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

  1. #51
    Accounting Standards
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    Default Past Service Cost and Review of Actuarial Assumptions of Accounting Standard 15 - Employee Benefits - AS 15

    Past Service Cost and Review of Actuarial Assumptions of Accounting Standard 15 - Employee Benefits - AS 15


    21. An actuarially determined past service cost arises on the introduction of a retirement benefit scheme for existing employees or on the making of improvements to an existing scheme, etc. This cost gives employees credit for benefits for services rendered before the occurrence of one or more of these events.


    22. Views differ as to how to account for this cost. One view is that this cost should be recognised as soon as it has been determined. Others believe that the entitlement giving rise to past service cost is in return for services to be rendered by employees in future and therefore this cost ought to be allocated over the periods during which the services are to be rendered.

    23. In making an actuarial valuation, the actuary may sometimes effect a change in the actuarial method used or in the assumptions adopted for determining the retirement benefit costs. Any alterations in the retirement benefit costs so arising are charged or credited to the statement of profit and loss for the year or, alternatively, spread over a period not more than the expected remaining working lives of the participating employees. A change in the actuarial method used for determining the retirement benefit costs constitutes a change in an accounting policy and is disclosed accordingly.

  2. #52
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    Default Retired Employees of Accounting Standard 15 - Employee Benefits - AS 15

    Retired Employees of Accounting Standard 15 - Employee Benefits - AS 15

    24. When a retirement benefit scheme for retired employees is amended, due to inflation or for other reasons, to provide additional benefits to retired employees, any additional costs are charged to the statement of profit and loss of the year.

  3. #53
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    Default Disclosures of Accounting Standard 15 - Employee Benefits - AS 15

    Disclosures of Accounting Standard 15 - Employee Benefits - AS 15


    25. In view of the diversity of practices used for accounting of retirement benefits costs, adequate disclosure of method followed in accounting for them is essential for an understanding of the significance of such costs to an employer.


    26. Retirement benefit costs are sometimes disclosed separately for statutory compliance. In other cases, they are considered to be an element of employee remuneration and their separate disclosure is not usually made.

  4. #54
    Accounting Standards
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    Default Accounting Standard 15 - AS 15 - Employee Benefits

    Accounting Standard


    27. In respect of retirement benefits in the form of provident fund and other defined contribution schemes, the contribution payable by the employer for a year should be charged to the statement of profit and loss for the year. Thus, besides the amount of contribution paid, a shortfall of the amount of contribution paid compared to the amount payable for the year should also be charged to the statement of profit and loss for the year. On the other hand, if contribution paid is in excess
    of the amount payable for the year, the excess should be treated as a pre-payment.


    28. In respect of gratuity benefit and other defined benefit schemes, the accounting treatment will depend on the type of arrangement which the employer has chosen to make.


    (i) If the employer has chosen to make payment for retirement benefits out of his own funds, an appropriate charge to the statement of profit and loss for the year should be made through a provision for the accruing liability. The accruing liability should be calculated according to actuarial
    valuation. However, those enterprises which employ only a few persons may calculate the accrued liability by reference to any other rational method e.g. a method based on the assumption that such benefits are payable to all employees at the end of the accounting year.

    (ii) In case the liability for retirement benefits is funded through creation of a trust, the cost incurred for the year should be determined actuarially. Such actuarial valuation should normally be conducted at least once in every three years. However, where the actuarial valuations are not conducted annually, the actuary’s report should specify the contributions to be made by the employer on annual basis during the inter-valuation period. This annual contribution (which is in addition to the contribution that may be required to finance unfunded past service cost) reflects proper accrual of retirement benefit cost for each of the years during the inter-valuation period and should be charged to the statement of profit and loss for each such year. Where the contribution paid during a year is lower than the amount required to be contributed during the year to meet the
    accrued liability as certified by the actuary, the shortfall should be charged to the statement of profit and loss for the year. Where the contribution paid during a year is in excess of the amount required to be contributed during the year to meet the accrued liability as certified by the actuary, the excess should be treated as a pre-payment.

    (iii) In case the liability for retirement benefits is funded through a scheme administered by an insurer, an actuarial certificate or a confirmation from the insurer should be obtained that the contribution payable to the insurer is the appropriate accrual of the liability for the year. Where the contribution paid during a year is lower than amount required to be contributed during the year to meet the accrued liability as certified by the actuary or confirmed by the insurer, as the case may be, the shortfall should be charged to the statement of profit and loss for the year. Where the contribution paid during a year is in excess of the amount required to be contributed during the year to meet the accrued liability as certified by the actuary or confirmed by the insurer, as the case may be, the excess should be treated as a pre-payment.

    29. Any alterations in the retirement benefit costs arising from - (a) introduction of a retirement benefit scheme for existing employees or making of improvements to an existing scheme, or (b) changes in the actuarial method used or assumptions adopted, should be charged or credited to the statement of profit and loss as they arise in accordance with Accounting Standard (AS) 5, ‘Prior
    Period and Extraordinary Items and Changes in Accounting Policies’. Additionally, a change in the actuarial method used should be treated as a change in an accounting policy and disclosed in accordance with Accounting Standard (AS) 5, ‘Prior Period and Extraordinary Items and Changes in Accounting Policies’.

    30. When a retirement benefit scheme is amended with the result that additional benefits are provided to retired employees, the cost of the additional benefits should be accounted for in accordance with paragraph 29.

  5. #55
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    Default Disclosures of Accounting Standard 15 - Employee Benefits - AS 15

    Disclosures of Accounting Standard 15 - Employee Benefits - AS 15


    31. The financial statements should disclose the method by which retirement benefit costs for the period have been determined. In case the costs related to gratuity and other defined benefit schemes are based on an actuarial valuation, the financial statements should also disclose whether the actuarial valuation was made at the end of the period or at an earlier date. In the latter case, the date of the actuarial valuation should be specified and the method by which the accrual for the period has been determined should also be briefly described, if the same is not based on the report of the actuary.

  6. #56
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    Default ASB Guidance on Implementing of Accounting Standard 15 - Employee Benefits - AS 15

    ASB Guidance on Implementing

    AS 15, Employee Benefits (revised 2005)

    This Guidance on Implementing Accounting Standard (AS) 15, Employee Benefits (revised 2005), issued by the Accounting Standards Board of the Institute of Chartered Accountants of India, does not form part of the Standard. The purpose of this Guidance is to illustrate and to assist in clarifying the application of the Standard.

    1. What are the kinds of employees covered in the revised AS 15 and whether a formal employer-employee relationship is necessary or not, for benefits to be covered under the Standard?


    The Standard does not define the term “employee”. Paragraph 6 of the Standard states that ‘an employee may provide services to an enterprise on a full-time, parttime, permanent, casual or temporary basis and the term would also include the whole-time directors and other management personnel. The Standard is applicable to all forms of employer-employee relationships. There is no requirement for a formal employer-employee relationship. Several factors need to be considered to
    determine the nature of relationship. Generally ‘outsourcing contracts’ may not meet the definition of employeremployee relationship. However, such contracts need to be carefully examined to distinguish between a “contract of service” and a “contract for services”. A ‘contract for services’ implies a contract for rendering services, e.g., professional or technical services which is subject to limited direction and control whereas a ‘contract of service’ implies a relationship of an employer and employee and the person is obliged to obey orders in the work to be performed and as to its mode
    and manner of performance.

    2. Whether an enterprise is required to provide for employee benefits arising from informal practices.
    Paragraph 3(c) of the Standard defines employee benefits to include those informal practices that give rise to an obligation where the enterprise has no realistic alternative but to pay employee benefits. The historical pattern of granting such benefits, the expectation created and the impact on the relationship with employees in the event such benefit is withdrawn should be considered in
    determining whether the informal practice gives rise to a benefit covered by the Standard. For example, where an employer has a practice of making a lumpsum payment on the occasion of a festival or regularly grants advances against informal benefits to employees it would be necessary to provide for such benefits. Careful judgement should be applied in assessing whether an obligation has arisen particularly in instances where an enterprise's practice is to provide improvements
    only during the collective bargaining process and not during any informal process. If the employer has not set a pattern of benefits that can be projected reliably to give rise to an obligation there is no requirement to provide for the benefits. However, if the practice established by an employer was that of a consistent benefit granted either as part of union negotiations or otherwise that clearly
    established a pattern (e.g., a cost of living adjustment or fixed rupee increase), it could be concluded that an obligation exists and that those additional benefits should be included in the measurement of the benefit obligation.


    3. Whether an entitlement to earned leave which can be carried forward to future periods is a short-term employee benefit or a long-term employee benefit. Paragraph 7.2 of the Standard defines ‘Short-term’ benefits as employee benefits (other than termination benefits) which fall due wholly within twelve months after the end of the period in which the employees render the related service. Paragraph 8(b) of the Standard illustrates the term ‘Short-term benefits’ to include
    “short term compensated absences (such as paid annual leave) where the absences are expected to occur within twelve months after the end of the period in which the employees render the related employee service”. Paragraph 7.2 of the Standard uses “falls due” as the basis, paragraph 8(b) of the Standard uses “expected to occur” as the basis to illustrate classification of short term
    compensated absences. A reading of paragraph 8(b) together with paragraph 7.2 would imply that the classification of short-term compensated absences should be only when absences have “fallen due” and are also “expected to occur”. In other words, where employees are entitled to earned leave which can be carried forward to future periods the benefit would be a ‘short-term benefit’ provided the employee is entitled to either encash/utilise the benefit during the twelve months
    after the end of the period when he became entitled to the leave and is also expected to do so. Where there are restrictions on encashment/availment, clearly the compensated absence has not fallen due and the benefit of compensated absences is more likely to be a long term benefit. For example, where an employee has 100 days of earned leave which he is entitled to an unlimited carry
    forward but the rules of the enterprise allow him to encash/utilise only 30 days during the next twelve months, the benefit would be considered as a ‘long-term’ benefit. In some situations where there is no restriction but the absence is not expected to wholly occur in the next twelve months, the benefit should be considered as ‘long-term’. For example, where an employee has 400 days carry
    forward earned leave and the past pattern indicates that the employees are unlikely to avail/encash the entire carry forward during the next twelve months, the benefit would not be ‘short term’. Whilst it is necessary to consider the earned leave which “falls due”, the pattern of actual utilisation / encashment by employees, although reflective of the behavioural pattern of employees, does
    determine the status of the benefit, i.e., whether ‘short term’ or ‘long term’. The value of short-term benefits should be determined without discounting and if the benefit is determined as long term, it would be recognised and measured as “Other long term benefits” in accordance with paragraph 129 of the Standard. The categorisation in ‘short-term’ or ‘long-term’ employee benefits should be
    done on the basis of the overall behavioural pattern of all the employees of the enterprise and not on individual basis.

    4. What is an appropriate measure of cost of compensated absences which can be carried forward for their availment and/or encashment in future period(s)?

    The cost of compensated absences should be measured as the additional amount the enterprise expects to pay as a result of the unused entitlement. When an employee avails the leave at a future date the cost of such leave would be the compensation and other benefits which the employee would be paid for the period of his absence. In some enterprises the amount payable to an employee on encashment would not be the same as the compensation and other benefits the
    employee would be paid in case the leave is availed. For instance, an enterprise could have a practice of paying only basic wage when leave is encashed whereas the employee would be entitled to basic wage, allowances and other benefits when the leave is availed. Such situations would require estimation of the additional amount the enterprise expects to pay. This may involve considering the pattern of relative proportion of encashment and availment in order to estimate the likely amounts payable in the future periods. For example, where the past pattern indicates that 97% of leave is encashed and only 3% is availed, it would be necessary to consider the relative proportion and the amounts payable in each condition while estimating the additional amount the enterprise expects to pay in future. The additional amount the enterprise expects to pay would also
    include payments as a consequence of the settlement of the benefit even though such payments are not directly to the employee. For instance, in cases where leave is encashable, the cost of compensated absences would include the applicable employer’s contribution to provident fund. This is because it is a directly related inherent cost of receiving services from employees and as a result
    of the consideration paid in order to be able to receive the services.

    5. What would happen in a case where the rules of an enterprise allow sick leave to be carried forward up to the time of retirement?

    Sick leave is one of the types of compensated absences. Sick leave is conditional on the future event of an employee reporting sick. An obligation arises as the employee renders service which increases the employee’s entitlement (conditional or unconditional) to future compensated absences. Accumulating paid sick leave creates an obligation because any unused entitlement increases the employee’s entitlement to sick leave in future periods. The probability that the employee will be sick in those future periods affects the measurement of that obligation, but does
    not determine whether that obligation exists. The example illustrating paragraphs 14 and 15 contained in AS 15 is merely to illustrate the individual LIFO approach as the appropriate approach instead of the group LIFO approach or the FIFO approach. Where the rules of an enterprise allow such leave to be carried forward up to the time of retirement, a liability should be recorded for the cost of the entitlement which should be estimated having regard to the probability of the employee availing the sick leave in future periods. In case the rules of the enterprise permit encashment of accumulated unutilised sick leave the liability should be recorded in the manner explained in response to question 4 above.


    6. In case an enterprise allows unutilised employee benefits, e.g., medical care, leave travel, etc., to be carried forward, whether it is required to recognise a provision in respect of carried forward benefits.

    A provision should be recognised for all benefits (conditional or unconditional) which an employee becomes entitled to as a result of rendering of the service and should be recorded as part of the cost of service rendered during the period in which the service was rendered which resulted the entitlement. In estimating the cost of such benefit the probability of the employee availing such benefit should be considered.



    7. How are short-term employee benefits determined for interim reporting periods, i.e., whether employee benefits payable within twelve months from the end of the interim reporting period are considered to be short-term or employee benefits payable within twelve months from the end of the financial year are considered to be short-term?


    The principles for recognising assets, liabilities, income and expenses for interim periods are the same as in annual financial statements. However, the frequency of reporting should not affect the measurement of annual results. Therefore, shortterm employee benefits in the interim periods should be reckoned as benefits payable within twelve months from the end of the financial year.


    8. Whether concessional loan provided by an enterprise to its employees is an employee benefit and how should such concessional loan be treated in the financial statements of the enterprise?


    The granting of a loan by an enterprise to an employee at a concessional rate of interest results in a benefit to an employee. At present the value of such benefit is recognised over the period of the loan by accounting for the interest income at the stipulated rate instead of at the market rate. ICAI has issued a draft Accounting Standard (AS) 30, Financial Instruments: Recognition and Measurement. This proposed Standard requires such loans (which are financial assets) to be initially
    recorded at fair value and the difference between the fair value and the amount of loan disbursed would be “employee benefit” to be recorded in accordance with AS 15. Till such time the Standard is finalised and is applicable, loans at concessional rate of interest would continue to be recorded at face value and the interest income recognised at the stipulated rate. There would be no recording of
    the embedded employee benefit in the granting of such loans.

    9. Whether a provident fund which guarantees a specified rate of return is a defined benefit plan or a defined contribution plan. Section 17 of the Employees Provident Funds (EPF) Act, 1952 empowers the Government to exempt any establishment from the provisions of the Employees’ Provident Scheme, 1952 provided that the rules of the provident fund set up by the establishment are not less favourable than those specified in section 6 of the EPF Act and the employees are also in enjoyment of other provident fund benefits which on the whole are not less favourable to the employees than the benefits provided under the Act. The rules of the provident funds set up by such establishments (referred to as exempt provident funds) generally provide for the deficiency in the rate of interest on the contributions based on its return on investment as compared to the rate declared for Employees’ Provident Fund by the Government under paragraph 60 of the Employees’ Provident Fund Scheme, 1952 to be met by the employer. Such provision in the rules of the provident fund would tantamount to a guarantee of a specified rate of return. As per AS 15, where in terms of any plan the enterprise’s obligation is to provide the agreed benefits to current and former employees and the actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance, on the enterprise, the plan would be a defined benefit plan. Accordingly, provident funds set up by
    employers which require interest shortfall to be met by the employer would be in effect defined benefit plans in accordance with the requirements of paragraph 26(b) of AS 15.


    10. What is the nature of a gratuity benefit scheme covered under a Group Gratuity Scheme with an Insurance Company? Whether it is a defined benefit plan or a defined contribution plan and whether or not the assets and liabilities of the scheme held by the Insurance Company are required to be disclosed in the financial statements of the concerned enterprise.


    A key distinction between defined contribution plans and defined benefit plans is that in the case of defined benefit plans the actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance, on the enterprise. If actuarial or investment experience are worse than expected, the enterprise’s obligation may be increased. Where a gratuity scheme is covered under an
    insurance policy, the payments to the insurance company under the policy would not be considered as defined contributions if the actuarial risk and investment risk is borne by the enterprise. In the case of the Group Gratuity Scheme, the employer makes the funding through a Gratuity Trust, to an account maintained at an Insurance Company. The Insurance Company takes care of the investment of the funds in accordance with the pattern prescribed by the Income-tax Act. The
    return on such funds is passed on as interest from time to time. The gratuity claims as per the Rules of the Employer are withdrawn from the fund and paid to the employees through the Gratuity Trust. An actuarial valuation is generally conducted by the Insurance Company as on the date of commencement and also at yearly intervals to assess the present value of the gratuity liability and to indicate the fund required to meet the liability. The gratuity benefit scheme covered under such a scheme with an Insurance Company would, consequently, be a defined benefit plan. The assets held by the Insurance Company would be required to be considered by the enterprise while recognising the amount of defined benefit liability in the Balance Sheet.

    11. In case an enterprise has created a separate trust to administer a defined benefit plan, whether or not the assets and liabilities of the trust would appear in the financial statements of the enterprise.

    Where an enterprise has created a separate trust to administer a defined benefit plan, the fair value of the trust assets (net of liabilities) out of which the obligations are to be settled directly would be deducted from the present value of the defined benefit obligation and the net total would be recognised in the Balance Sheet. The assets and liabilities of the trust individually would not appear in the separate financial statements of the enterprise.

    12. In case of defined benefit schemes covered under a Group Gratuity or other defined benefit scheme with an insurance company, where the actuarial risk and investment risk have not been transferred from the enterprise, whether an enterprise can rely upon actuarial valuation certificate provided by the insurance company or a separate certificate from a qualified actuary is required
    to be obtained for determination of actuarial liability. In the case of defined benefit schemes covered under a Group Gratuity or other defined benefit scheme with an insurance company where the actuarial risk and investment risk have not been transferred from the enterprise, the actuarial
    valuation certificate provided by the insurance company can be relied upon by the enterprise.

    However, the enterprise should ensure that such actuarial valuation has been carried out by a qualified actuary in accordance with AS 15 (revised 2005), the underlying data is accurate, the assumptions are appropriate and the information required for compliance with the disclosure requirements of the Standard have been provided by the insurance company. A separate certificate
    from another qualified actuary is not necessary.


    13. What is the meaning of the phrase ‘market yields at the balance sheet date on government bonds’ used in paragraph 78 of AS 15 (revised 2005) in the context of the discount rate?


    The discount rate reflects the time value of money. It does not reflect the company’s own credit rating. The term ‘market yields at the balance sheet date on government bonds’ means the market yields at the balance sheet date on government bonds of appropriate currency and term consistent with the currency and estimated term of the post-employment benefit obligations. The market
    yields on government bonds vary from time to time and are affected by a number of factors including prevalent interest. The purpose of using the words ‘market yields at the balance sheet date’ is to ensure that the yields prevalent on that date are considered instead of a long-term average rate, based on past experience over a number of years or any other rate during the financial year.


    14. In case the rules of an enterprise provide that no gratuity would be payable if an employee leaves during the first five years of service, whether the enterprise is required to create a provision in respect of gratuity payable during the first five years of service of an employee.


    In this case, the employee’s right to receive the benefit is conditional on future employment for a period of five years. Although there is a possibility that the benefit may not vest, there is also a probability that the employee would serve for the minimum period of five years and become eligible for gratuity. An obligation exists even if a benefit is not vested. The obligation arises when the employee renders the service though the benefit is not vested. The measurement of this obligation at its present value takes into account the probability that the benefit may not vest and this is appropriately factored in the calculation of the present value of the defined benefit obligation. An enterprise should, therefore, create a provision in respect of gratuity payable during the first five years of service of an employee.


    15. In case an enterprise was not creating full provision for retirement benefits, such as, gratuity, pension, etc., as per the requirements of pre-revised AS 15, how should the amount of under provisioning be treated?

    Enterprises to which the pre-revised AS 15 was applicable, were required to comply with the provisions of the Standard in the preparation and presentation of the financial statements. In case an enterprise had not created a provision for retirement benefits as per the earlier Standard, the amount of benefit as at the commencement of the financial year when the revised Standard is first applied would be a prior period item as it represents an omission in the preparation of the financial statements of earlier periods. The amount of such benefit should be charged to the profit and loss account in the period when it is first accounted for and should be dealt with in accordance with AS 5. The enterprise would not be entitled to use the transitional provisions of the revised AS 15 to account for such under-provisioning.



    16. In case an enterprise was not creating appropriate provision(s) for employee benefits, such as, sick leave, etc., which are not covered in the pre-revised AS 15, whether the transitional provisions of revised AS 15 can be applied to the entire liability arising on the first application of the revised AS 15.


    The transitional provisions of revised AS 15 can be applied only to those items where the revised Standard requires recognition and measurement for the first time and to changes in the principles of recognition and measurement in the revised Standard as compared to the pre-revised Standard. As mentioned in response to question 15 above, the transitional provisions cannot be utilised to
    recognise or provide for errors in measurement based on the pre-revised Standard for the periods in which that Standard was applicable. Such errors in measurement based on the pre-revised Standard should be dealt with in accordance with AS 5.


    17. Is the application of the revised Standard a change in accounting policy and what would be the disclosures required?

    Accounting policies refer to the specific accounting principles and the methods of applying those principles in the preparation and presentation of financial statements. Accordingly, any change in the application of the principles of accounting for employee benefits based on the revised AS 15 as compared to the pre-revised Standard including the methods of applying those principles would be
    a change in accounting policy and should be dealt with as per the requirements of paragraph 32 of AS 5. Whether the application of the revised Standard would result in a change in accounting policy or a change in accounting estimate should be carefully examined and would depend on the facts and circumstances of each case. For instance, where an enterprise measures post employment benefits using the Projected Unit Credit Method as against the Aggregate Method in the past, such a change would be a change in accounting policy. However, where the enterprise has always been measuring such benefits based on the Projected Unit Credit Method and there are changes in discount rate and other assumptions, this would more likely be a change in estimate and should be dealt with in accordance with paragraph 23 of AS 5 and disclosed in accordance with paragraph 27 of AS 5.


    18. Where an enterprise does an early application of the revised Accounting Standard 15, can it comply with the measurement principles of the Standard prematurely without complying with the disclosure requirements of the Standards?



    No. The revised Standard has to be implemented in its entirety including disclosure requirements specified in the Standard.

  7. #57
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    Default ANNOUNCEMENT Limited Revision of Accounting Standard 15 - Employee Benefits - AS 15

    ANNOUNCEMENT

    Limited Revision to Accounting Standard (AS) 15, Employee Benefits (revised 2005)



    The Council of the Institute of Chartered Accountants of India has decided to make limitedrevision to Accounting Standard (AS) 15, Employee Benefits (revised 2005), with a view to provide the following:

    (i) Under the Transitional Provisions, an option has been given to charge additional liability arising upon the first application of the Standard as an expense over a period upto 5 years. On the lines of IAS 19, the Transitional Provisions of revised AS 15 require disclosure of un-recognised amount.


    (ii) An entity may disclose the amounts required by paragraph 120(n) as theamount determined for each accounting period prospectively from the transitional date.


    The modifications in the Standard are indicated in track-changes mode (the additions are shown as under-lined and deletions are shown in strike-through form) as below:

    1. The following paragraph has been inserted after paragraph 92:

    “92A. Paragraph 145(b)(iii) explains the need to consider any unrecognised part of the transitional liability in accounting for subsequent actuarial gains.”

    2. Paragraph 116 has been modified as follows:

    “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 (and of transitional amounts remaining unrecognised under paragraph 145(b). The proportionate share is determined on the basis of the present value of the obligations before and after the curtailment or settlement, unless another basis is more rational in the circumstances.

    Example Illustrating Paragraph 116

    An enterprise discontinues a business segment and employees of the discontinued segment will earn no further benefits. This is a curtailment without a settlement. Using current actuarial assumptions (including current market interest rates and other current market prices) immediately before the curtailment, the enterprise has a defined benefit obligation with a net present value of Rs. 1,000 and plan assets with a fair value of Rs. 820 and unrecognised past service cost of Rs. 50. The enterprise had first adopted this Statement 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.

  8. #58
    Accounting Standards
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    Default Announcements of Accounting standard 15 - Employee Benefits - AS 15

    3. The following paragraph has been inserted under the head ‘Transitional Provisions’:


    “142 A. An enterprise may disclose the amounts required by paragraph 120(n) as the amounts are determined for each accounting period prospectively from the date the enterprise first adopts this Statement.”


    4. Paragraph 145 of AS 15 has been modified as follows:


    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 any asset recognised in the balance sheet;


    (ii) disclose at each balance sheet date (1) the amount of the increase that remains unrecognised; and (2) the amount recognised in the current period;


    (iii) limit the recognition of subsequent actuarial gains (but not negative past service cost) only to the extent that the net cumulative unrecognised actuarial gains (before recognition of that actuarial
    gain) exceed the unrecognised part of the transitional liability; and


    (iv) include the related part of the unrecognised transitional liability in determining any subsequent gain or loss on settlement or curtailment.


    If the transitional liability is less than the liability that would have been recognised at the same date as per the pre-revised AS 15, the enterprise should recognise that decrease immediately as an adjustment against the opening balance of revenue reserves and surplus.


    5. The following modification has been made in Appendix C, ‘Comparison with IAS 19, Employee Benefits (as amended in December, 2004)’:

    In respect of termination benefits, the revised AS 15 (2005), considering that the industry in India at present is passing through a restructuring phase, specifically contains a transitional provision providing that where an enterprise incurs expenditure on termination benefits on or before 31st March, 2009, the enterprise may choose to follow the accounting policy of deferring such expenditure over its pay-back period.

    However, the expenditure so deferred cannot be carried forward to accounting periods commencing on or after 1st April, 2010. Thus, the expenditure so deferred should be written off over (a) the pay-back period or (b) the period from the date expenditure on termination benefits is incurred to 1st April, 2010, whichever is shorter. IAS 19 does not provide such a transitional provision.”

  9. #59
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    Default Deferment of Applicability of Accounting Standard 15 - AS 15, Employee benefits (revised 2005)

    Deferment of Applicability of Accounting Standard (AS) 15, Employee benefits (revised 2005)


    The Council of the Institute of Chartered Accountants of India (ICAI), at its 265th meeting held on February 3-4, 2007, decided to defer the date of applicability of Accounting Standard (AS) 15, Employee Benefits (revised 2005), issued by the ICAI, keeping in view the practical difficulties and general hardship being faced by industry. As per the decision, AS 15 comes into effect in respect of accounting periods commencing on or after December 7, 2006 (instead of April 1, 2006, as stated in the said Standard) and is mandatory in nature from that date. Earlier application of the Standard is encouraged.

  10. #60
    Accounting Standards
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    Default Option to an entity to adopt alternative treatment allowed by way of amendment to the Transitional Provisions of Accounting Standard 15 - AS 15

    Option to an entity to adopt alternative treatment allowed by way of amendment to the Transitional Provisions of Accounting Standard (AS) 15, Employee Benefits (revised 2005)


    An amendment by way of limited revision to Accounting Standard (AS) 15, Employee Benefits (revised 2005), has been made with a view to provide, inter alia, an option to an enterprise to charge additional liability arising upon the first application of the Standard as an expense over a period upto five years with a disclosure of un-recognised amount.
    The Council of the Institute of Chartered Accountants of India has decided to give a one time option to the enterprises which have followed the treatment prescribed under the Transitional Provisions prior to the above-stated amendment to adopt the alternative treatment, allowed by way of the said amendment, from the date the Transitional Provision was so applied. An enterprise is, however, allowed to exercise this option only during the first accounting year commencing on or after 7th December, 2006. In case an enterprise chooses to adopt the option, the earlier accounting treatment followed in this respect should be reversed.

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