction in future contributions
 An entity shall determine the availability of a refund or a reduction in future contributions in
accordance with the terms and conditions of the plan and any statutory requirements in the
jurisdiction of the plan.
 An economic benefit is available in the form of a refund or a reduction in future
contributions if the entity can realise it at some point during the life of the plan or when the
plan liabilities are settled.
 The economic benefit available does not depend on how the entity intends to use the
surplus. An entity shall determine the maximum economic benefit that is available from
refunds, reductions in future contributions or a combination of both. An entity shall not
recognise economic benefits from a combination of refunds and reductions in future
contributions based on assumptions that are mutually exclusive.
 In accordance with Ind AS 1, the entity shall disclose information about the key sources of
estimation uncertainty at the end of the reporting period that have a significant risk of
causing a material adjustment to the carrying amount of the net asset or liability recognised
in the balance sheet. This might include disclosure of any restrictions on the current
realisability of the surplus or disclosure of the basis used to determine the amount of the
economic benefit available.
1.16.4.2 The economic benefit available as a refund
1. The right to a refund
 A refund is available to an entity only if the entity has an unconditional right to a
refund:
(a) during the life of the plan, without assuming that the plan liabilities must be
settled in order to obtain the refund (e.g., in some jurisdictions, the entity may
have a right to a refund during the life of the plan, irrespective of whether the
plan liabilities are settled); or
(b) assuming the gradual settlement of the plan liabilities over time until all members
have left the plan; or
(c) assuming the full settlement of the plan liabilities in a single event (i.e., as a plan
wind-up).
 An unconditional right to a refund can exist whatever the funding level of a plan at the
end of the reporting period.
 If the entity’s right to a refund of a surplus depends on the occurrence or non-
occurrence of one or more uncertain future events not wholly within its control, the
entity does not have an unconditional right and shall not recognise an asset.

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2. Measurement of the economic benefit
 An entity shall measure the economic benefit available as a refund as the amount of
the surplus at the end of the reporting period (being the fair value of the plan assets
less the present value of the defined benefit obligation) that the entity has a right to
receive as a refund, less any associated costs.
For instance, if a refund would be subject to a tax other than income tax, an entity
shall measure the amount of the refund net of the tax.
 In measuring the amount of a refund available when the plan is wound up, an entity
shall include the costs to the plan of settling the plan liabilities and making the refund.
For example, an entity shall deduct professional fees if these are paid by the plan
rather than the entity, and the costs of any insurance premiums that may be required
to secure the liability on wind-up.
 If the amount of a refund is determined as the full amount or a proportion of the
surplus, rather than a fixed amount, an entity shall make no adjustment for the time
value of money, even if the refund is realisable only at a future date.
1.16.4.3 The economic benefit available as a contribution reduction
 The economic benefit available as a reduction in future contributions is the future service
cost to the entity for each period over the shorter of the expected life of the plan and the
expected life of the entity; and if there is no minimum funding requirement for contributions
relating to future service. The future service cost to the entity excludes amounts that will
be borne by employees.
 An entity shall determine the future service costs using assumptions consistent with those
used to determine the defined benefit obligation and with the situation that exists at the end
of the reporting period. Therefore, an entity shall assume no change to the benefits to be
provided by a plan in the future can be assumed by the entity until the plan is amended and
shall assume a stable workforce in the future unless the entity makes a reduction in the
number of employees covered by the plan. In the latter case, the assumption about the
future workforce shall include the reduction.
1.16.4.4 The effect of a minimum funding requirement on the economic benefit
available as a reduction in future contributions
 An entity shall analyse any minimum funding requirement at a given date into contributions
that are required to cover
(a) any existing shortfall for past service on the minimum funding basis; and
(b) future service.
o Contributions to cover any existing shortfall on the minimum funding basis in
respect of services already received do not affect future contributions for future
service. They may give rise to a liability.

 If there is a minimum funding requirement for contributions relating to the future service,
the economic benefit available as a reduction in future contributions is the sum of:
(a) any amount that reduces future minimum funding requirement contributions for future
service because the entity made a prepayment (i.e., paid the amount before being
required to do so); and
(b) the estimated future service cost in each period less the estimated minimum funding
requirement contributions that would be required for future service in those periods if
there were no prepayment as described in (a).
 An entity shall estimate the future minimum funding requirement contributions for future
service taking into account the effect of any existing surplus determined using the minimum
funding basis but excluding the prepayment. An entity shall use assumptions consistent
with the minimum funding basis and, for any factors not specified by that basis,
assumptions consistent with those used to determine the defined benefit obligation and
with the situation that exists at the end of the reporting period. The estimate shall include
any changes expected as a result of the entity paying the minimum contributions when they
are due. However, the estimate shall not include the effect of expected changes in the
terms and conditions of the minimum funding basis that are not substantively enacted or
contractually agreed at the end of the reporting period.
 When an entity determines the amount, if the future minimum funding requirement
contributions for future service exceed the future service cost in any given period, that
excess reduces the amount of the economic benefit available as a reduction in future
contributions.
1.16.4.6 When a minimum funding requirement may give rise to a liability
 If an entity has an obligation under a minimum funding requirement to pay contributions to
cover an existing shortfall on the minimum funding basis in respect of services already
received, the entity shall determine whether the contributions payable will be available as a
refund or reduction in future contributions after they are paid into the plan.
 To the extent that the contributions payable will not be available after they are paid into the
plan, the entity shall recognise a liability when the obligation arises. The liability shall
reduce the defined benefit asset or increase the defined benefit liability so that no gain or
loss is expected.
1.17 EXTRACTS OF FINANCIAL STATEMENTS OF LISTED

ENTITY
Following is the extract from the financial statements of the listed entity ‘Bharti Airtel
Limited’ for the financial year 2021-2022 with respect to ‘Employee Benefits’ and its
accounting policy thereon.

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ACCOUNTING POLICY
The Company’s employee benefits mainly include wages, salaries, bonuses, defined
contribution plans, defined benefits plans, compensated absences, deferred
compensation, and share-based payments. The employee benefits are recognized in
the year in which the associated services are rendered by the Company employees.
Short-term employee benefits are recognized in the Statement of Profit and Loss at
undiscounted amounts during the period in which the related services are rendered.
i. Defined Contribution plans
T he contributions to defined contribution plans are recognized in profit or loss as and
when the services are rendered by employees. The Company has no further
obligations under these plans beyond its periodic contributions.
ii. Defined benefits plans

In accordance with the local laws and regulations, all the employees in India are entitled for
the Gratuity plan. The said plan requires a lump-sum payment to eligible employees

(meeting the required vesting service condition) at retirement or termination of employment,

based on a pre-defined formula.
The Company provides for the liability towards the said plans on the basis of actuarial
valuation carried out quarterly as at the reporting date, by an independent qualified actuary
using the projected-unit-credit method.
The obligation towards the said benefits is recognized in the Balance Sheet, at the present
value of the defined benefit obligations. The present value of the said obligation is
determined by discounting the estimated future cash outflows, using interest rates of
government bonds.
The interest expenses are calculated by applying the above-mentioned discount rate to
defined benefits obligations. The interest expenses on the defined benefits obligations are
recognized in the Statement of Profit and Loss. However, the related re-measurements of
the defined benefits obligations are recognized directly in the other comprehensive income in
the period in which they arise. The said re-measurements comprise of actuarial gains and
losses (arising from experience adjustments and changes in actuarial assumptions). Re-
measurements are not re-classified to the Statement of Profit and Loss in any of the
subsequent periods.
a. Other long-term employee benefits
The employees of the Company are entitled to compensated absences as well as other long-
term benefits. Compensated absences benefits comprise of encashment and availment of
leave balances that were earned by the employees over the period of past employment.
The Company provides for the liability towards the said benefits on the basis of actuarial
valuation carried out quarterly as at the reporting date, by an independent qualified actuary
using the projected-unit-credit method. The related re-measurements are recognized in the
Statement of Profit and Loss in the period in which they arise.
(Source: Annual Report 2021-2022 - ‘Bharti Airtel Limited’)
1.18 SIGNIFICANT DIFFERENCES IN IND AS 19 VIS-À-VIS

AS 15
S. Particulars Ind AS 19 AS 15
No.
1. Constructive In Ind AS 19 (paragraph 4(c), In AS 15 (paragraph 3(c) such
Obligations obligations arising from informal obligations are simply referred
practices are referred to as to as obligations.
constructive obligations

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2. Definition of Ind AS 19 the term ‘employee’ includes As per AS 15, the term
Employee directors whether they are whole-time ‘employee’ includes whole-time
or not. (Paragraph 7 of Ind AS 19) directors
3. Other Definitions of short-term employee Different definitions are given
Definitions benefits, other long-term employee in AS 15
benefits, and past service cost is
different in Ind AS 19 (Paragraph 8 of
Ind AS 19)
4. Contractual Ind AS 19 deals with situations where AS 15 does not deal with it
Agreement there is a contractual agreement
between a between a multi-employer plan and its
Multi- participants that determines how the
employer surplus in the plan will be distributed to
Plan and its the participants (or the deficit funded).
Participants (Paragraph 37 of Ind AS 19)
5. Participation As per Ind AS 19, participation in a AS 15 does not contain similar
in a Defined defined benefit plan sharing risks provisions
Benefit Plan between various entities under
Sharing common control is a related party
Risks transaction for each group entity and
Between some disclosures are required in the
Various separate or individual financial
Entities statements of an entity.
under (Paragraph 42 of Ind AS 19)
Common
Control
6. Recognition As per Ind AS 19, past service cost As per AS 15, past service cost
of Past (including curtailments) is recognised is recognised as an expense on
Service Cost as an expense at the earlier of when a straight-line basis over the
the plan amendment or Curtailment average period until the
occurs; and when the entity recognizes benefits become vested. If
related restructuring costs or already vested, recognised as
termination benefits. an expense immediately.
Entities recognise a curtailment
when it occurs. However, when
curtailment is linked with a
restructuring, it is accounted for
at the same time as the related
restructuring.

7. Involvement Para 59 of Ind AS 19 encourages, but AS 15 neither requires nor

of a does not require, an entity to involve a specifically encourage the
qualified qualified actuary in the measurement same.
actuary of all material post-employment benefit
obligations. (Paragraph 59 of Ind AS
19)
8. Actuarial Detailed actuarial valuation to Detailed actuarial valuation to
valuation determine the present value of net determine the present value of
defined benefit liability (asset) shall be defined benefit obligation is
performed with sufficient regularity so carried out at least once every
that the amounts recognized in the 3 years and fair value of plan
financial statements do not differ assets are determined at each
materially from the amounts that would balance sheet date.
have been determined at the end of the
reporting period. Ind AS 19 does not
define sufficient regularity.
9. Recognition Ind AS 19 requires that the same shall AS 15 requires recognition of
of Actuarial be recognised in other comprehensive actuarial gains and losses
Gains and income and not reclassified to profit or immediately in the profit and
Losses loss in a subsequent period. loss
10. Financial Ind AS 19 makes it clear that financial AS 15 does not clarify the
Assumptions assumptions shall be based on market same
expectations, at the end of the
reporting period, for the period over
which the obligations are to be settled.
(Paragraph 80 of Ind AS 19)
11. Discounting As per Ind AS 19, subsidiaries, As per AS 15, the rate used to
of Post- associates, joint ventures and discount post-employment
employment branches domiciled outside India shall benefit obligations should
Benefit discount post-employment benefit always be determined by
Obligations obligations arising on account of post- reference to market yields at
employment benefit plans using the the balance sheet date on
rate determined by reference to market government bond.
yields at the end of the reporting period
on high quality corporate bonds. In
case, such subsidiaries, associates,
joint ventures and branches are
domiciled in countries where there is
no deep market in such bonds, the

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market yields (at the end of the
reporting period) on government bonds
of that country shall be used.
12. Timing of As per Ind AS 19 para 165, an entity As per AS 15 para 134, an
Recognition shall recognise a liability and expense enterprise should recognise
of for termination benefits at the earlier of termination benefits as a
Termination the following dates: liability and an expense when,
Benefits (a) when the entity can no longer and only when:
withdraw the offer of those (a) the enterprise has a
benefits; and present obligation as a
(b) when the entity recognises costs result of a past event;
for a restructuring that Employee (b) it is probable that an
Benefits within the scope of Ind outflow of resources
AS 37 and involves the payment embodying economic
of termination benefits. benefits will be required to
settle the obligation; and
(c) a reliable estimate can be
made of the amount of the
obligation.
13. Guidance on Ind AS 19 gives guidance on the Such guidance is not available
Interaction interaction of ceiling of asset in AS 15.
of Ceiling of recognition and minimum funding
Asset requirement in the case of defined
Recognition benefit obligations. (Appendix B of Ind
and AS 19)
Minimum
Funding
Requirement

FOR SHORTCUT TO IND AS WISDOM: SCAN ME!
TEST YOUR KNOWLEDGE

Questions
1. An entity has 100 employees, who are each entitled to five working days of paid sick leaves
for each year. Unused sick leave may be carried forward for one calendar year. Sick leave
is taken first out of the current year's entitlement and then out of any balance brought
forward from the previous year (LIFO basis).
At 31 st March, 20X1, the average unused entitlement is two days per employee. The entity
expects, on the basis of experience that is expected to continue, that 92 employees will
take no more than five days of paid sick leaves in 20X1-20X2 and that the remaining eight
employees will take an average of six and a half days each.
The entity expects that it will pay an additional twelve days of sick pay as a result of the
unused entitlement that has accumulated at 31 st March, 20X1 (one and a half days each,
for eight employees).
Comment whether the entity would require to recognize any liability in respect of leaves.
2. A plan provides a monthly pension of 0.3% of final salary for each year of service. The
pension is payable from the age of 65.
Determine the current service cost.
3. A plan pays a benefit of 140 for each year of service, excluding service before the age of
25. The benefits vest immediately.
Compute the benefit to be attributed before the age of 25 and after 25?
4. B Pvt. Ltd. has a post-employment medical plan which will reimburse 20% of an employee’s
post-employment medical costs if the employee leaves after more than ten and less than

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twenty years of service and 50% of those costs if the employee leaves after twenty or more
years of service.
State how would you measure the benefit to be attributed for the employee service for the
Iast 20 years, 10 and 20 years and within 10 years.
5. Cisca Pvt. Ltd. has a headcount of around 1,000 employees in the organisation in 20X0-
20X1. As per the company’s policy, the employees are given 35 days of privilege leaves
(PL), 15 days of sick leaves (SL) and 10 days of casual leaves. Out of the total PL and
sick leaves, 10 PL leaves and 5 sick leaves can be carried forward to next year. On the
basis of past trends, it has been noted that 200 employees will take 5 days of PL and 2
days of SL and 800 employees will avail 10 days of PL and 5 days of SL.
Also the company has been incurring profits since 20XX. It has decided in 20X0-20X1 to
distribute profits to its employees @ 4% during the year. However, due to the employee
turnover in the organisation, the expected pay-out of the Cisca Pvt. Ltd. is expected to be
around 3.5%. The profits earned during 20X0-20X1 is 2,000 crores.
Cisca Pvt. Ltd. has a post-employment benefit plan also available which is in the nature of
defined contribution plan where contribution to the fund amounts to 100 crores which will
fall due within 12 months from the end of accounting period.
The company has paid 20 crores to its employees in 20X0-20X1.State what would be the
treatment of the short-term compensating absences, profit-sharing plan and the defined
contribution plan in the books of Cisca Pvt. Ltd. Also state what would be the treatment, if
the contribution paid from defined contribution plan exceeds the contribution due. Further,
determine what would be the accounting if the payment from defined contribution plan does
not fall due within 12 months from the end of accounting period.
6. OPQ Ltd is a listed company having its corporate office at Nagpur. The company has a
branch office at Chennai. The company has been operating in Indian market for the last
10 years.
The company operates a pension plan that provides a pension of 2.5% of the final salary
for each year of service. The benefits become vested after seven years of service.
On 1 st April, 20X8, the company increased the pension to 3% of the final salary for each
year of service starting from 1 st April, 20X1. On the date of the improvement, the present
value of the additional benefits for service from 1 st April, 20X1 to 1 st April 20X8 was as
follows:
 Employees with more than seven years’ service on 1 st January 20X8 – 2,75,000
 Employees with less than 7 years of service – 2,21,000 (average 4 years to go).
Provide the accounting treatment in this case.

7. SA Pvt Ltd is engaged in the business of retail having 100 retail outlets across Northern
and Southern India. The company’s head office is located at Chennai.
SA Pvt Ltd is a subsidiary of SAG Ltd. SAG Ltd is listed on the National Stock Exchange in
India.
Following information is available for SA Pvt Ltd:
Plan Assets
At 1 st April, 20X1, the fair value of plan assets was 10,000.
Contribution to the plan assets done on 31 st March, 20X2 – 3,000
Amount paid on 31 st March, 20X2 – 300
At 31 st March, 20X2, the fair value of plan assets was 14,700
Actual return on plan assets – 2,000
Defined Benefit Obligation
At 1 st April, 20X1, present value of the defined benefit obligation was 12,000.
At 31 st March, 20X2, present value of the defined benefit obligation was 15,500.
Actuarial losses on the obligation for the year ended 31 st March, 20X2 were 100.
Current Service Cost – 2,500
Benefit paid – 300
Discount rate used to calculate defined benefit liability - 10%.
Suggest if there is any amount based on the above-mentioned information that would be
taken to other comprehensive income (with workings). Also compute net interest on the
net defined benefit liability (asset).
8. A Ltd. prepares its financial statements to 31 st March each year. It operates a defined
benefit retirement benefits plan on behalf of current and former employees. A Ltd. receives
advice from actuaries regarding contribution levels and overall liabilities of the plan to pay
benefits. On 1 st April, 20X1, the actuaries advised that the present value of the defined
benefit obligation was 6,00,00,000. On the same date, the fair value of the assets of the
defined benefit plan was 5,20,00,000. On 1 st April, 20X1, the annual market yield on
government bonds was 5%. During the year ended 31 st March, 20X2, A Ltd. made
contributions of 70,00,000 into the plan and the plan paid out benefits of 42,00,000 to
retired members. Both these payments were made on 31 st March, 20X2.
The actuaries advised that the current service cost for the year ended 31 st March, 20X2
was 62,00,000. On 28 th February, 20X2, the rules of the plan were amended with
retrospective effect. These amendments meant that the present value of the defined
benefit obligation was increased by 15,00,000 from that date.

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During the year ended 31 st March, 20X2, A Ltd. was in negotiation with employee
representatives regarding planned redundancies. The negotiations were completed shortly
before the year end and redundancy packages were agreed. The impact of these
redundancies was to reduce the present value of the defined benefit obligation by
80,00,000. Before 31 st March, 20X2, A Ltd. made payments of 75,00,000 to the
employees affected by the redundancies in compensation for the curtailment of their
benefits. These payments were made out of the assets of the retirement benefits plan.
On 31 st March, 20X2, the actuaries advised that the present value of the defined benefit
obligation was 6,80,00,000. On the same date, the fair value of the assets of the defined
benefit plan were 5,60,00,000.
Examine and present how the above event would be reported in the financial statements of
A Ltd. for the year ended 31 st March, 20X2 as per Ind AS. Finance cost is to be computed
on the opening balances.
9. On 1 st April 20X1, the fair value of the assets of XYZ Ltd. ʼs defined benefit plan were
valued at 20,40,000 and the present value of the defined obligation was 21,25,000. On
31 st March,20X2 the plan received contributions from XYZ Ltd amounting to 4,25,000 and
paid out benefits of 2,55,000. The current service cost for the financial year ending
31 st March 20X2 is 5,10,000. An interest rate of 5% is to be applied to the plan assets
and obligations. The fair value of the plan assets at 31 st March 20X2 was 23,80,000, and
the present value of the defined benefit obligation was 27,20,000.
Provide a reconciliation from the opening balance to the closing balance for plan assets
and defined benefit obligation. Also show how much amount should be recognised in the
statement of profit and loss, other comprehensive income and balance sheet?
Answers
1. At 31 st March, 20X1, the average unused entitlement is two days per employee. The entity
expects, on the basis of experience that is expected to continue, that 92 employees will
take no more than five days of paid sick leaves in 20X1-20X2 and that the remaining eight
employees will take an average of six and a half days each.
The entity expects that it will pay an additional twelve days of sick pay as a result of the
unused entitlement that has accumulated at 31 st March, 20X1 (one and a half days each,
for eight employees).
Therefore, the entity would recognize a liability equal to twelve days of sick pay.
2. Benefit equal to the present value, at the expected retirement date, of a monthly pension of
0.3% of the estimated final salary payable from the expected retirement date until the
expected date of death is attributed to each year of service. The current service cost is the
present value of that benefit.

The present value of the defined benefit obligation is the present value of monthly pension
payments of 0.3% of final salary, multiplied by the number of years of service up to the end
of the reporting period. The current service cost and the present value of the defined
benefit obligation are discounted because pension payments begin at the age of 65.
3. No benefit is attributed to service before the age of 25 because service before that date
does not lead to benefits (conditional or unconditional). A benefit of 140 is attributed to
each subsequent year.
4. As per Ind AS 19, the benefit will be attributed till the period the employee service will lead
to no material amount of benefits. And service in later years will lead to a materially higher
level of benefit than in earlier years. Therefore, for employees expected to leave after
twenty or more years, the entity would attribute benefit on a straight-line basis. Service
beyond twenty years will lead to no material amount of further benefits. Therefore, the
benefit attributed to each of the first twenty years is 2.5% (i.e. 50% divided by 20) of the
present value of the expected medical costs.
For employees expected to leave between ten and twenty years, the benefit attributed to
each of the first ten years is 2% (20 % divided by 10) of the present value of the expected
medical costs. For these employees, no benefit is attributed to service between the end of
the tenth year and the estimated date of leaving.
For employees expected to leave within ten years, no benefit is attributed.
5. (i) Cisca Pvt. Ltd. will recognise a liability in its books to the extent of 5 days of PL for
200 employees and 10 days of PL for remaining 800 employees and 2 days of SL for
200 employees and 5 days of SL for remaining 800 employees in its books as an
unused entitlement that has accumulated in 20X0-20X1 as short-term compensated
absences.
(ii) Cisca Pvt. Ltd. will recognise 70 crores (2,000 x 3.5%) as a liability and expense in
its books of account.
(iii) When an employee has rendered service to an entity during a period, the entity shall
recognise the contribution payable to a defined contribution plan in exchange for that
service.
Under Ind AS 19, the amount of 80 crores will be recognised as a liability (accrued
expense), after deducting any contribution already paid (100-20) and an expense in the
statement of profit and loss. However, if the contribution already paid would have
exceeded the contribution due for service before the end of the reporting period, an entity
shall recognise that excess as an asset (prepaid expense).
Since the contributions are payable within 12 months from the end of the year in which the
employees render the related service, they will not be discounted. However, where
contributions to a defined contribution plan do not fall due wholly within twelve months after

8.84 a
v
v
the end of the period in which the employees render the related service, they shall be
discounted using the discount rate.
6. OPQ Ltd increased the pension to 3% of the final salary for each year of service starting
from 1 st April, 20X1 to 1 st April, 20X8.
The company would recognize the total amount of 4,96,000 (i.e. 2,75,000 +
2,21,000) immediately, as for the purpose of recognition it does not make any difference
as to whether the benefits are already vested or not.
7. As per Ind AS 19, net remeasurement of 900 would be recognized in other
comprehensive income.
Computation of Net remeasurement
= Remeasurement – Actuarial loss
= 1000 (Refer WN - 1) – 100 (Given in the question) = 900.
Computation of net interest expense
Particulars Amount in
Defined benefit liability as at 1 st April 20X1 (A) (Given in the question) 12,000
Fair value of plan asset as at 1 st April 20X1 (B) (Given in the question) (10,000)
Net defined benefit liability (A - B) 2,000
Net interest expense (as it is net liability) (Refer note given below) 200
Note:
Net interest expense would be computed on net defined benefit liability using discount rate
of 10% given in the question-
= Net defined benefit liability x Discount rate
= 2,000 x 10%
= 200.
Working Note:
Computation of amount of remeasurement
Particulars
Actual return on plan asset for the year ended 31 st March 20X2 (C) 2,000
(Given in the question)
Less: Interest income on 10,000 held for 12 months at 10% (D) (1,000)
Remeasurement (E = C - D) 1,000

8. All figures are in ’000.

On 31 st March, 20X2, A Ltd. will report a net pension liability in the statement of financial
position. The amount of the liability will be 12,000 (68,000 – 56,000).
For the year ended 31 st March, 20X2, A Ltd. will report the current service cost as an
operating cost in the statement of profit or loss. The amount reported will be 6,200. The
same treatment applies to the past service cost of 1,500.
For the year ended 31 st March, 20X2, A Ltd. will report a finance cost in profit or loss based
on the net pension liability at the start of the year of 8,000 (60,000 – 52,000). The amount
of the finance cost will be 400 (8,000 x 5%).
The redundancy programme represents the partial settlement of the curtailment of a
defined benefit obligation. The gain on settlement of 500 (8,000 – 7,500) will be reported in
the statement of profit or loss.
Other movements in the net pension liability will be reported as remeasurement gains or
losses in other comprehensive income.
For the year ended 31 st March, 20X2, the remeasurement loss will be 3,400 (Refer W. N.).
Working Note:
Remeasurement of gain or loss
in ’000
Liability at the start of the year (60,000 – 52,000) 8,000
Current service cost 6,200
Past service cost 1,500
Net finance cost 400
Gain on settlement (500)
Contributions to plan (7,000)
Remeasurement loss (balancing figure) 3,400
Liability at the end of the year (68,000 – 56,000) 12,000
9. Reconciliation of Plan assets and Defined benefit obligation
Plan Assets Defined benefit

obligation
Fair value/present value as at 1 st April 20X1 20,40,000 21,25,000

Interest @ 5% 1,02,000 1,06,250

8.86 a
v
v
Current service cost 5,10,000
Contributions received 4,25,000 -
Benefits paid (2,55,000) (2,55,000)
Return on plan assets (gain) (assets) (balancing 68,000 -
figure)
Actuarial Loss (balancing figure) - 2,33,750
Closing balance as at 31 st March, 20X2 23,80,000 27,20,000
In the Statement of Profit and loss, the following will be recognised:

Current service cost 5,10,000
Net interest on net defined liability ( 1,06,250 – 1,02,000) 4,250
Defined benefit re-measurements recognised in Other Comprehensive Income:

Loss on defined benefit obligation (2,33,750)
Gain on plan assets 68,000
(1,65,750)
In the Balance sheet, the following will be recognised:

Net defined benefit liability ( 27,20,000 – 23,80,000) 3,40,000

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CHAPTER 8

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Short-term Post-employment Other Long-term Termination

*Note: These plans may also be considered as Defined Contribution Plans.

© The Institute of Chartered Accountants of India

1.1 OBJECTIVE OF IND AS 19

 Entity should recognise liability for Employee

Provides benefits e.g. salary, leave encashment, gratuity, pension etc.

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1.3 EMPLOYEE BENEFITS

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Other Long Term Benefits

 Employee benefits include benefits provided either to

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Employee benefits include

Employee benefits are paid to

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Expected to be settled wholly before twelve months

Post Employment Payable after the completion of employment (other

Other Long-term Other than short-term, post-employment and

Provided in exchange for the termination of an

1.4.2 Definitions relating to classification of plans

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

1.5 SHORT-TERM EMPLOYEE BENEFITS

Short-term employee benefits include

Wages, salaries Paid annual Profit-sharing Non-monetary benefits (such

 Reclassification of a short-term employee benefit is not required if the entity’s expectations

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1.5.2 Short-term paid absences

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Journal Entry for 20X0-20X1

The additional 10,000 booked as an expense in 20X1-20X2 represents a change in

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© The Institute of Chartered Accountants of India

Non-vested short-term compensated absences:

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© The Institute of Chartered Accountants of India

Step 4: Accounting treatment

1.5.3 Profit-sharing and bonus plans

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

SHORT TERM EMPLOYEE BENEFITS

Recognition & Measurement

As a liability (accrued As an asset (if amount paid

Accumulating Non -accumulating

© The Institute of Chartered Accountants of India

1.6 POST-EMPLOYMENT BENEFITS

Retirement benefits such as pensions and

1.6.1 Classification of post-employment Benefit Plans into Defined

1.6.1.1 Under defined contribution plans

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S. No. Particulars Defined Contribution Plans Defined Benefit Plans

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