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Thread: 15 Accounting Standard 15 - Employee Benefits - AS 15

  1. #11
    Accounting Standards
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    Default Post-employment Benefits of Accounting Standard 15 - Employee Benefits - AS 15

    Post-employment Benefits: Defined of Accounting Standard 15 - Employee Benefits - AS 15

    Contribution Plans

    44. Accounting for defined contribution plans is straightforward because the reporting enterprise’s obligation for each period is determined by the amounts to be contributed for that period. Consequently, no actuarial assumptions are required to measure the obligation or the expense and
    there is no possibility of any actuarial gain or loss. Moreover, the obligations are measured on an undiscounted basis, except where they do not fall due wholly within twelve months after the end of the period in which the employees render the related service.

    Recognition and Measurement


    45. When an employee has rendered service to an enterprise during a period, the enterprise should 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 due for service before the balance sheet date, an
    enterprise should recognise that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or a cash refund; and

    (b) as an expense, unless another Accounting Standard requires or permits the inclusion of the contribution in the cost of an asset (see, for example, AS 10, Accounting for Fixed Assets).
    46. Where contributions to a defined contribution plan do not fall due wholly within twelve months after the end of the period in which the employees render the related service, they should be discounted using the discount rate specified in paragraph 78.

  2. #12
    Accounting Standards
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    Default Disclosure of Accounting Standard 15 - Employee Benefits - AS 15

    Disclosure of Accounting Standard 15 - Employee Benefits - AS 15


    47. An enterprise should disclose the amount recognised as an expense for defined contribution plans.

    48. Where required by AS 18 Related Party Disclosures an enterprise discloses information about contributions to defined contribution plans for key management personnel.

  3. #13
    Accounting Standards
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    Default Post-employment Benefits: Defined Benefit Plans of Accounting Standard 15 - Employee Benefits - AS 15

    Post-employment Benefits: Defined Benefit Plans


    49. Accounting for defined benefit plans is complex because actuarial assumptions are required to measure the obligation and the expense and there is a possibility of actuarial gains and losses.Moreover, the obligations are measured on a discounted basis because they may be settled many years after the employees render the related service. While the Statement 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.

  4. #14
    Accounting Standards
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    Default Recognition and Measurement of Accounting Standard 15 - Employee Benefits - AS 15

    Recognition and Measurement of Accounting Standard 15 - Employee Benefits - AS 15


    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 of benefit that employees have earned in return for their service in the current and prior periods. This requires an enterprise to
    determine how much benefit is attributable to the current and prior periods (see paragraphs 68-72) 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 influence the cost of the benefit (see paragraphs 73-91);


    (b) discounting that benefit using the Projected Unit Credit Method in order to determine the present value of the defined benefit obligation and the current service cost (see paragraphs 65-67);


    (c) determining the fair value of any plan assets (see paragraphs 100- 102);

    (d) determining the total amount of actuarial gains and losses (see paragraphs 92-93);

    (e) where a plan has been introduced or changed, determining the resulting past service cost (see paragraphs 94-99); and


    (f) where a plan has been curtailed or settled, determining the resulting gain or loss (see paragraphs 110-116).

    Where an enterprise has more than one defined benefit plan, the enterprise applies these procedures for each material plan separately.

    52. For measuring the amounts under paragraph 51, in some cases, estimates, averages and simplified computations may provide a reliable approximation of the detailed computations.

  5. #15
    Accounting Standards
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    Default Accounting for the Obligation under a Defined Benefit Plan of Accounting Standard 15 - Employee Benefits - AS 15

    Accounting for the Obligation under a Defined Benefit Plan of Accounting Standard 15 - Employee Benefits - AS 15


    53. An enterprise should account not only for its legal obligation under the formal terms of a defined benefit plan, but also for any other obligation that arises from the enterprise’s informal practices. 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.


    54. The formal terms of a defined benefit plan may permit an enterprise to terminate its obligation under the plan. Nevertheless, it is usually difficult for an enterprise to cancel a plan if employees are to be retained. Therefore, in the absence of evidence to the contrary, accounting for post-employment benefits assumes that an enterprise which is currently promising such benefits will continue to do so over the remaining working lives of employees.

  6. #16
    Accounting Standards
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    Default Balance Sheet of Accounting Standard 15 - Employee Benefits - AS 15

    Balance Sheet of Accounting Standard 15 - Employee Benefits - AS 15


    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 not differ materially from the amounts that would be determined at the balance sheet date, the most recent valuation is reviewed at the balance sheet date and updated to reflect any material transactions and other material changes in circumstances (including changes in interest rates) between the date of valuation and the balance sheet date. The fair value of any plan assets is determined at each balance sheet date.

    59. The amount determined under paragraph 55 may be negative (an asset). An enterprise should measure the resulting asset at the lower of:

    (a) the amount determined under paragraph 55; and

    (b) the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The present value of these economic benefits should be determined using the discount rate specified in paragraph 78.

    60. An asset may arise where a defined benefit plan has been overfunded or in certain cases where actuarial gains are recognised. An enterprise recognises an asset in such cases because:

    (a) the enterprise controls a resource, which is the ability to use the surplus to generate future benefits;

    (b) that control is a result of past events (contributions paid by the enterprise and service rendered by the employee); and

    (c) future economic benefits are available to the enterprise in the form of a reduction in future contributions or a cash refund, either directly to the enterprise or indirectly to another plan in deficit.

  7. #17
    Accounting Standards
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    Default Statement of Profit and Loss of Accounting Standard 15 - Employee Benefits - AS 15

    Statement of Profit and Loss


    61. An enterprise should recognise the net total of the following amounts in the statement of profit and loss, except to the extent that another Accounting Standard requires or permits their inclusion in the cost of an asset:


    (a) current service cost (see paragraphs 64-91);

    (b) interest cost (see paragraph 82);

    (c) the expected return on any plan assets (see paragraphs 107-109) and on any reimbursement rights (see paragraph 103);

    (d) actuarial gains and losses (see paragraphs 92-93);

    (e) past service cost to the extent that paragraph 94 requires an enterprise to recognise it;

    (f) the effect of any curtailments or settlements (see paragraphs 110 and 111); and

    (g) the effect of the limit in paragraph 59 (b), i.e., the extent to which the amount determined under paragraph 55 (if negative) exceeds the amount determined under paragraph 59 (b).

    62. Other Accounting Standards require the inclusion of certain employee benefit costs within the cost of assets such as tangible fixed assets (see AS 10 Accounting for Fixed Assets). Any post-employment benefit costs included in the cost of such assets include the appropriate proportion of the components listed in paragraph 61.

    Illustrative Example

    63. Appendix A contains an example describing the components of the amounts recognised in the balance sheet and statement of profit and loss in respect of defined benefit plans.

  8. #18
    Accounting Standards
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    Default Recognition and Measurement Present Value of Defined Benefit Obligations and Current Service Cost

    Recognition and Measurement: Present Value of Defined Benefit Obligations and Current Service Cost


    64. The ultimate cost of a defined benefit plan may be influenced by many variables, such as final salaries, employee turnover and mortality, medical cost trends and, for a funded plan, the investment earnings on the plan assets. The ultimate cost of the plan is uncertain and this uncertainty is likely to persist over a long period of time. In order to measure the present value of the post-employment benefit obligations and the related current service cost, it is necessary to:


    (a) apply an actuarial valuation method (see paragraphs 65-67);

    (b) attribute benefit to periods of service (see paragraphs 68-72); and

    (c) make actuarial assumptions (see paragraphs 73-91).

  9. #19
    Accounting Standards
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    Default Actuarial Valuation Method of Accounting Standard 15 - Employee Benefits - AS 15

    Actuarial Valuation Method of Accounting Standard 15 - Employee Benefits - AS 15


    65. An enterprise should use the Projected Unit Credit Method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service
    cost.


    66. The Projected Unit Credit Method (sometimes known as the accrued benefit method pro-rated on service or as the benefit/years of service method) considers each period of service as giving rise to an additional unit of benefit entitlement (see paragraphs 68-72) and measures each unit separately to build up the final obligation (see paragraphs 73-91).


    67. An enterprise discounts the whole of a post-employment benefit obligation, even if part of the obligation falls due within twelve months of the balance sheet date.

  10. #20
    Accounting Standards
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    Default Attributing Benefit to Periods of Service of Accounting Standard 15 - Employee Benefits - AS 15

    Attributing Benefit to Periods of Service of Accounting Standard 15 - Employee Benefits - AS 15


    68. In determining the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost, an enterprise should attribute benefit to periods of service 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 should 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.



    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.

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