Page 3 of 6 FirstFirst 123456 LastLast
Results 21 to 30 of 60

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

  1. #21
    Accounting Standards
    Guest

    Default Accounting Standard 15 - Employee Benefits - AS 15

    72. Where the amount of a benefit is a constant proportion of final salary for each year of service, future salary increases will affect the amount required to settle the obligation that exists for service before the balance sheet date, but do not create an additional obligation. Therefore:


    (a) for the purpose of paragraph 68(b), salary increases do not lead to further benefits, even though the amount of the benefits is dependent on final salary; and


    (b) the amount of benefit attributed to each period is a constant proportion of the salary to which the benefit is linked.

    Example Illustrating Paragraph 72

    Employees are entitled to a benefit of 3% of final salary for each year of service before the age of 55.Benefit of 3% of estimated final salary is attributed to each year up to the age of 55. This is the date when further service by the employee will lead to no material amount of further benefits under the plan. No benefit is attributed to service after that age.

  2. #22
    Accounting Standards
    Guest

    Default Actuarial Assumptions of Accounting Standard 15 - Employee Benefits - AS 15

    Actuarial Assumptions of Accounting Standard 15 - Employee Benefits - AS 15


    73. Actuarial assumptions comprising demographic assumptions and financial assumptions should be unbiased and mutually compatible. Financial assumptions should be based on market expectations, at the balance sheet date, for the period over which the obligations are to be settled.


    74. Actuarial assumptions are an enterprise’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 assumptions deal with matters such as:
    (i) mortality, both during and after employment;
    (ii) rates of employee turnover, disability and early retirement;
    (iii) the proportion of plan members with dependants who will be eligible for benefits; 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 (stated) terms, unless estimates in real (inflationadjusted) terms are more reliable, for example, where the benefit is indexlinked and there is a deep market in index-linked bonds of the same currency and term.

  3. #23
    Accounting Standards
    Guest

    Default Actuarial Assumptions Discount Rate of Accounting Standard 15 - Employee Benefits - AS 15

    Actuarial Assumptions: Discount Rate ofAccounting Standard 15 - Employee Benefits - AS 15


    78. The rate used to discount post-employment benefit obligations (both funded and unfunded) should be determined by reference to market yields at the balance sheet date on government bonds. The currency and term of the government bonds should be consistent with the currency and estimated term of the post-employment benefit obligations.


    79. One actuarial assumption which has a material effect is the discount rate. The discount rate reflects the time value of money but not the actuarial or investment risk. Furthermore, the discount rate does not reflect the enterprise-specific credit risk borne by the enterprise’s creditors, nor does
    it reflect the risk that future experience may differ from actuarial assumptions.


    80. The discount rate reflects the estimated timing of benefit payments. In practice, an enterprise 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.

    81. In some cases, there may be no government bonds with a sufficiently long maturity to match the estimated maturity of all the benefit payments. In such cases, an enterprise uses current market rates of the appropriate term to discount shorter term payments, and estimates the discount rate for longer maturities by extrapolating current market rates along the yield curve. The total present value of a defined benefit obligation is unlikely to be particularly sensitive to the discount rate applied to the portion of benefits that is payable beyond the final maturity of the available
    government bonds.

    82. Interest cost is computed by multiplying the discount rate as determined at the start of the period by the present value of the defined benefit obligation throughout that period, taking account of any material changes in the obligation. The present value of the obligation will differ
    from the liability recognised in the balance sheet because the liability is recognised after deducting the fair value of any plan assets and because some past service cost are not recognised immediately. [Appendix A illustrates the computation of interest cost, among other things]

  4. #24
    Accounting Standards
    Guest

    Default Actuarial Assumptions: Salaries, Benefits and Medical Costs of Accounting Standard 15 - Employee Benefits - AS 15

    Actuarial Assumptions: Salaries, Benefits and Medical Costs of Accounting Standard 15 - Employee Benefits - AS 15


    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 change benefits in future periods, the measurement of the obligation reflects those changes. This is the case when, for example:

    (a) the enterprise has a past history of increasing benefits, for example, to mitigate the effects of inflation, and there is no indication that this practice will change in the future; or


    (b) actuarial gains have already been recognised in the financial statements and the enterprise is obliged, by either the formal terms of a plan (or an obligation that goes beyond those terms) or legislation, to use any surplus in the plan for the benefit of plan participants (see paragraph 96(c)).


    86. Actuarial assumptions do not reflect future benefit changes that are not set out in the formal terms of the plan (or an obligation that goes beyond those terms) at the balance sheet date. Such changes will result in:

    (a) past service cost, to the extent that they change benefits for service before the change; and

    (b) current service cost for periods after the change, to the extent that they change benefits for service after the change.

    87. Some post-employment benefits are linked to variables such as the level of state retirement benefits or state medical care. The measurement of such benefits reflects expected changes in such variables, based on past history and other reliable evidence.

    88. Assumptions about medical costs should take account of estimated future changes in the cost of medical services, resulting from both inflation and specific changes in medical costs.

    89. Measurement of post-employment medical benefits requires assumptions about the level and frequency of future claims and the cost of meeting those claims. An enterprise estimates future medical costs on the basis of historical data about the enterprise’s own experience, supplemented
    where necessary by historical data from other enterprises, 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.

    90. The level and frequency of claims is particularly sensitive to the age, health status and *** of employees (and their dependants) and may be sensitive to other factors such as geographical location. Therefore, historical data is adjusted to the extent that the demographic 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).

  5. #25
    Accounting Standards
    Guest

    Default Actuarial Gains and Losses of Accounting Standard 15 - Employee Benefits - AS 15

    Actuarial Gains and Losses of Accounting Standard 15 - Employee Benefits - AS 15


    92. Actuarial gains and losses should be recognised immediately in the statement of profit and loss as income or expense (see paragraph 61).


    93. Actuarial gains and losses may result from increases or decreases in either the present value of a defined benefit obligation or the fair value of any related plan assets. Causes of actuarial gains and losses include, for example:


    (a) unexpectedly high or lowrates of employee turnover, early retirement or mortality or of increases in salaries, benefits (if the terms of a plan provide for inflationary benefit increases) or medical costs;

    (b) the effect of changes in estimates of future employee turnover, early retirement or mortality or of increases in salaries, benefits (if the terms of a plan provide for inflationary benefit increases) ormedical costs;

    (c) the effect of changes in the discount rate; and

    (d) differences between the actual return on plan assets and the expected return on plan assets (see paragraphs 107-109).

  6. #26
    Accounting Standards
    Guest

    Default Past Service Cost of Accounting Standard 15 - Employee Benefits - AS 15

    Past Service Cost of Accounting Standard 15 - Employee Benefits - AS 15


    94. In measuring its defined benefit liability under paragraph 55, an enterprise should recognise past service cost as an expense on a straightline basis over the average period until the benefits become vested. To the extent that the benefits are already vested immediately following the introduction of, or changes to, a defined benefit plan, an enterprise should recognise past service cost immediately.


    95. Past service cost arises when an enterprise introduces a defined benefit plan or changes the benefits payable under an existing defined benefit plan. Such changes are in return for employee service over the period until the benefits concerned are vested. Therefore, past service cost is recognised over that period, regardless of the fact that the cost refers to employee service in previous periods. Past service cost is measured as the change in the liability resulting from the amendment (see paragraph 65).

    Example Illustrating Paragraph 95 An enterprise operates a pension plan that provides a pension of 2% of final salary for each year of service. The benefits become vested after five years of service. On 1 January 20X5 the enterprise improves the pension to 2.5% of final salary for each year of service starting from 1 January 20X1. At the date of the improvement, the present value of the
    additional benefits for service from 1 January 20X1 to 1 January 20X5 is as follows:
    Employees with more than five years’ service at 1/1/X5 Rs.150 Employees with less than five years’ 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 improvements that result from actuarial gains that have already been recognised in the financial statements if the enterprise is obliged, by either the formal terms of a plan (or an obligation that goes beyond those terms) or legislation, to use any surplus in the plan for the benefit of plan participants, even if the benefit increase has not yet been formally awarded (the resulting increase in the obligation is an actuarial loss and not past service cost, see paragraph 85(b));

    (d) the increase in vested benefits (not on account of new or improved benefits) when employees complete vesting requirements (there is no past service cost because the estimated cost of benefits was recognised as current service cost as the service was rendered); and

    (e) the effect of plan amendments that reduce benefits for future service (a curtailment).


    97. An enterprise establishes the amortisation schedule for past service cost when the benefits are introduced or changed. It would be impracticable to maintain the detailed records needed to identify and implement subsequent changes in that amortisation schedule. Moreover, the effect is
    likely to be material only where there is a curtailment or settlement. Therefore, an enterprise amends the amortisation schedule for past service cost only if there is a curtailment or settlement.


    98. Where an enterprise reduces benefits payable under an existing defined benefit plan, the resulting reduction in the defined benefit liability is recognised as (negative) past service cost over the average period until the reduced portion of the benefits becomes vested.


    99. Where an enterprise reduces certain 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 enterprise treats the change as a single net change.

  7. #27
    Accounting Standards
    Guest

    Default Recognition and Measurement Plan Assets of Accounting Standard 15 - Employee Benefits - AS 15

    Recognition and Measurement: Plan Assets of Accounting Standard 15 - Employee Benefits - AS 15

    Fair Value of Plan Assets

    100. The fair value of any plan assets is deducted in determining the amount recognised in the balance sheet under paragraph 55. When no market price is available, the fair value of plan assets is estimated; for example, by discounting expected future cash flows using a discount rate
    that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligation).

    101. Plan assets exclude unpaid contributions due from the reporting enterprise to the fund, as well as any non-transferable 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).

  8. #28
    Accounting Standards
    Guest

    Default Reimbursements of Accounting Standard 15 - Employee Benefits - AS 15

    Reimbursements of Accounting Standard 15 - Employee Benefits - AS 15


    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 respects, an enterprise should treat that asset in the same way as plan assets. In the statement of profit and loss, the expense relating to a defined benefit plan may be presented net of
    the amount recognised for a reimbursement.


    104. Sometimes, an enterprise 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 7, are plan assets. An enterprise accounts for qualifying insurance policies
    in the same way as for all other plan assets and paragraph 103 does not apply (see paragraphs 40-43 and 102).

    105. When an insurance policy is not a qualifying insurance policy, that insurance policy is not a plan asset. Paragraph 103 deals with such cases: the enterprise recognises its right to reimbursement under the insurance policy as a separate asset, rather than as a deduction in determining the defined benefit liability recognised under paragraph 55; in all other respects, including for determination of the fair value, the enterprise treats that asset in the same way as plan assets. Paragraph 120(f)(iii) requires the enterprise to disclose a brief description of the link between the reimbursement right and the related obligation.


    106. 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, as described
    in paragraph 55 (subject to any reduction required if the reimbursement is not recoverable in full).

  9. #29
    Accounting Standards
    Guest

    Default Return on Plan Assets of Accounting Standard 15 - Employee Benefits - AS 15

    Return on Plan Assets of Accounting Standard 15 - Employee Benefits - AS 15


    107. The expected return on plan assets is a component of the expense recognised in the statement of profit 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.

  10. #30
    Accounting Standards
    Guest

    Default Curtailments and Settlements of Accounting Standard 15 - Employee Benefits - AS 15

    Curtailments and Settlements of Accounting Standard 15 - Employee Benefits - AS 15


    110. An enterprise should recognise gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on a curtailment or settlement should 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 employeeswillno 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 curtailment gain or loss would have a material effect on the financial statements. Curtailments are often linked with a restructuring. Therefore, an enterprise
    accounts for a curtailment at the same time as for a related restructuring.

    113. A settlement occurs when an enterprise enters into a transaction that eliminates all further obligations for part or all of the benefits provided under a defined benefit plan, for example, when a lump-sum cash payment is made to, or on behalf of, plan participants in exchange for their rights to
    receive specified post-employment benefits.

    114. In some cases, an enterprise acquires an insurance policy to fund some or all of the employee benefits relating to employee service in the current and prior periods. The acquisition of such a policy is not a settlement if the enterprise retains an obligation (see paragraph 40) to pay further
    amounts if the insurer does not pay the employee benefits specified in the insurance policy. Paragraphs 103-106 deal with the recognition and measurement of reimbursement rights under insurance policies that are not plan assets.


    115. A settlement occurs together with a curtailment if a plan is terminated such that the obligation is settled and the plan ceases to exist. However, the termination of a plan is not a curtailment or
    settlement if the plan is replaced by a new plan that offers benefits that are, in substance, identical.


    116. Where a curtailment relates to only some of the employees covered by a plan, or where only part of an obligation is settled, the gain or loss includes a proportionate share of the previously unrecognised past service cost. The proportionate share is determined on the basis of the present value of the obligations before and after the curtailment or settlement, unless another basis is more rational in the circumstances.

Tags for this Thread

Bookmarks

Posting Permissions

  • Register / Login to post new threads
  • Register / Login to post replies
  • Register / Login to post attachments
  • You may not edit your posts
  •