TMI BlogEmployee BenefitsX X X X Extracts X X X X X X X X Extracts X X X X ..... ans. 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, profitsharing and bonuses (if payable within twelve months of the end of the period) and non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 employee benefits are employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing vacation, 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 nonvesting (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 bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit-sharing and Bonus Plans 17. 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. 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 the year, the total profit-sharing payments for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eive 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 amount of contributions; or (b) a guarantee, either indirectly through a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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) 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 other defined benefit plan. However, in some cases, an enterprise may not be able to identify its share of the underlying financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparate 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 multi-employer plan, a contingent liability may arise from, for example: (a) actuarial losses relating to other participating enterprises because each enterprise that participates in a multiemployer 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 another body (for example, an autonomous agency created specifically for this purpose) which is not subject to control or influence by the reporting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Contribution Plans 44. Accounting for defined contribution plans is straightforward because the reporting enterprise s obligation for ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile 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 benefit plans involves the following steps: (a) using actuarial techniques to make a reliable estimate of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 may be made at intervals not exceeding three years. However, with a view that the amounts recognised in the financial statements do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 Rs. 90 is less than Rs. 160. Therefore, the enterprise recognises an asset of Rs. 90 and discloses that the limit reduced the carrying amount of the asset by Rs. 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h year resulting in Rs. 13,100 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 fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 69. The Projected Unit Credit Method requires an enterprise to attribute benefit to the current period (in order to determine current service cost) and the current and prior periods (in order to determine the present value of defined benefit obligations). An enterprise attributes benefit to periods in which the obligation to provide post-employment benefits arises. That obligation arises as employees render services in return for post-employment benefits which an enterprise expects to pay in future reporting periods. Actuarial techniques allow an enterprise to measure that obligation with sufficient reliability to justify recognition of a liability. Examples Illustrating Paragraph 69 1. A defined benefit plan provides a lump-sum benefit of Rs. 100 payable on retirement for each year of service. A benefit of Rs. 100 is attributed to each year. The current service cost is the present value of Rs. 100. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Examples Illustrating Paragraph 70 1. A plan pays a benefit of Rs. 100 for each year of service. The benefits vest after ten years of service. A benefit of Rs. 100 is attributed to each year. In each of the first ten years, the current service cost and the present value of the obligation reflect the probability that the employee may not complete ten years of service. 2. A plan pays a benefit of Rs. 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 Rs. 100 is attributed to each subsequent year. 71. The obligation increases until the date when further service by the employee will lead to no material amount of further benefits. Therefore, all benefit is attributed to periods ending on or before that date. Benefit is attributed to individual accounting periods under the plan s benefit formula. However, if an employee s service in later years will lead to a materially higher level of benefit than in earlier years, an enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty years of service and 50% of those costs if the employee leaves after twenty or more years of service. Under the plan s benefit formula, the enterprise attributes 4% of the present value of the expected medical costs (40% divided by ten) to each of the first ten years and 1% (10% divided by ten) to each of the second ten years. The current service cost in each year reflects the probability that the employee may not complete the necessary period of service to earn part or all of the benefits. For employees expected to leave within ten years, no benefit is attributed. 4. A post-employment medical plan reimburses 10% 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% of 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 enterprise attributes benefit on a straight-line basis under paragraph 69. Service beyond twenty years will lead to no material amount of further benefits. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly retirement; (iii) the proportion of plan members with dependants who will be eligible for benefits; and (iv) claim rates under medical plans; and (b) financial assumptions, dealing with items such as: (i) the discount rate (see paragraphs 78-82); (ii) future salary and benefit levels (see paragraphs 83-87); (iii) in the case of medical benefits, future medical costs, including, where material, the cost of administering claims and benefit payments (see paragraphs 88-91); and (iv) the expected rate of return on plan assets (see paragraphs 107- 109). 75. Actuarial assumptions are unbiased if they are neither imprudent nor excessively conservative. 76. Actuarial assumptions are mutually compatible if they reflect the economic relationships between factors such as inflation, rates of salary increase, the return on plan assets and discount rates. For example, all assumptions which depend on a particular inflation level (such as assumptions about interest rates and salary and benefit increases) in any given future period assume the same inflation level in that period. 77. An enterprise determines the discount rate and other financial assumptions in nominal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration I attached to the Standard illustrates the computation of interest cost, among other things] Actuarial Assumptions: Salaries, Benefits and Medical Costs 83. Post-employment benefit obligations should be measured on a basis that reflects: (a) estimated future salary increases; (b) the benefits set out in the terms of the plan (or resulting from any obligation that goes beyond those terms) at the balance sheet date; and (c) estimated future changes in the level of any state benefits that affect the benefits payable under a defined benefit plan, if, and only if, either: (i) those changes were enacted before the balance sheet date; or (ii) past history, or other reliable evidence, indicates that those state benefits will change in some predictable manner, for example, in line with future changes in general price levels or general salary levels. 84. Estimates of future salary increases take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market. 85. If the formal terms of a plan (or an obligation that goes beyond those terms) require an enterprise to cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aphic mix of the population differs from that of the population used as a basis for the historical data. It is also adjusted where there is reliable evidence that historical trends will not continue. 91. Some post-employment health care plans require employees to contribute to the medical costs covered by the plan. Estimates of future medical costs take account of any such contributions, based on the terms of the plan at the balance sheet date (or based on any obligation that goes beyond those terms). Changes in those employee contributions result in past service cost or, where applicable, curtailments. The cost of meeting claims may be reduced by benefits from state or other medical providers (see paragraphs 83(c) and 87). Actuarial Gains and Losses 92. Actuarial gains and losses should be recognised immediately in the statement of profit and loss as income or expense (see paragraph 61). 92A. Paragraph 145(b)(iii) explains the need to consider any unrecognised part of the transitional liability in accounting for subsequent actuarial gains. 93. Actuarial gains and losses may result from increases or decreases in either the present value of a defined benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Employees with less than five service at 1/1/X5 (average period until vesting: three years) Rs. 120 Rs. 270 The enterprise recognises Rs. 150 immediately because those benefits are already vested. The enterprise recognises Rs. 120 on a straight-line basis over three years from 1 January 20X5. 96. Past service cost excludes: (a) the effect of differences between actual and previously assumed salary increases on the obligation to pay benefits for service in prior years (there is no past service cost because actuarial assumptions allow for projected salaries); (b) under and over estimates of discretionary pension increases where an enterprise has an obligation to grant such increases (there is no past service cost because actuarial assumptions allow for such increases); (c) estimates of benefit impr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntil the settlement of the related obligation). 101. Plan assets exclude unpaid contributions due from the reporting enterprise to the fund, as well as any nontransferable financial instruments issued by the enterprise and held by the fund. Plan assets are reduced by any liabilities of the fund that do not relate to employee benefits, for example, trade and other payables and liabilities resulting from derivative financial instruments. 102. 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, as described in paragraph 55 (subject to any reduction required if the amounts receivable under the insurance policies are not recoverable in full). Reimbursements 103. When, and only when, it is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, an enterprise should recognise its right to reimbursement as a separate asset. The enterprise should measure the asset at fair value. In all other respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and loss. The difference between the expected return on plan assets and the actual return on plan assets is an actuarial gain or loss. 108. The expected return on plan assets is based on market expectations, at the beginning of the period, for returns over the entire life of the related obligation. The expected return on plan assets reflects changes in the fair value of plan assets held during the period as a result of actual contributions paid into the fund and actual benefits paid out of the fund. 109. In determining the expected and actual return on plan assets, an enterprise deducts expected administration costs, other than those included in the actuarial assumptions used to measure the obligation. Example Illustrating Paragraph 108 At 1 January 20X1, the fair value of plan assets was Rs. 10,000. On 30 June 20X1, the plan paid benefits of Rs. 1,900 and received contributions of Rs. 4,900. At 31 December 20X1, the fair value of plan assets was Rs. 15,000 and the present value of the defined benefit obligation was Rs. 14,792. Actuarial losses on the obligation for 20X1 were Rs. 60. At 1 January 20X1, the reporting enterprise made the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld comprise: (a) any resulting change in the present value of the defined benefit obligation; (b) any resulting change in the fair value of the plan assets; (c) any related past service cost that, under paragraph 94, had not previously been recognised. 111. Before determining the effect of a curtailment or settlement, an enterprise should remeasure the obligation (and the related plan assets, if any) using current actuarial assumptions (including current market interest rates and other current market prices). 112. A curtailment occurs when an enterprise either: (a) has a present obligation, arising from the requirement of a statute/ regulator or otherwise, to make a material reduction in the number of employees covered by a plan; or (b) amends the terms of a defined benefit plan such that a material element of future service by current employees will no longer qualify for benefits, or will qualify only for reduced benefits. A curtailment may arise from an isolated event, such as the closing of a plant, discontinuance of an operation or termination or suspension of a plan. An event is material enough to qualify as a curtailment if the recognition of a curtailmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with a fair value of Rs. 820 and unrecognised past service cost of Rs. 50. The enterprise had first adopted this Standard one year before. This increased the net liability by Rs. 100, which the enterprise chose to recognise over five years (see paragraph 145(b)). The curtailment reduces the net present value of the obligation by Rs. 100 to Rs. 900. Of the previously unrecognised past service cost and transitional amounts, 10% (Rs. 100/Rs. 1000) relates to the part of the obligation that was eliminated through the curtailment. Therefore, the effect of the curtailment is as follows: (Amount in Rs.) Before Curtailment After curtailment gain curtailment Net present value of obligation 1,000 (100) 900 Fair value of plan assets (820) - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for defined benefit plans. Disclosure 119. An enterprise should disclose information that enables users of financial statements to evaluate the nature of its defined benefit plans and the financial effects of changes in those plans during the period. 120. An enterprise should disclose the following information about defined benefit plans: (a) the enterprise s accounting policy for recognising actuarial gains and losses. (b) a general description of the type of plan. (c) a reconciliation of opening and closing balances of the present value of the defined benefit obligation showing separately, if applicable, the effects during the period attributable to each of the following: (i) current service cost, (ii) interest cost, (iii) contributions by plan participants, (iv) actuarial gains and losses, (v) foreign currency exchange rate changes on plans measured in a currency different from the enterprise s reporting currency, (vi) benefits paid, (vii) past service cost, (viii) amalgamations, (ix) curtailments, and (x) settlements. (d) an analysis of the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which should include, but is not limited to, equity instruments, debt instruments, property, and all other assets, the percentage or amount that each major category constitutes of the fair value of the total plan assets. (i) the amounts included in the fair value of plan assets for: (i) each category of the enterprise s own financial instruments; and (ii) any property occupied by, or other assets used by, the enterprise. (j) a narrative description of the basis used to determine the overall expected rate of return on assets, including the effect of the major categories of plan assets. (k) the actual return on plan assets, as well as the actual return on any reimbursement right recognised as an asset in accordance with paragraph 103. (l) the principal actuarial assumptions used as at the balance sheet date, including, where applicable: (i) the discount rates; (ii) the expected rates of return on any plan assets for the periods presented in the financial statements; (iii) the expected rates of return for the periods presented in the financial statements on any reimbursement right recognised as an asset in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include informal practices that give rise to other obligations included in the measurement of the defined benefit obligation in accordance with paragraph 53. Further detail is not required. 122. When an enterprise has more than one defined benefit plan, disclosures may be made in total, separately for each plan, or in such groupings as are considered to be the most useful. It may be useful to distinguish groupings by criteria such as the following: (a) the geographical location of the plans, for example, by distinguishing domestic plans from foreign plans; or (b) whether plans are subject to materially different risks, for example, by distinguishing flat salary pension plans from final salary pension plans and from post-employment medical plans. When an enterprise provides disclosures in total for a grouping of plans, such disclosures are provided in the form of weighted averages or of relatively narrow ranges. 123. Paragraph 30 requires additional disclosures about multi-employer defined benefit plans that are treated as if they were defined contribution plans. 124. Where required by AS 18, Related Party Disclosures, an enterprise discloses information about: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 130. For other long-term employee benefits, an enterprise should recognise the net total of the following amounts as expense or (subject to paragraph 59) income, 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 right recognised as an asset (see paragraph 103); (d) actuarial gains and losses, which should all be recognised immediately; (e) past service cost, which should all be recognised immediately; and (f) the effect of any curtailments or settlements (see paragraphs 110 and 111). 131. One form of other long-term employee benefit is long- term disability benefit. If the level of benefit depends on the length of service, an obligation arises when the service is rendered. Measurement of that obligation reflects the probability that payment will be required an d t h e length of time for which payment is expected to be made. If the level of benefit is the same for any disabled employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h payments are termination benefits. Termination benefits are typically lump-sum payments, but sometimes also include: (a) enhancement of retirement benefits or of other post-employment benefits, either indirectly through an employee benefit plan or directly; and (b) salary until the end of a specified notice period if the employee renders no further service that provides economic benefits to the enterprise. 136. Some employee benefits are payable regardless of the reason for the employee s departure. The payment of such benefits is certain (subject to any vesting or minimum service requirements) but the timing of their payment is uncertain. Although such benefits may be described as termination indemnities, or termination gratuities, they are post-employment benefits, rather than termination benefits and an enterprise accounts for them as postemployment benefits. Some enterprises provide a lower level of benefit for voluntary termination at the request of the employee (in substance, a post-employment benefit) than for involuntary termination at the request of the enterprise. The additional benefit payable on involuntary termination is a termination benefit. 137. Termin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Defined Benefit Plans 144. On first adopting this Standard, an enterprise should determine its transitional liability for defined benefit plans at that date as: (a) the present value of the obligation (see paragraph 65) at the date of adoption; (b) minus the fair value, at the date of adoption, of plan assets (if any) out of which the obligations are to be settled directly (see paragraphs 100-102); (c) minus any past service cost that, under paragraph 94, should be recognised in later periods. 145. If the transitional liability is more than the liability that would have been recognised at the same date as per the pre-revised AS 15, the enterprise should make an irrevocable choice to recognise that increase as part of its defined benefit liability under paragraph 55: (a) immediately as an adjustment against the opening balance of revenue reserves and surplus (as adjusted by any related tax expense), or (b) as an expense on a straight-line basis over up to five years from the date of adoption. If an enterprise chooses (b), the enterprise should: (i) apply the limit described in paragraph 59(b) in measuring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... X8, the present value of the obligation under the Standard is Rs. 1,400 and the fair value of plan assets is Rs. 1,050. Net cumulative unrecognised actuarial gains since the date of adopting the Standard are Rs. 120. The enterprise is required, as per paragraph 92, to recognise all actuarial gains and losses immediately. (Amount in Rs.) The effect of the limit in paragraph 145 (b) (iii) is as follows: Net unrecognised actuarial gain 120 Unrecognised part of the transitional liability (136 4/5) 109 (If the enterprise adopts the policy of recognising it over 5 years) Maximum gain to be recognised 11 Termination Benefits 146. This Standard requires immediate expensing of expenditure on termination benefits (including expenditure incurred on voluntary retirement scheme (VRS)). However, where an enterprise incurs expenditure on termination benefits on or before 31st March, 2009, the enterprise may choose to follow the accounting policy of defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod until the nonvested benefits would become vested was three years; the past service cost arising from additional non-vested benefits is therefore recognised on a straight-line basis over three years. The past service cost arising from additional vested benefits is recognised immediately (paragraph 94 of the Standard). Changes in the Present Value of the Obligation and in the Fair Value of the Plan Assets The first step is to summarise the changes in the present value of the obligation and in the fair value of the plan assets and use this to determine the amount of the actuarial gains or losses for the period. These are as follows: (Amount in Rs.) 20X4-X5 20X5-X6 20X6-X7 Present value of obligation, 1 April 1,000 1,141 1,197 Interest cost 100 103 96 Current service cost 130 140 150 Past service cost (non vested benefits) - 30 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49 88 202 Unrecognised past service cost non vested benefits - (20) (10) Liability recognised in balance sheet 49 68 192 Current service cost 130 140 150 Interest cost 100 103 96 Expected return on plan assets (120) (121) (114) Net actuarial (gain) loss recognised in year 29 (63) 92 Past service cost - non-vested benefits - 10 10 Past service cost - vested benefits - 50 - Expense recognised in the statement of profit and loss 139 119 234 Actual return on plan assets: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - Present value of unfunded obligations 2000 1000 7,337 6,405 Unrecognised past service cost (450) (650) - - Net liability 3,430 470 7,337 6,405 Amounts in the balance sheet: Liabilities 3,430 560 7,337 6,405 Assets - (90) - - Net liability 3,430 470 7,337 6,405 The pension plan assets include equity shares issued by [name of reporting enterprise] with a fair value of Rs. 317 (20X4-X5: Rs. 281). Plan assets also include property occupied by [name of reporting enterprise] with a fair value of Rs. 200 (20X4-X5: Rs. 185). The amounts (in Rs.) recognised in the statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curtailments (500) - Liabilities extinguished on settlements - (350) Liabilities assumed in an amalgamation in the nature of purchase - 5,000 Exchange differences on foreign plans 900 (150) Benefits paid (650) (400) (600) (550) Closing defined benefit obligation 22,300 18,400 7,337 6,405 Changes in the fair value of plan assets representing reconciliation of the opening and closing balances thereof are as follows: Defined benefit pension plans 20X5-X6 20X4-X5 Opening fair value of plan assets 17,280 9,200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market. Assumed healthcare cost trend rates have a significant effect on the amounts recognised in the statement of profit and loss. At present, healthcare costs, as indicated in the principal actuarial assumption given above, are expected to increase at 8% p.a. A one percentage point change in assumed healthcare cost trend rates would have the following effects on the aggregate of the service cost and interest cost and defined benefit obligation: one percentage point increase one percentage point decrease Effect on the aggregate of the service cost and interest cost 190 (150) Effect on defined benefit obligation 1,000 (900) Amounts for the current and previous four periods are as follows: 20X5-X6 20X4-X5 20X3-X4 20X2-X3 20X1-X2 Def ..... X X X X Extracts X X X X X X X X Extracts X X X X
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