AS 15 Employee Benefits

Employee Benefits are all forms of consideration given by an enterprise in exchange for service
rendered by employees.

[eg: Gratuity, [eg: Long-service leave, [eg: VRS Payments]

[eg: Wages, Salaries,
Pension, Provident long-term disability
Paid annual leave,
Fund, Post benefits, bonuses not
Profit Sharing Bonus
employment wholly payable within
Plans, etc.]
medical care, etc.] 12 months of the year
end Long term
sabbatical leaves, etc.]
This should be recognized as an expense only on fulfilment of following two conditions:-
• Entity has present obligation to make such payment as a result of past events, and
• Reliable estimate of the obligation can be made
• A reliable estimate of the obligation can be made when, and only when;
✓ Formal terms of the plan contains the formula
✓ The determined amount to be paid is approved
✓ There exists past practice which is clear evidence of the obligation.
Post-employment benefits are employees benefits (other than termination benefits) which
are payable after the completion of employment.

Post-employment benefits plans are formal or informal arrangements under which an

enterprise provides post-employment benefits for one or more employees.

Enterprise is under obligation to

Enterprise obligation is limited to the
provide agreed benefits to
amount that it agrees to contribute to the
current and former employees
funds.

Actuarial risk and Investment Risk

Actuarial risk and investment risk falls in substance, falls on employer.
on the employee and not on employer Expenses are recorded based on
projected unit credit method.

THESE PLAN CAN BE MAINTAINED

MULTI EMPLOYER STATE PLAN INSURED PLAN

PLAN

ACTUARIAL RISK :- It is the risk that liability amount for entity will be less or more.

INVESTMENT RISK :- Risk that investment amount would not be sufficient to pay the
liability.
 Salary X % Contribution Salary X % Contribution
Defined Contribution Expenses A/c Dr. Defined Contribution Expenses Payable Dr.
[Employee Benefit Expenses] A/c
To Defined Contribution [Current Liability]
Expenses Payable A/c To Bank A/c
[Current Liability] (Being contribution made)

Note: When Contribution payable do not fall due within 12 months from the end of reporting
period it should be discounted using specified discounting rate.

Accounting of Defined Benefit Plan is complex, because actuarial assumptions are used to
measure the obligation and expenses and actuarial gain / loss may also arise.

Current Service Cost is increase in Interest cost is increase during the

Present Value of Defined Benefit period in present value of defined
Obligation resulting from employee benefit obligation which arises
service in Current Period. because the benefits are one period
closure to settlement.
[Discounting Rate X Opening Present
value of defined benefit obligation]

Current Service Cost A/c Dr. Interest Cost A/c Dr.

To Defined Benefit Obligation A/c To Defined Benefit Obligation A/c

These are post employment benefit under which entity has obligation to pay agreed benefit
directly to employee post employment in any case.
Expected Final Salary p.a. X No. of years of service X Benefit Percentage = Total Benefit Payable
Benefits attributable to each years of service.
= Total benefit payable / No. of years of service
Any change in financial or demographic assumption or experience variance like estimate of
employee final salary, No. of years of service, Discount Rate, etc.

Actuarial Gain [Decrease in Defined Actuarial Loss [Increase in

Benefit Obligation] Defined Benefit Obligation]
Defined Benefit Obligation A/c Dr. Actuarial Loss A/c Dr.
To Actuarial Gain A/c To Defined Benefit
Obligation A/c

Past service cost change in the PV of Defined Benefit Obligation for employee service in prior
periods resulting in current period from the introduction of or changes on to post employment
benefit.
It may be either positive [when benefits are improved] or negative [when benefits are reduced].

Any amendment made in Defined Benefit plan by changing benefit “%” of plan. [In last
example of entity changes benefit % from 25% to 30%]

Additional Benefit to Employee Reduction in Benefit to Employee

Past Service Cost A/c Dr. Defined Benefit Obligation A/c Dr.
To Defined Benefit Obligation A/c To Past Service Cost A/c
Comprises:
a) Assets held by long term employee benefit fund and
b) Qualifying insurance policies.
The F.V. of any plan asset is deducted in determining the amount of Defined Benefit obligation to be
recognized in Balance Sheet
Balance Sheet disclosure amount
PV of defined benefit obligation@ Balance Sheet date XXX
(-) Past service cost not recognised (XXX)
F.V. of Plan assets (XXX)
XXX

• Contribution to Plan Asset

Plan Asset A/c Dr.
To Bank A/c
(Being Investment made in Plan Assets)
• Benefit paid on Realisation
Bank A/c Dr.
To Plan Asset
(Being Sales proceeds realised)
• Expected return on Plan Assets
Plan assets A/c (Closing Balance of Plan Asset X Interest Rate) Dr.
To Expected Return on Plan assets
(Being expected return on plan assets accured)

Difference between the expected return on plan asset and actual return on plan assets.
This will be computed based on FV of Plan Asset @ year end.

• Actuarial Gain
Plan Assets A/c Dr.
To Actuarial Gain A/c
• Actuarial Loss
Actuarial Loss A/c Dr.
To Plan Asset
1. A Curtailment occurs when
• Entity has present obligation arising from past events to make reduction in no. of employee
• Amends the terms of plan such that future service of current employee will no longer qualify
for benefits.
2. A settlement occurs when an enterprise enters into a transaction that eliminates all future
obligation.

Defined Benefit Obligation A/c [Decrease in Defined Benefit Obligation] Dr.

Loss of settlement [Balance Figure] Dr.
To Bank [Payment Made]
To Gain on settlement [Balance Figure]

Other long term employee benefits are employee benefits (other than post employee termination
benefits) which do not fall within 12 months after the end of reporting period.
[Accounting same as Post Employee Benefits]

• Entities decision to terminate employee or

• Employees decision to accept voluntary redundancy in exchange of those benefits.
[Eg:- VRS Payment]
• Entity to recognise it as an exp. or liability only when
✓ A detailed formal plan is duly approved and
✓ A reliable estimate can be made of the obligation

If Payable

Within 12 months from end of B/S Date After 12 months from B/S Date

Recognise undiscounted amount as a Recognise the discounted amount as

liability liability
Notes for student…
 AS 15.1

AS 15 – EMPLOYEE BENEFITS

AS 15
QUESTIONS
PAGE DATE R1
No. QUESTIONS R2 R3 REMARK
NO.
1 ICAI – ILLU. 1
2 ICAI – ILLU. 2
3 ICAI – ILLU. 3
4 ICAI – ILLU. 4
5 ICAI – ILLU. 5
6 ICAI – ILLU. 6
7 ICAI – ILLU. 7
8 ICAI – ILLU. 8
ICAI – FINAL (IND AS 19)
9 – ILLU.1
ICAI – FINAL (IND AS 19)
10 – ILLU.2
ICAI – FINAL (IND AS 19)
11 – ILLU.3
ICAI – FINAL (IND AS 19)
12 – ILLU.4
ICAI – FINAL (IND AS 19)
13 – ILLU.5
ICAI – FINAL (IND AS 19)
14
– ILLU.8
TEST IN TIME PASS IN TIME
1 ICAI – P.Q. 7
2 ICAI – P.Q. 8
 AS 15.2

1. ICAI - ILLUSTRATION 1
AS 15

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?

SOLUTION
As per AS 15 – “EMPLOYEE BENEFITS”, this 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, part time, 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 employer -employee
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. ICAI - ILLUSTRATION 2
Whether an enterprise is required to provide for employee benefits arising from informal practices?

SOLUTION
AS 15 – “EMPLOYEE BENEFITS”, 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
 AS 15.3

benefit covered by the Standard. For example, where an employer has a practice of making a

AS 15
lumpsum payment on 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. ICAI - ILLUSTRATION 3
Entity XY is required to pay salary of ` 2 crore for the year 20X1-X2. It actually paid a salary of
` 1.90 crore up to 31st March 20X2, and balance in April 20X2. Determine the actual costs to be
recognized in the year 20X1-X2 and any amounts to be shown through balance sheet.

SOLUTION
Total expense for the year (20X1-X2) ` 2 crore
Amount to be shown under liability (unpaid) ` 2 crore – 1.90 `crore
= ` 10 lakhs

4. ICAI - ILLUSTRATION 4
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.
 AS 15.4

SOLUTION
AS 15

AS 15 – “EMPLOYEE BENEFITS”, 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 or utilise the benefit during the twelve months after the end
of the period when the employee became entitled to the leave and is also expected to utilise the
leave.
Where there are restrictions on encashment and/or 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.
 AS 15.5

5. ICAI - ILLUSTRATION 5

AS 15
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.

SOLUTION
AS 15 – “EMPLOYEE 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.

6. ICAI - ILLUSTRATION 6
Omega Limited belongs to the engineering industry. The company received an actuarial valuation
for the first time for its pension scheme which revealed a surplus of ` 6 lakhs. It wants to spread
the same over the next 2 years by reducing the annual contribution to ` 2 lakhs instead of ` 5
lakhs. The average remaining life of the employees is estimated to be 6 years. You are required
to advise the company on the following items from the viewpoint of finalization of accounts,
taking note of the mandatory accounting standards.

SOLUTION
According to AS 15 (Revised 2005) ‘Employee Benefits’, actuarial gains and losses should be
recognized immediately in the statement of profit and loss as income or expense. Therefore,
surplus amount of ` 6 lakhs is required to be credited to the profit and loss statement of the
current year.
 AS 15.6

7. ICAI - ILLUSTRATION 7
AS 15

As on 1st April, 20X1 the fair value of plan assets was ` 1,00,000 in respect of a pension plan of
Zeleous Ltd. On 30th September, 20X1 the plan paid out benefits of ` 19,000 and received inward
contributions of ` 49,000. On 31st March, 20X2 the fair value of plan assets was` 1,50,000 and
present value of the defined benefit obligation was ` 1,47,920. Actuarial losses on the obligations
for the year 20X1-20X2 were ` 600.
On 1st April, 20X1, the company made the following estimates, based on its market studies,
understanding and prevailing prices.
%
Interest & dividend income, after tax payable by the fund 9.25
Realised and unrealised gains on plan assets (after tax) 2.00
Fund administrative costs (1.00)
Expected Rate of Return 10.25
You are required to find the expected and actual returns on plan assets.

SOLUTION
Computation of Expected and Actual Returns on Plan Assets
`
Return on ` 1,00,000 held for 12 months at 10.25% 10,250
Return on ` 30,000 (49,000-19,000) held for six months at 5% (equivalent 1500
to 10.25% annually, compounded every six months)
Expected return on plan assets for 20X1-20X2 11,750
Fair value of plan assets as on 31 March, 20X2 1,50,000
Less: Fair value of plan assets as on 1 April,20X1 1,00,000
Contributions received 49,000 (1,49,000)
Add: Benefits paid 19,000
Actual return on plan assets 20,000
Alternatively, the above question may be solved without giving compound effect to rate of return.
 AS 15.7

8. ICAI - ILLUSTRATION 8

AS 15
Rock Star Ltd. discontinues a business segment. Under the agreement with employee’s union, the
employees of the discontinued segment will earn no further benefit. This is a curtailment without
settlement, because employees will continue to receive benefits for services rendered before
discontinuance of the business segment. Curtailment reduces the gross obligation for various
reasons including change in actuarial assumptions made before curtailment. If the benefits are
determined based on the last pay drawn by employees, the gross obligation reduces after the
curtailment because the last pay earlier assumed is no longer valid.
Rock Star Ltd. estimates the share of unamortized service cost that relates to the part of the
obligation at ` 18 (10% of ` 180). Calculate the gain from curtailment and liability after
curtailment to be recognised in the balance sheet of Rock Star Ltd. on the basis of given
information:
a) Immediately before the curtailment, gross obligation is estimated at ` 6,000 based on current
actuarial assumption.
b) The fair value of plan assets on the date is estimated at ` 5,100.
c) The unamortized past service cost is ` 180.
d) Curtailment reduces the obligation by ` 600, which is 10% of the gross obligation.

SOLUTION
Gain from curtailment is estimated as under:
`
Reduction in gross obligation 600
Less: Proportion of unamortised past service cost (18)
Gain from curtailment 582
The liability to be recognised after curtailment in the balance sheet is estimated as under:
`
Reduced gross obligation (90% of ` 6,000) 5,400
Less: Fair value of plan assets (5100)
300
Less: Unamortised past service cost (90% of ` 180) (162)
Liability to be recognised in the balance sheet 138
 AS 15.8

9. ICAI – FINAL (IND AS 19) – ILLU.1

AS 15

Vested Accumulating Benefits

Mr. Rajan is working for Infotech Ltd. Consider the following particulars:
Annual salary of Mr. Rajan = ₹ 30,00,000
Total working days in 20X0-20X1 = 300 days
Leaves allowed in 20X0-20X1 as per company policy = 10 days
Leaves utilized by Mr. Rajan in 20X0-20X1 = 8 days
The unutilized leaves are settled by way of payment and accordingly, carry forward of such leaves
to the subsequent period is not allowed.
Compute the total employee benefit expense for Infotech Ltd. in respect of 20X0-20X1.

SOLUTION
Mr Rajan is entitled to a salary of ` 30,00,000 for 300 total working days.
Thus, per day salary works out to ` 30,00,000 ÷ 300 days = ` 10,000 per day
In the year 20X0-20X1, Mr. Rajan availed 8 out of 10 leaves allowed by the company.
Accordingly, leaves unutilized = 10 – 8 = 2 days
In line with the company policy, Infotech Ltd. will pay Mr. Rajan for the unutilized leave.
Thus, total expense for 20X0-20X1 = ` 30,00,000 + (2 days unutilized leaves x ` 10,000 per day) =
` 30,20,000.

10. ICAI – FINAL (IND AS 19) – ILLU.2

Non-Vested Accumulating Benefits
Mr. Niranjan is working for Infotech Ltd. Consider the following particulars:
Year 20X0-20X1 Year 20X1-20X2
Annual salary ` 30,00,000 ` 30,00,000
No. of working days during the year 300 days 300 days
Leave allowed 10 days 10 days
Leave taken 7 days 13 days
Leave unutilized carried forward to next year 3 days NIL
 AS 15.9

Based on past experience, Infotech Ltd. assumes that Mr. Niranjan will avail the unutilized leaves

AS 15
of 3 days of 20X0-20X1 in 20X1-20X2.
Infotech Ltd. contends that it will record ` 30,00,000 as employee benefits expense in each of the
years 20X0-20X1 and 20X1-20X2, stating that the leaves will, in any case, be utilized by 20X1-
20X2.
Comment on the accounting treatment proposed to be followed by Infotech Ltd. Also pass journal
entries for both the years.

SOLUTION
Year 20X0-20X1 Year 20X1-20X2
Annual Salary ` 30,00,000 ` 30,00,000
No. of working days (A) 300 days 300 days
Leaves Allowed 10 days 10 days
Leaves Taken (B) 7 days 13 days
Therefore, number of days worked (A – B) 293 days 287 days
Expense proposed to be recognized by Infotech Ltd. ` 30,00,000 ` 30,00,000
Based on the evaluation above, Mr. Niranjan has worked for 6 days more (293 days – 287 days)
in 20X0-20X1 as compared to 20X1-20X2.
Since he has worked more in 20X0-20X1 as compared to 20X1-20X2, the accrual concept requires
that the expenditure to be recognized in 20X0-20X1 should be more as compared to 20X1-20X2.
Thus, if Infotech Ltd. recognizes the same expenditure of ` 30,00,000 for each year, it would be in
violation of the accrual concept.
The expenditure to be recognized will be as under:
Year 20X0-20X1 Year 20X1-20X2
Annual salary (A) ` 30,00,000 ` 30,00,000
No. of working days (B) 300 days 300 days
Salary cost per day (A ÷ B) ` 10,000 per day ` 10,000 per day
No. of days worked (from above) 293 days 287 days
Expense to be recognised: ` 30,30,000
 AS 15.10

In 20X0-20X1: ` 30,00,000 + [ ` 10,000 per day x 3 days

AS 15

(leaves unutilized expected to be utilized subsequently)]

In 20X1-20X2: ` 30,00,000 – [ ` 10,000 per day – 3 days ` 29,70,000
(excess leave utilized in 20X1-20X2)]
Journal Entry for 20X0 – 20X1
No. Particulars LF Dr. Cr.
Employee Benefits Expense Account Dr. 30,30,000
To Bank Account 30,00,000
To Provision for Leave Encashment 30,000
Journal Entry for 20X1 – 20X2
No. Particulars LF Dr. Cr.
Employee Benefits Expense Account Dr. 29,70,000
Provision for Leave Encashment Account Dr. 30,000
To Bank Account 30,00,000

11. ICAI – FINAL (IND AS 19) – ILLU.3

Non-Vested Accumulating Benefits
Assume same information as in Illustration 2.
Based on past experience, Infotech Ltd. assumes that Mr. Niranjan will avail the unutilized leaves
of 2 days of 20X0-20X1 subsequently.
However, in 20X1-20X2, Mr. Niranjan availed in actual all 3 days of brought forward leave.
Compute the expense to be recognised in 20X0-20X1 and 20X1-20X2. Also pass journal entries for
both the years.

SOLUTION
The expenditure to be recognized will be as under:
Year 20X0-20X1 Year 20X1-20X2
Annual salary (A) ` 30,00,000 ` 30,00,000
No. of working days (B) 300 days 300 days
Salary cost per day (A ÷ B) ` 10,000 per day ` 10,000 per day
 AS 15.11

No. of days worked (from above) 293 days 287 days

AS 15
Expense to be recognised: ` 30,20,000
In 20X0-20X1: ` 30,00,000 + [ ` 10,000 per day x 2 days
(leaves unutilized expected to be utilized subsequently)]
In 20X1-20X2: ` 30,00,000 – [ ` 10,000 per day x 3 days ` 29,80,000
(excess leave utilized in 20X1- 20X2)] + ` 10,000
(additional expense due to change in accounting
estimate)
The additional ` 10,000 booked as an expense in 20X1-20X2 represents a change in accounting
estimate (i.e. as against the entity’s estimation that 2 days of unutilized leave would be utilized
subsequently, actually 3 days were utilized subsequently), for which a prospective effect needs
to be given, in line with Para 36 of Ind AS 8 Accounting Policies, Changes in Accounting Estimates
and Errors.
Journal Entry for 20X0 – 20X1
No. Particulars LF Dr. Cr.
Employee Benefits Expense Account Dr. 30,20,000
To Bank Account 30,00,000
To Provision for Leave Encashment 20,000
Journal Entry for 20X1 – 20X2
No. Particulars LF Dr. Cr.
Employee Benefits Expense Account Dr. 29,80,000
Provision for Leave Encashment Account Dr. 20,000
To Bank Account 30,00,000

12. ICAI – FINAL (IND AS 19) – ILLU.4

Sunderam Pvt. Ltd. has a headcount of 100 employees in 20X0-20X1. As per the employee policy,
the employees are entitled to:
• 30 casual leaves out of which 10 casual leaves may be carried forward to the next year; and
• 10 sick leaves out of which 2 sick leaves may be carried forward as paid leave.
At 31st March, 20X1, the average unused entitlement is 5 days per employee for casual leaves and
1 day per employee for sick leave. On an average, it is found that the number of such employees
who would be claiming casual leaves would be 30 and 10 employees who would claim sick leaves.
Compute the liability to be recognised in respect of sick leaves and casual leaves by the entity at
the end of the financial year 20X0-20X1.
 AS 15.12
AS 15

SOLUTION
Type of leave Leave Leaves c/f Average leaves No. of Liability
(A) Entitlement permissible Unutilized Employees (F = D x E)
(B) (C) (D) (E)
Casual Leave 30 days 10 days 5 days 30 150 days
salary
Sick Leave 10 days 2 days 1 day 10 10 days salary
The entity will recognise liability in the books equal to 150 (30 x 5) days of paid casual
leaves and 10 (10 x 1) days of paid sick leaves.

13. ICAI – FINAL (IND AS 19) – ILLU.5

An entity has 100 employees, who are each entitled to ten working days of paid sick leave for
each year. Unused sick leave may be carried forward for one financial year. Sick leave is taken
first out of the current year’s entitlement and then out of any balance brought forward from the
previous year (a LIFO basis).
At 31st March 20X1, the average unused entitlement is two days per employee. Based on past
experience, the management expects that only 20% of the employees will use 1 day from their
carried forward leave. Salary per day is 2,500.
Compute the expenses in respect of the short-term compensated absences, if they are assumed
to be (a) vested short-term compensated absences, and (b) non-vested short term compensated
absences.
 AS 15.13

SOLUTION

AS 15
Vested short-term compensated absences:
Employee Benefit Expense = 100 Employees x 2 Days x ` 2,500 = ` 5,00,000
Non-vested short-term compensated absences:
Employee Benefit Expense = 100 Employees x 20% x 1 Day x 2,500 = ` 50,000

14. ICAI – FINAL (IND AS 19) – ILLU.8

Acer Ltd. has 350 employees (same as a year ago). The average staff attrition rates as observed
during past 10 years represents 6% per annum. Acer provides the following benefits to all its
employees:
Annual bonus - during past 10 years.
Acer paid bonus to all employees who were in service during the entire financial year.
Bonus was paid in June following the financial year-end. Amount of bonus for 20X1-20X2 paid in
June 20X2 represented ` 1,25,000 per employee. Acer Ltd. used to increase amount of bonus based
on official inflation rate which is 8.5% for 20X2-20X3, although there was no legal obligation to
increase the bonus by such inflation rate.
Determine how would Acer Ltd. recognize liabilities and expenses for these employee benefits as
on 31st March, 20X3. P ass the journal entry to show the accounting treatment.

SOLUTION
Particulars Amount ( )
Bonus paid for 20X1-20X2 1,25,000 per employee
Bonus for 20X2-20X3 - increased by inflation of 8.5%: 1,35,625 per employee
[1,25,000 x (100% + 8.5%)]
No. of employees in staff during the whole year [350 x (100-6%)] 329 employees
Provision for Bonus for 20X2-20X3 4,46,20,625
Accounting Treatment:
No. Particulars LF Dr. Cr.
Provision for Bonus for 20X2-20X3
Employee Benefits Expense Account Dr. 4,46,20,625
To Provision for Bonus 20X2-20X3 4,46,20,625
 AS 15.14

Note:
AS 15

It is given that the company is under no legal obligation to increase the bonus by the official
inflation rate. However, the company has been increasing the bonus by the inflation rate over the
past years. This has given rise to a constructive obligation for Acer Ltd. Informal practices, such
as these, give rise to a constructive obligation where the entity has no realistic alternative but to
pay employee benefits. Accordingly, provision is made for the amount considering the inflation
rate.
 AS 15.15

Nazar Hati Durghatna Ghati…

AS 15
Test In Time…Pass In Time

1. ICAI – P.Q. 7
A company has a scheme for payment of settlement allowance to retiring employees. Under the
scheme, retiring employees are entitled to reimbursement of certain travel expenses for class they
are entitled to as per company rule and to a lump-sum payment to cover expenses on food and
stay during the travel. Alternatively, employees can claim a lump sum amount equal to one month
pay last drawn.
The company’s contentions in this matter are:
i. Settlement allowance does not depend upon the length of service of employee. It is
restricted to employee’s eligibility under the Travel rule of the company or where option for
lump-sum payment is exercised, equal to the last pay drawn.
ii. Since it is not related to the length of service of the employees, it is accounted for on claim
basis.
State whether the contentions of the company are correct as per relevant Accounting Standard.
Give reasons in support of your answer.

2. ICAI – P.Q. 8
The following data apply to ‘X’ Ltd. defined benefit pension plan for the year ended 31.03.20X2
calculate the actual return on plan assets:
Benefits paid 2,00,000
Employer contribution 2,80,000
Fair market value of plan assets on 31.03.20X2 11,40,000
Fair market value of plan assets as on 31.03.20X1 8,00,000
 AS 15.16

MCQs
AS 15

1. Gratuity and Pension would be examples of:

a) Short-term employee benefits
b) Long-term employee benefits
c) Post-employment benefits.
d) None of the above.

2. Non-accumulating compensating absence is commonly referred to as:

a) Earned Leave
b) Sick Leave
c) Casual leave
d) All of the above

3. The plans that are established by legislation to cover all enterprises and are operated by
Governments include:
a) Multi-Employer plans
b) State plans
c) Insured Benefits
d) Employee benefit plan

4. Best estimates of the variable to determine the eventual cost of post-employment benefits is
referred to as:
a) Employer’s contribution
b) Actuarial assumptions
c) Cost to Company
d) Employee’s contribution

5. Actuarial gains / losses should be:

a) Recognised through reserves
b) Charged over the expected life of employees
c) Charged immediately to Profit and Loss Statement
d) Do not charged to Profit and Loss Statement

Answers
1. (c) 2. (c) 3. (b) 4. (b) 5. (c)