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Employee Benefits

Ind AS - 019 - B. Indian Accounting Standards (Ind AS) - Companies Law - Ind AS - 019 - Indian Accounting Standard (Ind AS) 19 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Objective 1 The objective of this Standard is to prescribe the accounting and disclosure for . The Standard requires an entity to recognise: (a) a liability when an employee has provided service in exchan .....

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ity and individual employees, groups of employees or their representatives; (b) under legislative requirements, or through industry arrangements, whereby entities are required to contribute to national, state, industry or other multi-employer plans; or (c) 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 . An example of a constructive obligation is where a ch .....

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sing, cars and free or subsidised goods or services) for current employees; (b) post-employment benefits, such as the following: (i) retirement benefits (eg pensions and lump sum payments on retirement); and (ii) other post-employment benefits, such as post-employment life insurance and postemployment medical care; (c) other long-term , such as the following: (i) long-term paid absences such as long-service leave or sabbatical leave; (ii) jubilee or other long-service benefits; and (iii) long-te .....

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nclude directors and other management personnel. Definitions 8 The following terms are used in this Standard with the meanings specified: Definitions of are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. Short-term are (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. Post-emp .....

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n exchange for the termination of employment. Definitions relating to classification of plans Post-employment benefit plans are formal or informal arrangements under which an entity provides post-employment benefits for one or more employees. Defined contribution plans 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 a .....

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ribution and benefit levels are determined without regard to the identity of the entity that employs the employees. Definitions relating to the net defined benefit liability (asset) The net defined benefit liability (asset) is the deficit or surplus, adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The deficit or surplus is: (a) the present value of the defined benefit obligation less (b) the fair value of plan assets (if any). The asset ceiling is the presen .....

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ng-term employee benefit fund are 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 ; and (b) are available to be used only to pay or fund , 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 .....

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g 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 already paid. Fair value is 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. .....

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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. Net interest on the net defined benefit liability (asset) is the change during the period in the net defined benefit liability (asset) that arises from the passage of time. 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 int .....

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turn on plan assets is 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. A settlement is a transaction that eliminates all further legal or constructive obligations for part or all of the benefits p .....

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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. 10 An entity need not reclassify a short-term employee benefit if the entity s expectations of the timing of settlement change temporarily. However, if the characteristics of the benefit change (such as a change from a non-accumulating benefit to an accumulating benefit) or if a change in expectations of the timing of settlement is not te .....

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ity 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. (b) as an expense, unless another Ind AS requires or permits the inclusion of the benefits in the cost of an asset (see, for example, Ind AS 2, Inventories, and Ind AS 16, Property, Plant and Equipment). 12 Paragraphs 13, 16 and 19 explain how an entity shall apply paragraph 11 to short-term in the form of paid absences and pr .....

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sability, maternity or paternity, jury service and military service. Entitlement to paid absences falls into two categories: (a) accumulating; and (b) non-accumulating. 15 Accumulating paid 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 paid absences may be either vesting (in other words, employees are entitled to a cash payment for unused entitlement on leaving the entity) or non-vesting (when e .....

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he 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. 17 The method specified in the previous paragraph measures the obligation at the amount of the additional payments that are expected to arise solely from the fact that the benefit accumulates. In many cases, an entity may not need to make detailed computations to estimate that there is no material obligation for unused paid absences. For example, a si .....

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ar (a LIFO basis). At 31 December 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 leave in 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 December 20X1 (one an .....

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ences for jury service or military service. An entity recognises no liability or expense until the time of the absence, because employee service does not increase the amount of the benefit. Profit-sharing and bonus plans 19 An entity shall recognise the expected cost of profit-sharing and bonus payments under paragraph 11 when, and only when: (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 obligati .....

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he possibility that some employees may leave without receiving profit-sharing payments. Example illustrating paragraph 20 A profit-sharing plan requires an entity to pay a specified proportion of its profit for the year to employees who serve throughout the year. If no employees leave during the year, the total profit sharing payments for the year will be 3 per cent of profit. The entity estimates that staff turnover will reduce the payments to 2.5 per cent of profit. The entity recognises a lia .....

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ctive 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. 23 An obligation under profit-sharing and bonus plans results from employee service and not from a transaction with the entity s .....

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ay require disclosures. For example, Ind AS 24 requires disclosures about for key management personnel. Ind AS 1, Presentation of Financial Statements, requires disclosure of expense. Post-employment benefits: distinction between defined contribution plans and defined benefit plans 26 Post-employment benefits include items such as the following: (a) retirement benefits (eg pensions and lump sum payments on retirement); and (b) other post-employment benefits, such as post-employment life insuranc .....

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and conditions. 28 Under defined contribution plans the entity s legal or constructive 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 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. In consequence, actuarial risk (that b .....

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s 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) those 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. 30 Under defined benefit plans: (a) the entity s o .....

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ities under common control, state plans and insured benefits. Multi-employer plans 32 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). 33 If an entity participates in a multi-employer defined benefit plan, unless paragraph 34 applies, it shall: (a) account for its proportionate share of the defined benefit obligation, plan assets and cost a .....

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a multi-employer defined benefit plan is one where: (a) the plan is financed on a pay-as-you-go basis: 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 entities have no realistic means of withdrawing from the plan without paying a contribut .....

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unts for its proportionate share of the defined benefit obligation, plan assets and postemployment cost associated with the plan in the same way as for any other defined benefit plan. However, an entity may not be able to identify its share of the underlying financial position and performance of the plan with sufficient reliability for accounting purposes. This may occur if: (a) the plan exposes the participating entities to actuarial risks associated with the current and former employees of oth .....

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he 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 in accordance with paragraph 34 shall recognise the asset or liability that arises from the contractual agreement and the resulting income or expense in profit or loss. Example illustrating paragraph 37 An entity participates i .....

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lion. The entity recognises a liability for the contributions adjusted for the time value of money and an equal expense in profit or loss. 38 Multi-employer plans are distinct from 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, but the claims of different employers are segregated for the sole b .....

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in accordance with the terms of the plan (including any constructive obligation that goes beyond the formal terms). * 39 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. Defined benefit plans that share risks between entities under common control 40 Defi .....

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ed in accordance with this Standard, the entity shall, in its separate or individual financial statements, recognise the net defined benefit cost so charged. If 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 contribut .....

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ple, 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) that 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. 45 State plans are characterised as defined b .....

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ay the contributions as they fall due and if the entity ceases to 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. However, when a state plan is a defined benefit plan an entity applies paragraphs 32-39. Insured benefits 46 An entity may pay insurance premiums to fund a post-employment benefit plan. The entity shall treat such a plan as a defined co .....

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rect or automatic relationship with the entity s obligation for . Post-employment benefit plans involving insurance policies are subject to the same distinction between accounting and funding as other funded plans. 48 Where an entity funds a post-employment benefit obligation by contributing to an insurance policy under which the entity (either directly, indirectly through the plan, through the mechanism for setting future premiums or through a related party relationship with the insurer) retain .....

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gal or constructive obligation to cover any loss on the policy, the entity 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 entity no longer has an asset or a liability. Therefore, an entity treats such payments as contributions to a defined con .....

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pected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. Recognition and measurement 51 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. If the contribution already paid exceeds the contribution .....

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e months after the end of the annual reporting period in which the employees render the related service, they shall be discounted using the discount rate specified in paragraph 83. Disclosure 53 An entity shall disclose the amount recognised as an expense for defined contribution plans. 54 Where required by Ind AS 24 an entity discloses information about contributions to defined contribution plans for key management personnel. Post-employment benefits: defined benefit plans 55 Accounting for def .....

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tity, or fund, that is legally separate from the reporting entity and from which the 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 entity s ability, and willingness, to make good any shortfall in the fund s assets. Therefore, the entity is, in substance, underwriting the actuarial and investment risks associated with the plan. Consequently, the expense recognised for a defined benef .....

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determine how much benefit is attributable to the current and prior periods (see paragraphs 70-74) and to 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 affect the cost of the benefit (see paragraphs 75-98). (ii) discounting that benefit in order to determine the present value of the defined benefit obligation and the current service cost (see .....

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0-74). (ii) any past service cost and gain or loss on settlement (see paragraphs 99-112). (iii) net interest on the net defined benefit liability (asset) (see paragraphs 123-126). (d) determining the re-measurements of the net defined benefit liability (asset), to be recognised in other comprehensive income, comprising: (i) actuarial gains and losses (see paragraphs 128 and 129); (ii) return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset) ( .....

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amounts that would be determined at the end of the reporting period. 59 This Standard encourages, but does not require, an entity to involve a qualified actuary in the measurement of all material post-employment benefit obligations. For practical reasons, an entity may request a qualified actuary to carry out a detailed valuation of the obligation before the end of the reporting period. Nevertheless, the results of that valuation are updated for any material transactions and other material chang .....

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s informal practices. Informal practices give rise to a constructive obligation where the entity has no realistic alternative but to pay . An example of a constructive obligation is where a change in the entity s informal practices would cause unacceptable damage to its relationship with employees. 62 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 .....

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t the lower of: (a) the surplus in the defined benefit plan; and (b) the asset ceiling, determined using the discount rate specified in paragraph 83. 65 A net defined benefit asset may arise where a defined benefit plan has been overfunded or where actuarial gains have 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 ( .....

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ed by many variables, such as final salaries, employee turnover and mortality, employee contributions and medical cost trends. 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: (a) to apply an actuarial valuation method (see paragraphs 67-69); (b) to attribute benefit to periods of service (see parag .....

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additional unit of benefit entitlement (see paragraphs 70-74) and measures each unit separately to build up the final obligation (see paragraphs 75-98). Example illustrating paragraph 68 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 discount rate used is 10 per cent per year. The following table shows how the obligat .....

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ng Obligation - 89 196 324 476 Interest at 10% - 9 20 33 48 Current service cost 89 98 108 119 131 Closing Obligation 89 196 324 476 655 Note: 1. The opening obligation is the present value of the benefit attributed to prior years. 2. The current service cost is the present value of the benefit attributed to the current year. 3. The closing obligation is the present value of the benefit attributed to current and prior years. 69 An entity discounts the whole of a post-employment benefit obligatio .....

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rlier 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. 71 The projected unit credit method requires an entity to attribute benefit to the current period (in order to .....

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y recognition of a liability. Examples illustrating paragraph 71 1. A defined benefit plan provides 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 end of the reporting period. If the benefit is payable imme .....

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he present value, at the expected retirement date, of a monthly pension of 0.2 per cent 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 0.2 per cent of final salary, multiplied by the number of years of service up to the end of the repor .....

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at an employee will have to render before becoming entitled to the benefit is reduced. In measuring its defined benefit obligation, an entity considers the probability that some employees may not satisfy any vesting requirements. Similarly, although some postemployment 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 entitlem .....

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ect the probability that the employee may not complete ten years of service. 2. A plan pays a benefit of ₹ 100 for each year of service, excluding service before the age of 25. The benefits vest immediately. 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 ₹ 100 is attributed to each subsequent year. 73 The obligation increases until the date when further service by the emp .....

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nefits. That is because the employee s service throughout the entire period will ultimately lead to benefit at that higher level. Examples illustrating paragraph 73 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 t .....

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ge of 33, with no effect on the amount or timing of benefits). Those benefits are conditional on further service. Also, service beyond the age of 55 will lead to no material amount of further benefits. For these employees, the entity attributes benefit of ₹ 100 (Rs.2,000 divided by twenty) to each year from the age of 35 to the age of 55. For employees who join between the ages of 35 and 45, service beyond twenty years will lead to no material amount of further benefits. For these employee .....

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y period of service. 3. A post-employment medical plan reimburses 40 per cent 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. Under the plan s benefit formula, the entity attributes 4 per cent of the present value of the expected medical costs (40 per cent divided by ten) to each of the first ten years and 1 per cent (10 per .....

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f those costs if the employee leaves after twenty or more years of service. 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 attributes benefit on a straightline basis under paragraph 71. 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 per cent of the present val .....

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tory 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 fo .....

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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 ₹ 1,000,000, over the expected period of service, the amount payable will be divided by the expected period of service and the resulting amount will be attributed to each year of the expected period .....

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ears will lead to no material amount of further benefits 74 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 end of the reporting period, but do not create an additional obligation. Therefore: (a) for the purpose of paragraph 70(b), salary increases do not lead to further benefits, even though the amount of the benefits is dependent o .....

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e plan. No benefit is attributed to service after that age. Actuarial assumptions 75 Actuarial assumptions shall be unbiased and mutually compatible. 76 Actuarial assumptions are an entity s best estimates of the variables that will determine the ultimate cost of providing post-employment benefits. Actuarial assumptions comprise: (a) demographic assumptions about the future characteristics of current and former employees (and their dependants) who are eligible for benefits. Demographic assumptio .....

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excluding any cost of the benefits to be met by employees, and future salary (see paragraphs 87-95); (iii) in the case of medical benefits, future medical costs, including claim handling costs (ie the costs that will be incurred in processing and resolving claims, including legal and adjuster s fees) (see paragraphs 96-98); and (iv) taxes payable by the plan on contributions relating to service before the reporting date or on benefits resulting from that service. 77 Actuarial assumptions are un .....

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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 (see Ind AS 29, Financial Reporting in Hyperinflationary Economies), or where the benefit is index-linked and there is a deep market in index-linked bonds of the same currency and term. 80 Financial assumptions shall be based on market expectations, at the end of the reporting period, for the period over which the oblig .....

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post-employment benefit obligations (both funded and unfunded) shall be determined by reference to market yields at the end of the reporting period on government bonds. However, for currencies other than Indian rupee for which there is deep market in high quality corporate bonds, the market yields (at the end of the reporting period) on such high quality corporate bonds denominated in that currency shall be used. The currency and term of the government bonds or corporate bonds shall be consisten .....

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ed timing of benefit payments. In practice, an entity often achieves this 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. 86 In some cases, there may be no deep market in government bonds with a sufficiently long maturity to match the estimated maturity of all the benefit payments. In such cases, an entity uses current market rates of the appropriate term to discount short .....

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flects: (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) any estimated future salary increases that affect the benefits payable; (c) the effect of any limit on the employer s share of the cost of the future benefits; (d) 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 .....

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a constructive obligation that goes beyond those terms) at the end of the reporting period. This is the case if, for example: (a) the 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 p .....

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ms of the plan (or a constructive obligation) at the end of the reporting period. 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 service after the change. 90 Estimates of future salary increases take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market .....

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the entity. An entity considers whether third-party contributions reduce the cost of the benefits to the entity, or are a reimbursement right as described in paragraph 116. Contributions by employees or third parties are either set out in the formal terms of the plan (or arise from a constructive obligation that goes beyond those terms), or are discretionary. Discretionary contributions by employees or third parties reduce service cost upon payment of these contributions to the plan. 93 Contribu .....

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e contributions reduce the service cost as follows: (a) if the amount of the contributions is dependent on the number of years of service, an entity shall attribute the contributions to periods of service using the same attribution method required by paragraph 70 for the gross benefit (ie either using the plan s contribution formula or on a straight-line basis); or (b) if the amount of the contributions is independent of the number of years of service, the entity is permitted to recognise such c .....

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ragraph 93(a), changes in the contributions result in: (a) current and past service cost (if those changes are not set out in the formal terms of a plan and do not arise from a constructive obligation); or (b) actuarial gains and losses (if those changes s are set out in the formal terms of a plan, or arise from a constructive obligation). 95 Some post-employment benefits are linked to variables such as the level of state retirement benefits or state medical care. The measurement of such benefit .....

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historical data about the entity s own experience, supplemented where necessary by historical data from other entities, insurance companies, medical providers or other sources. Estimates of future medical costs consider the effect of technological advances, changes in health care utilisation or delivery patterns and changes in the health status of plan participants. 98 The level and frequency of claims is particularly sensitive to the age, health status and sex of employees (and their dependants .....

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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 before the plan amendment, curtailment or settlement. 100 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 .....

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new plan that offers benefits that are, in substance, the same. Past service cost 102 Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment. 103 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 (see Ind AS 37) or termination benefits (see paragraph 165). 104 .....

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ed 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). 107 Where 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. 108 Past service cost excludes: (a) the effect of differences between .....

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or from the 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, see paragraph 88); and (d) the increase .....

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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. 110 An entity shall recognise a gain or loss on the settlement of a defined benefit plan when the settlement occurs. 111 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 pla .....

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entity acquires an insurance policy to fund some or all of the relating to employee service in the current and prior periods. The acquisition of such a policy is not a settlement if the entity retains a legal or constructive obligation (see paragraph 46) to pay further amounts if the insurer does not pay the specified in the insurance policy. Paragraphs 116-119 deal with the recognition and measurement of reimbursement rights under insurance policies that are not plan assets. Recognition and mea .....

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liabilities resulting from derivative financial instruments. 115 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). Reimbursements 116 When, and only when, it is virtually cer .....

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agraph 120 may be recognised net of amounts relating to changes in the carrying amount of the right to reimbursement. 117 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. Qualifying insurance policies, as defined in paragraph 8, are plan assets. An entity accounts for qualifying insurance policies in the same way as for all other plan assets and paragraph 116 is not relevant (see para .....

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obligation. 119 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 (subject to any reduction required if the reimbursement is not recoverable in full). Components of defined benefit cost 120 An entity shall recognise the components of defined benefit cost, except to the ext .....

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ries and property, plant and equipment (see Ind AS 2 and Ind AS 16). Any post-employment benefit costs included in the cost of such assets include the appropriate proportion of the components listed in paragraph 120. 122 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. Net int .....

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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 mentioned in paragraph 64. 125 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 in paragraph 83, both as determined at the start of the annual reporting period, taking account of any changes in the plan assets he .....

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he annual reporting period. The difference between that amount and the total change in the effect of the asset ceiling is included in the remeasurement of the net defined benefit liability (asset). Remeasurements of the net defined benefit liability (asset) 127 Remeasurements of the net defined benefit liability (asset) comprise: (a) actuarial gains and losses (see paragraphs 128 and 129); (b) the return on plan assets (see paragraph 130), excluding amounts included in net interest on the net de .....

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tes 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 incr .....

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managing the plan assets and any tax payable by the plan itself, other than tax included in the actuarial assumptions used to measure the defined benefit obligation (paragraph 76). Other administration costs are not deducted from the return on plan assets. Presentation Offset 131 An entity shall offset an asset relating to one plan 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 u .....

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entity should distinguish current and non-current portions of assets and liabilities arising from post-employment benefits. Components of defined benefit cost 134 Paragraph 120 requires an entity to recognise service cost and net interest on the net defined benefit liability (asset) in profit or loss. This Standard does not specify how an entity should present service cost and net interest on the net defined benefit liability (asset). An entity presents those components in accordance with Ind A .....

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ph 135, an entity shall consider all the following: (a) the level of detail necessary to satisfy the disclosure requirements; (b) how much emphasis to place on each of the various requirements; (c) how much aggregation or disaggregation to undertake; and (d) whether users of financial statements need additional information to evaluate the quantitative information disclosed. 137 If the disclosures provided in accordance with the requirements in this Standard and other Ind ASs are insufficient to .....

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onal benefits, amounts attributable to future salary increases and other benefits. 138 An entity shall assess whether all or some disclosures should be disaggregated to distinguish plans or groups of plans with materially different risks. For example, an entity may disaggregate disclosure about plans showing one or more of the following features: (a) different geographical locations. (b) different characteristics such as flat salary pension plans, final salary pension plans or postemployment med .....

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tion of the regulatory framework in which the plan operates, for example the level of any minimum funding requirements, and any effect of the regulatory framework on the plan, such as the asset ceiling (see paragraph 64). (iii) a description of any other entity s responsibilities for the governance of the plan, for example 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 p .....

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net defined benefit liability (asset), showing separate reconciliations for: (i) plan assets. (ii) the present value of the defined benefit obligation. (iii) the effect of the asset ceiling. (b) any reimbursement rights. An entity shall also describe the relationship between any reimbursement right and the related obligation. 141 Each reconciliation listed in paragraph 140 shall show each of the following, if applicable: (a) current service cost. (b) interest income or expense. (c) remeasuremen .....

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all also disclose how it determined the maximum economic benefit available, ie 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. As permitted by paragraph 100, 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, showin .....

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those that do not. For example, and considering the level of disclosure discussed in paragraph 136, an entity could distinguish between: (a) cash and cash equivalents; (b) equity instruments (segregated by industry type, company size, geography etc); (c) debt instruments (segregated by type of issuer, credit quality, geography etc); (d) real estate (segregated by geography etc); (e) derivatives (segregated by type of underlying risk in the contract, for example, interest rate contracts, foreign .....

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nt value of the defined benefit obligation (see paragraph 76). Such disclosure shall be in absolute terms (eg 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. Amount, timing and uncertainty of future cash flows 145 An entity shall disclose: (a) a sensitivity analysis for each si .....

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yses, and the reasons for such changes. 146 An entity shall disclose a description of any asset-liability matching strategies used by the plan or the entity, including the use of annuities and other techniques, such as longevity swaps, to manage risk. 147 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 .....

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f 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. (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. (d) if the entity accounts for that plan as if it .....

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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 a .....

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paid by the entity. (c) if the entity accounts for an allocation of the net defined benefit cost as noted in paragraph 41, all the information about the plan as a whole required by paragraphs 135-147. (d) if the entity accounts for the contribution payable for the period as noted in paragraph 41, the information about the plan as a whole required by paragraphs 135-137, 139, 142-144 and 147(a) and (b). 150 The information required by paragraph 149(c) and (d) can be disclosed by cross-reference t .....

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n entity discloses information about: (a) related party transactions with post-employment benefit plans; and (b) post-employment benefits for key management personnel. 152 Where required by Ind AS 37 an entity discloses information about contingent liabilities arising from post-employment benefit obligations. Other long-term 153 Other long-term include items such as the following, if not expected to be settled wholly before twelve months after the end of the annual reporting period in which the .....

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accounting required for post-employment benefits, this method does not recognise remeasurements in other comprehensive income. Recognition and measurement 155 In recognising and measuring the surplus or deficit in another long-term employee benefit plan, an entity shall apply paragraphs 56-98 and 113-115. An entity shall apply paragraphs 116-119 in recognising and measuring any reimbursement right. 156 For other long-term , an entity shall recognise the net total of the following amounts in pro .....

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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. Disclosure 158 Although this Standard does not require specific disclosures about other long-term , other Ind ASs may .....

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its in exchange for termination of employment. 160 Termination benefits do not include 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 postemployment benefit) than for termination of employment at the request of the en .....

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ctly 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. 162 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 be .....

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, the entity considers whether it has established a new employee benefit plan and hence whether the benefits offered under that plan are termination benefits or post-employment 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. 164 Some are provided regardless of the reason for the employee s departure. The .....

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wing dates: (a) when the entity can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of Ind AS 37 and involves the payment of termination benefits. 166 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 e .....

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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 suffic .....

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mination 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 . (b) if the termination benefits are not expected to be settled wholly before twelve months after the end of the annu .....

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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 .....

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y 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 (ie all employees will leave employment when the factory closes). Therefore the entity recognises a liability of ₹ 1,200,000 (ie 120 × ₹ 10,000) .....

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e 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 ₹ 200,000 (ie ₹ 2,000,000 ÷ 10) is recognised in each month during the service period of ten months, with a corresponding increase in the carrying amount of the liability. Disclosure 171 Although this Standard does not require specific disclosures about termination benefits, other Ind ASs may require disclosures. For .....

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rd parties are illustrated in the diagram below. Appendix B Ind AS 19 -The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction This Appendix is an integral part of the Ind AS. Background 1 Paragraph 64 of Ind 19 limits the measurement of a net defined benefit asset to the lower of the surplus in the defined benefit plan and the asset ceiling. Paragraph 8 of Ind AS 19 defines the asset ceiling as the present value of any economic benefits available in the form of .....

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e to a plan over a given period. Therefore, a minimum funding requirement may limit the ability of the entity to reduce future contributions. 3 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 liabilit .....

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Appendix are: (a) when refunds or reductions in future contributions should be regarded as available in accordance with the definition of the asset ceiling in paragraph 8 of Ind AS 19 . (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. Principles Availability of a refund or reduction in future contributions 7 An entity shall determine the availability of a refund or a .....

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9 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. 10 In accordance with Ind AS 1, the entity shall disclose information about the key sourc .....

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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 (eg 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 liabi .....

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lable 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. 14 In measuring the amount of a refund available when the plan is wound up (paragraph 11(c)), an ent .....

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efund is realisable only at a future date. The economic benefit available as a contribution reduction 16 If there is no minimum funding requirement for contributions relating to future service, 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. The future service cost to the entity excludes amounts that will be borne by employees. 17 A .....

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he latter case, the assumption about the future workforce shall include the reduction. The effect of a minimum funding requirement on the economic benefit available as a reduction in future contributions 18 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. 19 Contributions to cover any existing shortfall on the minimum funding basis .....

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e being required to do so); and (b) the estimated future service cost in each period in accordance with paragraphs 16 and 17, 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). 21 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 exc .....

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mate 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. 22 When an entity determines the amount described in paragraph 20(b), if the future minimum funding requirement contributions for future service exceed the future IAS 19 service cost in any given period, that excess reduces the amount of the economic benefit available as a reduction in future .....

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o the plan. 24 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 net defined benefit asset or increase the net defined benefit liability so that no gain or loss is expected to result from applying paragraph 64 of Ind AS 19 when the contributions are paid. 25-26 (refer Appendix 1) Appendix 1 Note: This Appendix is not a part of the Indian Accounting .....

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ency with paragraph numbers of IFRIC 14, the paragraph numbers are retained in Appendix B of Ind AS 19. 2[ 2 According to Ind AS 19 the rate to be used to discount post-employment benefit obligation shall be determined by reference to the market yields on government bonds, whereas under IAS 19 , the government bonds can be used only for those currencies where there is no deep market of high quality corporate bonds. However, requirements given in IAS 19 in this regard have been retained with appr .....

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