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Thread: 11 - Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15) - Employee Benefits

  1. #11
    IND-AS
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    Thumbs up State plans of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15) - Employee Benefits

    State plans of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15)

    Employee Benefits


    State plans


    36. An entity shall account for a state plan in the same way as for a multiemployer plan (see paragraphs 29 and 30).

    37. State plans are established by legislation to cover all entities (or all entities 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 entity. Some plans established by an entity provide both compulsory benefits which substitute for benefits that would otherwise be covered under a state plan and additional voluntary benefits. Such plans are not state plans.

    38. State plans are characterised as defined benefit or defined contribution in nature based on the entity’s obligation under the plan. Many state plans are funded on a pay-as-you-go basis: contributions are set at a level that is expected to be sufficient to pay the required benefits falling due in the same period; future benefits earned during the current period will be paid out of future contributions. Nevertheless, in most state plans, the entity has no legal or constructive obligation to pay those future benefits: its only obligation is to pay the contributions as they fall due and if the entity ceases to employ members of the state plan, it will have no obligation to pay the benefits earned by its own employees in previous years. For this reason, state plans are normally defined contribution plans. However, in the rare cases when a state plan is a defined benefit plan, an entity applies the treatment prescribed in paragraphs 29 and 30.


  2. #12
    IND-AS
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    Thumbs up Insured benefits of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15) - Employee Benefits

    Insured benefits of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15)

    Employee Benefits


    Insured benefits

    39. An entity may pay insurance premiums to fund a post-employment benefit plan. The entity shall treat such a plan as a defined contribution plan unless the entity will have (either directly, or indirectly through the plan) a legal or constructive obligation to either:

    (a) pay the employee benefits directly when they fall due; or
    (b) pay further amounts if the insurer does not pay all future employee benefits relating to employee service in the current and prior periods.

    If the entity retains such a legal or constructive obligation, the entity shall treat the plan as a defined benefit plan.

    40. The benefits insured by an insurance contract need not have a direct or automatic relationship with the entity’s obligation for employee benefits. Postemployment benefit plans involving insurance contracts are subject to the same distinction between accounting and funding as other funded plans.

    41. Where an entity funds a post-employment benefit obligation by contributing to an insurance policy under which the entity (either directly, indirectly through the plan, through the mechanism for setting future premiums or through a related party relationship with the insurer) retains a legal or constructive obligation, the payment of the premiums does not amount to a defined contribution arrangement. It follows that the entity:

    (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 104A).

    42. Where an insurance policy is in the name of a specified plan participant or a group of plan participants and the entity does not have any legal or constructive obligation to cover any loss on the policy, the entity has no obligation to pay benefits to the employees and the insure r has sole
    responsibility for paying the benefits. The payment of fixed premiums under such contracts is, in substance, the settlement of the employee benefit obligation, rather than an investment to meet the obligation. Consequently, the entity no longer has an asset or a liability. Therefore, an entity treats such payments as contributions to a defined contribution plan.


  3. #13
    IND-AS
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    Thumbs up Post-employment benefits: defined contribution plans of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15) - Employee Benefits

    Post-employment benefits: defined contribution plans of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15)

    Employee Benefits


    Post-employment benefits: defined contribution plans

    43. Accounting for defined contribution plans is straightforward because the reporting entity’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

    44. When an employee has rendered service to an entity during a period, the entity shall recognise the contribution payable to a defined contribution plan in exchange for that service:

    (a) as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, an entity shall recognise that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or a cash refund; and

    (b) as an expense, unless another Standard requires or permits the inclusion of the contribution in the cost of an asset (see, for example, Ind AS 2 and Ind AS 16 t).

    45. 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 shall be discounted using the discount rate specified in paragraph 78.


  4. #14
    IND-AS
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    Thumbs up Disclosure of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15) - Employee Benefits

    Disclosure of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15)

    Employee Benefits



    Disclosure

    46. An entity shall disclose the amount re cognised as an expense for defined contribution plans.

    47. Where required by Ind AS 24 an entity discloses information about contributions to defined contribution plans for key management personnel.


  5. #15
    IND-AS
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    Thumbs up Post-employment benefits: defined benefit plans of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15) - Employee Benefits

    Post-employment benefits: defined benefit plans of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15)

    Employee Benefits



    Post-employment benefits: defined benefit plans

    48. 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.


  6. #16
    IND-AS
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    Thumbs up Recognition and measurement of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15) - Employee Benefits

    Recognition and measurement of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15)

    Employee Benefits


    Recognition and measurement

    49. Defined benefit plans may be unfunded, or they may be wholly or partly funded by contributions by an entity, and sometimes its employees, in to an entity, or fund, that is legally separate from the reporting entity 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 entity’s ability (and willingness) to make good any shortfall in the fund’s assets. Therefore, the entity is, in substance, underwriting the actuarial and investment risks associated with the plan. Consequently, the expense recognised for a defined benefit plan is not necessarily the amount of the contribution due for the period.

    50. Accounting by an entity 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 entity to determine how much benefit is attributable to the current and prior periods (see paragraphs 67 – 71) 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 72 –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 64–66);

    (c) determining the fair value of any plan assets (see paragraphs 102–104);

    (d) determining the total amount of actuarial gains and losses, which shall all be recognised in other comprehensive income (see paragraphs 92–95);

    (e) where a plan has been introduced or changed, determining the resulting past service cost (see paragraphs 96–101); and
    (f) where a plan has been curtailed or settled, determining the resulting gain or loss (see paragraphs 109–115).

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

    51. In some cases, estimates, averages and computational short cuts may provide a reliable approximation of the detailed computations illustrated in this Standard.


  7. #17
    IND-AS
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    Thumbs up Accounting for the constructive obligation of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15) - Employee Benefits

    Accounting for the constructive obligation of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15)

    Employee Benefits



    Accounting for the constructive obligation

    52. An entity shall account not only for its legal obligation under the formal terms of a defined benefit plan, but also for any constructive obligation that arises from the entity’s informal practices. Informal practices give rise to a constructive obligation where the entity has no realistic alternative but to pay employee benefits. An example of a constructive obligation is where a change in the entity’s informal practices would cause unacceptable damage to its relationship with employees.

    53. The formal terms of a defined benefit plan may permit an entity to terminate its obligation under the plan. Nevertheless, it is usually difficult for an entity to 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 entity which is currently promising such benefits will continue to do so over the remaining working lives of employees.


  8. #18
    IND-AS
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    Thumbs up Balance sheet of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15) - Employee Benefits

    Balance sheet of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15)

    Employee Benefits


    Balance sheet

    54. The amount recognised as a defined benefit liability shall be the net total of the following amounts:

    (a) the present value of the defined benefit obligation at the end of the reporting period (see paragraph 64);
    (b) [Refer to Appendix 1 ]
    (c) minus any past service cost not yet recognised (see paragraph 96);
    (d) minus the fair value at the end of the reporting period of plan assets (if any) out of which the obligations are to be settled directly (see paragraphs 102–104).

    55. The present value of the defined benefit obligation is the gross obligation, before deducting the fair value of any plan assets.

    56. An entity shall 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 end of the reporting period.

    57. This Standard encourages, but does not require, an entity to involve a qualified actuary in the measurement of all material post -employment benefit obligations. For practical reasons, an entity may request a qualified actuary to carry out a detailed valuation of the obligation before the end of the reporting period. Nevertheless, the results of that valuation are updated for any material transactions and other material changes in circumstances (including changes in market prices and interest rates) up to the end of the reporting period.

    58. The amount determined under paragraph 54 may be negative (an asset).
    An entity shall measure the resulting asset at the lower of:

    (a) the amount determined under paragraph 54; and
    (b) the total of:

    (i) any cumulative unrecognised past service cost (see paragraph 96); and
    (ii) 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 shall be determined using the discount rate specified in paragraph 78.

    58A. The application of paragraph 58 shall not result in a gain being recognised solely as a result of a past service cost in the current period. The entity shall therefore recognise immediately under paragraph 54 the following, to the extent that it arises while the defined benefit asset is determined in accordance with paragraph 58(b):

    (a) past service cost of the current period to the extent that it exceeds any reduction in the present value of the economic benefits specified in paragraph 58(b)(ii). If there is no change or an increase
    in the present value of the economic benefits, the entire past service cost of the current period shall be recognised immediately under paragraph 54.

    (b) [Refer to Appendix 1]

    58B. Paragraph 58A applies to an entity only if it has, at the beginning or end of the accounting period, a surplus* in a defined benefit plan and cannot, based on the current terms of the plan, recover that surplus fully through refunds or reductions in future contributions. In such cases, past service cost that arises in the period, the recognition of which is deferred under paragraph 54, will
    increase the amount specified in paragraph 58(b)(i). If that increase is not offset by an equal decrease in the present value of economic benefits that qualify for recognition under paragraph 58(b)(ii), there will be an increase in the net total specified by paragraph 58(b) and, hence, a recognised gain. Paragraph 58A prohibits the recognition of a gain in these circumstances. For examples of the application of this paragraph, see Appendix D.

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

    (a) the entity controls a resource, which is the ability to use the surplus to generate future benefits;
    (b) that control is a result of past events (contributions paid by the entity and service rendered by the employee); and
    (c) future economic benefits are available to the entity in the form of a reduction in future contributions or a cash refund, either directly to the entity or indirectly to another plan in deficit.

    60. The limit in paragraph 58(b) does not override the delayed recognition of certain past service cost (see paragraph 96), other than as specified in paragraph 58A. Paragraph 120A(f)(iii) requires an entity to disclose any amount not recognised as an asset because of the limit in paragraph 58(b).


  9. #19
    IND-AS
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    Thumbs up Profit or loss of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15) - Employee Benefits

    Profit or loss of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15)

    Employee Benefits


    Profit or loss

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

    (a) current service cost (see paragraphs 63–91);
    (b) interest cost (see paragraph 82);
    (c) the expected return on any plan assets (see paragraphs 105–107) and on any reimbursement rights (see paragraph 104A);
    (d) [Refer to Appendix 1]
    (e) past service cost (see paragraph 96);
    (f) the effect of any curtailments or settlements (see paragraphs 109 and 110); and
    (g) [Refer to Appendix 1]

    62. Other Standards require the inclusion of certain employee benefit costs within the cost of assets such as inventories or property, plant and equipment (see Ind AS 2 and Ind AS 16). Any post-employment benefit costs included in the cost of such assets include the appropriate proportion of the components listed in paragraph 61.


  10. #20
    IND-AS
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    Thumbs up Recognition and measurement: present value of defined benefit obligations and current service cost of Indian Accounting Standard (Ind AS) 19

    Recognition and measurement: present value of defined benefit obligations and current service cost of Indian Accounting Standard (Ind AS) 19 - Earlier Accounting standard (15)

    Employee Benefits


    Recognition and measurement: present value of defined benefit obligations and current service cost

    63. 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 64–66);

    (b) attribute benefit to periods of service (see paragraphs 67–71); and

    (c) make actuarial assumptions (see paragraphs 72–91).


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