Indian Accounting


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12.12.2012

AS 15 – Employee Benefits















·         In case of corporates:

– Applicable to all companies with certain specified relaxations available for SMCs
·         In case of non corporates:

– Applicable to Level II & III enterprises (subject to certain relaxations provided), if number of persons employed is 50 or more.
– For Enterprises employing less than 50 persons, any method of accrual for accounting long-term employee benefits liability is allowed.
·         Employee benefits are all forms of consideration given in exchange of services rendered by employees. Employee benefits include those provided under formal plan or as per informal practices which give rise to an obligation or required as per legislative requirements. These include performance bonus (payable within 12 months) and non-monetary benefits such as housing, car or subsidized goods or services to current employees, post-employment benefits, deferred compensation and termination benefits. Benefits provided to employees’ spouses, children, dependents, nominees are also covered.
·         Short-term employee benefits should be recognised as an expense without discounting, unless permitted by other AS to be included as a cost of an asset.
·         Cost of accumulating compensated absences is accounted on accrual basis and cost of non-accumulating compensated absences is accounted when the absences occur.
·         Cost of profit sharing and bonus plans are accounted as an expense when the enterprise has a present obligation to make such payments as a result of past events and a reliable estimate of the obligation can be made. While estimating, probability of payment at a future date is also considered.
·         Post employment benefits can either be defined contribution plans, under which enterprise’s obligation is limited to contribution agreed to be made and investment returns arising from such contribution, or defined benefit plans under which the enterprise’s obligation is to provide the agreed benefits. Under the later plans if actuarial or investment experience are worse than expected, obligation of the enterprise may get increased at subsequent dates.
·         In case of a multi-employer plans, an enterprise should recognise its proportionate share of the obligation. If defined benefit cost cannot be reliably estimated it should recognise cost as if it were a defined contribution plan, with certain disclosures (in para 30)
·         State Plans and Insured Benefits are generally Defined Contribution Plan.
·         Cost of Defined contribution plan should be accounted as an expense on accrual basis. In case contribution does not fall due within 12 months from the balance sheet date, expense should be recognised for discounted liabilities.
·         The obligation that arises from the enterprise’s informal practices should also be accounted with its obligation under the formal defined benefit plan.
·         For balance sheet purpose, the amount to be recognised as a defined benefit liability is the present value of the defined benefit obligation reduced by (a) past service cost not recognised and (b) the fair value of the plan asset. An enterprise should determine the present value of defined benefit obligations (through actuarial valuation at intervals not exceeding three years) and the fair value of plan assets (on each balance sheet date) so that amount recognised in the financial statements do not differ materially from the liability required. In case of fair value of plan asset is higher than liability required, the present value of excess should be treated as an asset.
·         For determining Cost to be recognised in the profit and loss account for the Defined benefit plan, following should be considered :

– Current service cost
– Interest cost
– Expected return of any plan assets
·         Actuarial gains and losses

– Past service cost
– Effect of any curtailment or settlement
– Surplus arising out of present value of plan asset being higher than obligation under the plan.
·         Actuarial Assumptions comprise of following :
– Mortality during and after employment
– Employee Turnover
– Plan members eligible for benefits
– Claim rate under medical plans
– The discount rate, based on market yields on Government bonds of relevant maturity.
– Future salary and benefits levels
– In case of medical benefits, future medical costs (including administration cost, if material)
– Rate of return expectation on plan assets.
·         Actuarial gains/losses should be recognised in profit and loss account as income/expenses.
·         Past Service Cost arises due to introduction or changes in the defined benefit plan. It should be recognised in the profit and loss account over the period of vesting. Similarly, surplus on curtailment is recognised over the vesting period. However, for other long-term employee benefits, past service cost is recognised immediately.
·         The expected return on plan assets is a component of current service cost. The difference between expected return and the actual return on plan assets is treated as an actuarial gain/loss, which is also recognised in the profit and loss account.
·         An enterprise should disclose information by which users can evaluate the nature of its defined benefit plans and the financial effects of changes in those plans during the period. For disclosures requirement refer to paras 120 to 125 of the Standard.
·         Termination benefits are accounted as a liability and expense only when the enterprise has a present obligation as a result of a past event, outflow of resources will be required to settle the obligation and a reliable estimate of it can be made. Where termination benefits fall due beyond 12 months period, the present value of liability needs to be worked out using the discount rate. If termination benefit amount is material, it should be disclosed separately as per AS 5 requirements. As per the transitional provisions expenses on termination benefits incurred up to 31st March, 2009 can be deferred over the pay-back period, not beyond 1st April, 2010.
·         Transitional Provisions
When enterprise adopts the revised standard for the first time, additional charge on account of change in a liability, compared to pre-revised AS – 15, should be adjusted against revenue reserves and surplus.
Central Government has also issued the Companies (Accounting Standard) Amendment rules, 2008 dealing with the transitional provision on AS -15 
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