TMI BlogEmployee BenefitsX X X X Extracts X X X X X X X X Extracts X X X X ..... ng by employee benefit plans. 3. The employee benefits to which this Standard applies include those provided: (a) under formal plans or other formal agreements between an enterprise and individual employees, groups of employees or their representatives; (b) under legislative requirements, or through industry arrangements, whereby enterprises are required to contribute to state, industry or other multi-employer plans; or (c) by those informal practices that give rise to an obligation. Informal practices give rise to an obligation where the enterprise has no realistic alternative but to pay employee benefits. An example of such an obligation is where a change in the enterprise s informal practices would cause unacceptable damage to its relationship with employees. 4. Employee benefits include: (a) short-term employee benefits, such as wages, salaries and social security contributions (e.g., contribution to an insurance company by an employer to pay for medical care of its employees), paid annual leave, profit-sharing and bonuses (if payable within twelve months of the end of the period) and non-monetary benefits (such as medical care, housing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and prior periods. 7.6 Defined benefit plans are post-employment benefit plans other than defined contribution plans. 7.7 Multi-employer plans are defined contribution plans (other than state plans) or defined benefit plans (other than state plans) that: (a) pool the assets contributed by various enterprises that are not under common control; and (b) use those assets to provide benefits to employees of more than one enterprise, on the basis that contribution and benefit levels are determined without regard to the identity of the enterprise that employs the employees concerned. 7.8 Other long-term employee benefits are employee benefits (other than post-employment benefits and termination benefits) which do not fall due wholly within twelve months after the end of the period in which the employees render the related service. 7.9 Termination benefits are employee benefits payable as a result of either: (a) an enterprise s decision to terminate an employee s employment before the normal retirement date; or (b) an employee s decision to accept voluntary redundancy in exchange for those benefits (voluntary retirement). 7.10 Vested employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm s length transaction. 7.18 The return on plan assets is interest, dividends and other revenue derived from the plan assets, together with realised and unrealised gains or losses on the plan assets, less any costs of administering the plan and less any tax payable by the plan itself. 7.19 Actuarial gains and losses comprise: (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. 7.20 Past service cost is the change in the present value of the defined benefit obligation for employee service in prior periods, resulting in the current period from the introduction of, or changes to, post-employment benefits or other long-term employee benefits. Past service cost may be either positive (where benefits are introduced or improved) or negative (where existing benefits are reduced). Short-term Employee Benefits 8. Short-term employee benefits include items such as: (a) wages, salaries and social security contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , sickness and short-term disability and maternity or paternity. Entitlement to compensated absences falls into two categories: (a) accumulating; and (b) non-accumulating. 13. Accumulating compensated absences are those that are carried forward and can be used in future periods if the current period s entitlement is not used in full. Accumulating compensated absences may be either vesting (in other words, employees are entitled to a cash payment for unused entitlement on leaving the enterprise) or non-vesting (when employees are not entitled to a cash payment for unused entitlement on leaving). An obligation arises as employees render service that increases their entitlement to future compensated absences. The obligation exists, and is recognised, even if the compensated absences are non-vesting, although the possibility that employees may leave before they use an accumulated non-vesting entitlement affects the measurement of that obligation. 14. An enterprise should measure the expected cost of accumulating compensated absences as the additional amount that the enterprise expects to pay as a result of the unused entitlement that has accumulated at the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... An enterprise should recognise the expected cost of profit-sharing and bonus payments under paragraph 10 when, and only when: (a) the enterprise has a present obligation to make such payments as a result of past events; and (b) a reliable estimate of the obligation can be made. A present obligation exists when, and only when, the enterprise has no realistic alternative but to make the payments. A present obligation exists when, and only when, the enterprise has no realistic alternative but to make the payments. 18. Under some profit-sharing plans, employees receive a share of the profit only if they remain with the enterprise for a specified period. Such plans create an 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 obligations reflects the possibility that some employees may leave without receiving profit-sharing payments. Example Illustrating Paragraph 18 A profit-sharing plan requires an enterprise to pay a specified proportion of its net profit for the year to employees who serve throughout the year. If no employees leave during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y involve the establishment of a separate entity to receive contributions and to pay benefits. 25. Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions. Under defined contribution plans: (a) the enterprise s obligation is limited to the amount that it agrees to contribute to the fund. Thus, the amount of the post-employment benefits received by the employee is determined by the amount of contributions paid by an enterprise (and also by the employee) to a post-employment benefit plan or to an insurance company, together with investment returns arising from the contributions; and (b) in consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall on the employee. 26. Examples of cases where an enterprise s obligation is not limited to the amount that it agrees to contribute to the fund are when the enterprise has an obligation through: (a) a plan benefit formula that is not linked solely to the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined benefit multi-employer plan is one where: (a) the plan is financed in a manner such that contributions are set at a level that is expected to be sufficient to pay the benefits falling due in the same period; and future benefits earned during the current period will be paid out of future contributions; and (b) employees benefits are determined by the length of their service and the participating enterprises have no realistic means of withdrawing from the plan without paying a contribution for the benefits earned by employees up to the date of withdrawal. Such a plan creates actuarial risk for the enterprise; if the ultimate cost of benefits already earned at the balance sheet date is more than expected, the enterprise will have to either increase its contributions or persuade employees to accept a reduction in benefits. Therefore, such a plan is a defined benefit plan. 32. Where sufficient information is available about a multi-employer plan which is a defined benefit plan, an enterprise accounts for its proportionate share of the defined benefit obligation, plan assets and post-employment benefit cost associated with the plan in the same way as for any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements of the group enterprise that is legally the sponsoring employer for the plan. The other group enterprises recognise, in their separate financial statements, a cost equal to their contribution payable for the period. 36. AS 29 Provisions, Contingent Liabilities and Contingent Assets requires an enterprise to recognise, or disclose information about, certain contingent liabilities. In the context of a mult-iemployer plan, a contingent liability may arise from, for example: (a) actuarial losses relating to other participating enterprises because each enterprise that participates in a multi-employer plan shares in the actuarial risks of every other participating enterprise; or (b) any responsibility under the terms of a plan to finance any shortfall in the plan if other enterprises cease to participate. State Plans 37. An enterprise should account for a state plan in the same way as for a multi-employer plan (see paragraphs 29 and 30). 38. State plans are established by legislation to cover all enterprises (or all enterprises in a particular category, for example, a specific industry) and are operated by national or local government or by anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly, indirectly through the plan, through the mechanism for setting future premiums or through a related party relationship with the insurer) retains an obligation, the payment of the premiums does not amount to a defined contribution arrangement. It follows that the enterprise: (a) accounts for a qualifying insurance policy as a plan asset (see paragraph 7); and (b) recognises other insurance policies as reimbursement rights (if the policies satisfy the criteria in paragraph 103). 43. Where an insurance policy is in the name of a specified plan participant or a group of plan participants and the enterprise does not have any obligation to cover any loss on the policy, the enterprise has no obligation to pay benefits to the employees and the insurer has sole responsibility for paying the benefits. The payment of fixed premiums under such contracts is, in substance, the settlement of the employee benefit obligation, rather than an investment to meet the obligation. Consequently, the enterprise no longer has an asset or a liability. Therefore, an enterprise treats such payments as contributions to a defined contribution plan. Post-employment Benefits: Defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sured on a discounted basis because they may be settled many years after the employees render the related service. While the Standard requires that it is the responsibility of the reporting enterprise to measure the obligations under the defined benefit plans, it is recognised that for doing so the enterprise would normally use the services of a qualified actuary. Recognition and Measurement 50. Defined benefit plans may be unfunded, or they may be wholly or partly funded by contributions by an enterprise, and sometimes its employees, into an entity, or fund, that is legally separate from the reporting enterprise and from which the employee benefits are paid. The payment of funded benefits when they fall due depends not only on the financial position and the investment performance of the fund but also on an enterprise s ability to make good any shortfall in the fund s assets. Therefore, the enterprise is, in substance, underwriting the actuarial and investment risks associated with the plan. Consequently, the expense recognised for a defined benefit plan is not necessarily the amount of the contribution due for the period. 51. Accounting by an enterprise for defined ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrary, accounting for post-employment benefits assumes that an enterprise which is currently promising such benefits will continue to do so over the remaining working lives of employees. Balance Sheet 55. The amount recognised as a defined benefit liability should be the net total of the following amounts: (a) the present value of the defined benefit obligation at the balance sheet date (see paragraph 65); (b) minus any past service cost not yet recognised (see paragraph 94); (c) minus the fair value at the balance sheet date of plan assets (if any) out of which the obligations are to be settled directly (see paragraphs 100-102). 56. The present value of the defined benefit obligation is the gross obligation, before deducting the fair value of any plan assets. 57. An enterprise should determine the present value of defined benefit obligations and the fair value of any plan assets with sufficient regularity that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the balance sheet date. 58. The detailed actuarial valuation of the present value of defined benefit obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59(b) 90 ₹ 90 is less than ₹ 160. Therefore, the enterprise recognises an asset of ₹ 90 and discloses that the limit reduced the carrying amount of the asset by ₹ 70 (see paragraph 120(f)(ii)). Statement of Profit and Loss 61. An enterprise should recognise the net total of the following amounts in the statement of profit and loss, except to the extent that another Accounting Standard requires or permits their inclusion in the cost of an asset: (a) current service cost (see paragraphs 64-91); (b) interest cost (see paragraph 82); (c) the expected return on any plan assets (see paragraphs 107-109) and on any reimbursement rights (see paragraph 103); (d) actuarial gains and losses (see paragraphs 92-93); (e) past service cost to the extent that paragraph 94 requires an enterprise to recognise it; (f) the effect of any curtailments or settlements (see paragraphs 110 and 111); and (g) the effect of the limit in paragraph 59(b), i.e., the extent to which the amount determined under paragraph 55 (if negative) exceeds the amount determined under paragraph 59(b). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100 at the end of year 5. The discount rate used is 10% per annum. The following table shows how the obligation builds up for an employee who is expected to leave at the end of year 5, assuming that there are no changes in actuarial assumptions. For simplicity, this example ignores the additional adjustment needed to reflect the probability that the employee may leave the enterprise at an earlier or later date. (Amount in Rs. ) Year 1 2 3 4 5 Benefit attributed to: - prior years 0 131 262 393 524 current year (1% of final salary) 131 131 131 131 131 - current and prior years 131 262 393 524 655 Opening Obligation (see note 1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a lump-sum benefit of ₹ 100 payable on retirement for each year of service. A benefit of ₹ 100 is attributed to each year. The current service cost is the present value of ₹ 100. The present value of the defined benefit obligation is the present value of ₹ 100, multiplied by the number of years of service up to the balance sheet date. If the benefit is payable immediately when the employee leaves the enterprise, 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 balance sheet date. 2. A plan provides a monthly pension of 0.2% of final salary for each year of service. The pension is payable from the age of 60. Benefit equal to the present value, at the expected retirement date, of a monthly pension of 0.2% 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t formula. However, if an employee s service in later years will lead to a materially higher level of benefit than in earlier years, an enterprise attributes 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. Examples Illustrating Paragraph 71 1. A plan pays a lump-sum benefit of ₹ 1,000 that vests after ten years of service. The plan provides no further benefit for subsequent service. A benefit of ₹ 100 (Rs. 1,000 divided by ten) is attributed to each of the first ten years. The current service cost in each of the first ten years reflects the probability that the employee may not complete ten years of service. No benefit is attributed to subsequent years. 2. A plan pays a lump-sum retirement benefit of ₹ 2,000 to all employees who are still employed at the age of 50 after twenty years of service, or who are still employed at the age of 60, regardless of their length of service. For employees who join before the age of 30, service first leads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. 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% of the present value of the expected medical costs (50% divided by twenty). For employees expected to leave between ten and twenty years, the benefit attributed to each of the first ten years is 1% 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. 72. Where the amount of a benefit is a constant proportion of final salary for each year of service, future salary increases will affect the amount required to settle the obligation that exists for service before the balance sheet date, but do not create an additional obligation. Therefore: (a) for the purpose of paragraph 68(b), salary increases do not lead to further benefits, even though the amount of the benefits is dependent on final salary; and (b) the amount of benefit attributed to each period is a constant proportion of the salary to which the bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inflation level in that period. 77. An enterprise determines the discount rate and other financial assumptions in nominal (stated) terms, unless estimates in real (inflation-adjusted) terms are more reliable, for example, where the benefit is index-linked and there is a deep market in index-linked bonds of the same currency and term. Actuarial Assumptions: Discount Rate 78. The rate used to discount post-employment benefit obligations (both funded and unfunded) should be determined by reference to market yields at the balance sheet date on government bonds. The currency and term of the government bonds should be consistent with the currency and estimated term of the post-employment benefit obligations. 79. One actuarial assumption which has a material effect is the discount rate. The discount rate reflects the time value of money but not the actuarial or investment risk. Furthermore, the discount rate does not reflect the enterprise-specific credit risk borne by the enterprise s creditors, nor does it reflect the risk that future experience may differ from actuarial assumptions. 80. The discount rate reflects the estimated timing of benefit payments. In practice, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment market. 85. If the formal terms of a plan (or an obligation that goes beyond those terms) require an enterprise to change benefits in future periods, the measurement of the obligation reflects those changes. This is the case when, for example: (a) the enterprise has a past 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; or (b) actuarial gains have already been recognised in the financial statements and the enterprise is obliged, by either the formal terms of a plan (or an obligation that goes beyond those terms) or legislation, to use any surplus in the plan for the benefit of plan participants (see paragraph 96(c)). 86. Actuarial assumptions do not reflect future benefit changes that are not set out in the formal terms of the plan (or an obligation that goes beyond those terms) at the balance sheet date. Such changes will result in: (a) past service cost, to the extent that they change benefits for service before the change; and (b) current service cost for periods after the change, to the extent that they change benefits for servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctuarial gains. 93. Actuarial gains and losses may result from increases or decreases in either the present value of a defined benefit obligation or the fair value of any related plan assets. Causes of actuarial gains and losses include, for example: (a) unexpectedly high or low rates of employee turnover, early retirement or mortality or of increases in salaries, benefits (if the terms of a plan provide for inflationary benefit increases) or medical costs; (b) the effect of changes in estimates of future employee turnover, early retirement or mortality or of increases in salaries, benefits (if the terms of a plan provide for inflationary benefit increases) or medical costs; (c) the effect of changes in the discount rate; and (d) differences between the actual return on plan assets and the expected return on plan assets (see paragraphs 107-109). Past Service Cost 94. In measuring its defined benefit liability under paragraph 55, an enterprise should recognise past service cost as an expense on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are already vested immediately foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit increase has not yet been formally awarded (the resulting increase in the obligation is an actuarial loss and not past service cost, see paragraph 85(b)); (d) the increase in vested benefits (not on account of new or improved benefits) when employees complete vesting requirements (there is no past service cost because the estimated cost of benefits was recognised as current service cost as the service was rendered); and (e) the effect of plan amendments that reduce benefits for future service (a curtailment). 97. An enterprise establishes the amortisation schedule for past service cost when the benefits are introduced or changed. It would be impracticable to maintain the detailed records needed to identify and implement subsequent changes in that amortisation schedule. Moreover, the effect is likely to be material only where there is a curtailment or settlement. Therefore, an enterprise amends the amortisation schedule for past service cost only if there is a curtailment or settlement. 98. Where an enterprise reduces benefits payable under an existing defined benefit plan, the resulting reduction in the defined benefit liability is recognised as (negative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay part or all of the expenditure required to settle a defined benefit obligation. Qualifying insurance policies, as defined in paragraph 7, are plan assets. An enterprise accounts for qualifying insurance policies in the same way as for all other plan assets and paragraph 103 does not apply (see paragraphs 40-43 and 102). 105. When an insurance policy is not a qualifying insurance policy, that insurance policy is not a plan asset. Paragraph 103 deals with such cases: the enterprise recognises its right to reimbursement under the insurance policy as a separate asset, rather than as a deduction in determining the defined benefit liability recognised under paragraph 55; in all other respects, including for determination of the fair value, the enterprise treats that asset in the same way as plan assets. Paragraph 120(f)(iii) requires the enterprise to disclose a brief description of the link between the reimbursement right and the related obligation. Example Illustrating Paragraphs 103-105 (Amount in Rs.) Liability recognised in balance sheet being the present value of obligation 1,258 ---- Rights under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.25 --- For 20X1, the expected and actual return on plan assets are as follows: ( Amount in Rs. ) Return on ₹ 10,000 held for 12 months at 10.25% 1,025 Return on ₹ 3,000 held for six months at 5% ( equivalent to 10.25% annually, compounded every six months ) 150 Expected return on plan assets for 20X1 1,175 Fair value of plan assets at 31 December 20X1 15,000 Less fair value of plan assets at 1 January 20X1 ( 10,000 ) Less contributions received ( 4,900 ) Add benefits paid 1,900 Actual return on plan assets 2,000 The difference between the expected return on plan assets (Rs. 1,175) and the actual return on plan assets (Rs. 2,000) is an actuarial gain of ₹ 825. Therefore, the net actuarial gain of ₹ 765 (Rs. 825 ₹ 60 (actuarial loss on the obligation)) would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior periods. The acquisition of such a policy is not a settlement if the enterprise retains an obligation (see paragraph 40) to pay further amounts if the insurer does not pay the employee benefits specified in the insurance policy. Paragraphs 103-106 deal with the recognition and measurement of reimbursement rights under insurance policies that are not plan assets. 115. A settlement occurs together with a curtailment if a plan is terminated such that the obligation is settled and the plan ceases to exist. However, the termination of a plan is not a curtailment or settlement if the plan is replaced by a new plan that offers benefits that are, in substance, identical. 116. Where a curtailment relates only to some of the employees covered by a plan, or where only part of an obligation is settled, the gain or loss includes a proportionate share of the previously unrecognised past service cost [and of transitional amounts remaining unrecognised under paragraph 145( b )]. The proportionate share is determined on the basis of the present value of the obligations before and after the curtailment or settlement, unless another basis is more rational in the circumstances. Example ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be recognised [it is assumed that the amount under paragraph 59(b) is higher than ₹ 37]. Provided that a Small and Medium-sized Company, as defined in the Notification, may not apply the recognition and measurement principles laid down in paragraph 50 to 116 in respect of accounting for defined benefit plans. However, such a company should actuarially determine and provide for the accrued liability in respect of defined benefit plans as follows: The method used for a actuarial valuation should be the Projected Unit Credit Method The discount rate used should be determined by reference to market yields at the balance sheet date on government bonds as per paragraph 78 of the Standard. Presentation Offset 117. An enterprise should offset an asset relating to one plan against a liability relating to another plan when, and only when, the enterprise: (a) has a legally enforceable right to use a surplus in one plan to settle obligations under the other plan; and (b) intends 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. Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent from the enterprise s reporting currency, (iv) contributions by the employer, (v) contributions by plan participants, (vi) benefits paid, (vii) amalgamations, and (viii) settlements. (f) a reconciliation of the present value of the defined benefit obligation in (c) and the fair value of the plan assets in (e) to the assets and liabilities recognised in the balance sheet, showing at least: (i) any amount not recognised as an asset, because of the limit in paragraph 59(b); (ii) the fair value at the balance sheet date of any reimbursement right recognised as an asset in accordance with paragraph 103 (with a brief description of the link between the reimbursement right and the related obligation); and (iii) the other amounts recognised in the balance sheet.; (g) the total expense recognised in the statement of profit and loss for each of the following, and the line item(s) of the statement of profit and loss in which they are included: (i) current service cost; (ii) interest cost; (iii) expected return on plan assets; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd demand in the employment market. (m) the effect of an increase of one percentage point and the effect of a decrease of one percentage point in the assumed medical cost trend rates on: (i) the aggregate of the current service cost and interest cost components of net periodic post-employment medical costs; and (ii) the accumulated post-employment benefit obligation for medical costs. For the purposes of this disclosure, all other assumptions should be held constant. For plans operating in a high inflation environment, the disclosure should be the effect of a percentage increase or decrease in the assumed medical cost trend rate of a significance similar to one percentage point in a low inflation environment. (n) the amounts for the current annual period and previous four annual periods of: (i) the present value of the defined benefit obligation, the fair value of the plan assets and the surplus or deficit in the plan; and (ii) the experience adjustments arising on: (A) the plan liabilities expressed either as (1) an amount or (2) a percentage of the plan liabilities at the balance sheet date, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raphs 119 to 123 of the Standard in respect of accounting for defined benefit plans. However, such a company should disclose actuarial assumptions as per paragraph 120(1) of the Standard. Other Long-term Employee Benefits 127. Other long-term employee benefits include, for example: (a) long-term compensated 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 payable twelve months or more after the end of the period in which the employees render the related service; and (e) deferred compensation paid twelve months or more after the end of the period in which it is earned. 128. In case of other long-term employee benefits, the introduction of, or changes to, other long-term employee benefits rarely causes a material amount of past service cost. For this reason, this Standard requires a simplified method of accounting for other long-term employee benefits. This method differs from the accounting required for post-employment benefits insofar as that all past service cost is recognised immediately. Recognition and Measuremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be the Projected Unit Credit Method. The discount rate used should be determined by reference to market yields at the balance sheet date on government bonds as per paragraph 78 of the Standard. Disclosure 132. Although this Standard does not require specific disclosures about other longterm employee benefits, other Accounting Standards may require disclosures, for example, where the expense resulting from such benefits is of such size, nature or incidence that its disclosure is relevant to explain the performance of the enterprise for the period (see AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies). Where required by AS 18 Related Party Disclosures an enterprise discloses information about other long-term employee benefits for key management personnel. Termination Benefits 133. This Standard deals with termination benefits separately from other employee benefits because the event which gives rise to an obligation is the termination rather than employee service. Recognition 134. An enterprise should recognise termination benefits as a liability and an expense when, and only when: (a) the enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disclosure 140. Where there is uncertainty about the number of employees who will accept an offer of termination benefits, a contingent liability exists. As required by AS 29, Provisions, Contingent Liabilities and Contingent Assets an enterprise discloses information about the contingent liability unless the possibility of an outflow in settlement is remote. 141. As required by AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies an enterprise discloses the nature and amount of an expense if it is of such size, nature or incidence that its disclosure is relevant to explain the performance of the enterprise for the period. Termination benefits may result in an expense needing disclosure in order to comply with this requirement. 142. Where required by AS 18, Related Party Disclosures an enterprise discloses information about termination benefits for key management personnel. Transitional Provisions 142A. An enterprise may disclose the amounts required by paragraph 120( n ) as the amounts are determined for each accounting period prospectively from the date the enterprise first adopts this Standard. Employee Benefits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urtailment. If the transitional liability is less than the liability that would have been recognized at the same date as per the pre-revised AS 15, the enterprise should recognise that decrease immediately as an adjustment against the opening balance of revenue reserves and surplus. Example Illustrating Paragraphs 144 and 145 At March 31, 20X7, an enterprise s balance sheet includes a pension liability of ₹ 100, recognised as per the pre-revised AS 15 issued by the ICAI in 1995. The enterprise adopts the Standard as of April 1, 20X7, when the present value of the obligation under the Standard is ₹ 1,300 and the fair value of plan assets is ₹ 1,000. On April 1, 20X1, the enterprise had improved pensions (cost for non-vested benefits: ₹ 160; and average remaining period at that date until vesting: 10 years). (Amount in Rs.) The transitional effect is as follows : Present value of the obligation 1,300 Fair value of plan assets (1,000) Less: past service cost to be recognized in later periods (160 x 4/10) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not necessarily conform with all the disclosure and presentation requirements of other Accounting Standards. Background Information The following information is given about a funded defined benefit plan. To keep interest computations simple, all transactions are assumed to occur at the year end. The present value of the obligation and the fair value of the plan assets were both ₹ 1,000 at 1 April, 20X4. ( Amount in Rs. ) 20x4- 5 20x5- 6 20x6- 7 Discount rate at start of year 10.0% 9.0% 8.0% Expected rate of return on plan assets at start of year 12.0% 11.1% 10.3% Current service cost 130 140 150 Benefits paid 150 180 190 Contributions paid 90 100 110 Present value of obligation at 31 March 1,141 1,197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,109 Expected return on plan assets 120 121 114 Contributions 90 100 110 Benefits paid (150) (180) (190) Actuarial gain (loss) on plan assets (balancing figure) 32 (24) (50) Fair value of plan assets, 31 March 1,092 1,109 1,093 Total actuarial gain (loss) to be recognised immediately as per the Standard (29) 63 (92) Amounts Recognised in the Balance Sheet and Statements of Profit and Loss, and Related Analyses The final step is to determine the amounts to be recognised in the balance sheet and statement of profit and loss, and the related analyses to be disclosed under in accordance with paragraphs 119120(c), (e), (f), and (g) and (j) of the Statement (the analyses required to be disclosed in accordance with paragraph 120(c) and (e) are given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om notes to the financial statements show how the required disclosures may be aggregated in the case of a large multi-national group that provides a variety of employee benefits. These extracts do not necessarily provide all the information required under the disclosure and presentation requirements of AS 15 and other Accounting Standards. In particular, they do not illustrate the disclosure of: (a) accounting policies for employee benefits (see AS 1 Disclosure of Accounting Policies). Paragraph 120(a) of the Standard requires this disclosure to include the enterprise s accounting policy for recognising actuarial gains and losses. (b) a general description of the type of plan (paragraph 120(b)). (c) a narrative description of the basis used to determine the overall expected rate of return on assets (paragraph 120(j)). (d) employee benefits granted to directors and key management personnel (see AS 18 Related Party Disclosures). Employee Benefit Obligations The amounts (in Rs.) recognised in the balance sheet are as follows: Defined benefit pension plans Post-employment medical benefits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Losses (gains) on curtailments and settlements 175 (390) Total, included in employee benefit expense 3,925 260 1,532 1,516 Actual return on plan assets 600 2,250 Changes in the present value of the defined benefit obligation representing reconciliation of opening and closing balances thereof are as follows: Defined benefit pension plans Post-employment medical benefits 20X5-X6 20X4-X5 20X5-X6 20X4-X5 Opening defined benefit obligation 18,400 11,600 6,405 5,439 Service cost 850 750 479 411 Interest cost 950 1,000 803 705 Actuarial losses (gains) 2,350 950 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh quality corporate bonds 11% 10% 12% 12% Equity shares of listed companies 4% 3% 10% 7% Property 5% 5% Principal actuarial assumptions at the balance sheet date (expressed as weighted averages): 20X5-X6 20X4-X5 Discount rate at 31 March 5.0% 6.5% Expected return on plan assets at 31 March 5.4% 7.0% Proportion of employees opting for early retirement 30% 30% Annual increase in healthcare costs 8% 8% Future changes in maximum state health care benefits 3% 2% The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner such that contributions are set at a level that is expected to be sufficient to pay the benefits falling due in the same period. It is not practicable to determine the present value of the group s obligation or the related current service cost as the plan computes its obligations on a basis that differs materially from the basis used in [name of reporting enterprise] s financial statements. [describe basis] On that basis, the plan s financial statements to 30 September 20X3 show an unfunded liability of ₹ 27,525. The unfunded liability will result in future payments by participating employers. The plan has approximately 75,000 members, of whom approximately 5,000 are current or former employees of [name of reporting enterprise] or their dependants. The expense recognised in the statement of profit and loss, which is equal to contributions due for the year, and is not included in the above amounts, was ₹ 230 (20X4-X5: ₹ 215). The group s future contributions may be increased substantially if other enterprises withdraw from the plan. ------------------------------------- Notes:- [1] The accounting for such benefits is dealt with in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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