Monday, 16 February 2015

Accounting Standard-15 Accounting For Employee Benefits (Key Points)

1).The method of accounting of retirement benefits depends on the nature of retirement benefits and in practice
it may not be incorrect to say that it also depends on the mode of funding.

2).On the basis of nature, a retirement benefit scheme can be classified either as defined benefit plan or defined
contribution plan.

3).Defined contribution schemes are schemes where the amounts to be paid as retirement benefits are
determined by contributions to a fund together with earnings thereon; e.g., provident fund schemes.

4). Defined benefit schemes are retirement benefit schemes under which amounts to be paid as retirement benefits are determinable usually by reference to employee’s earnings and/or years of service; e.g., gratuity schemes.

5).For defined contribution schemes, contribution payable by employer is charged to Profit & Loss Account.
For defined benefit schemes, accounting treatment will depend on the type of arrangements which the
employer has made.

6).If payment for retirement benefits is made out of employers funds, appropriate charge to Profit & Loss
Account to be made through a provision for accruing liability, calculated according to actuarial valuation.
If liability for retirement benefit is funded through creation of trust, the excess/shortfall of contribution paid
against amount required to meet accrued liability as certified by actuary is treated as pre-payment or charged
to Profit & Loss Account.

7).If liability for retirement benefit is funded through a scheme administered by an insurer, an actuarial
certificate or confirmation from insurer is obtained. The excess/shortfall of the contribution paid against the
amount required to meet accrued liability as confirmed by insurer is treated as pre-payment or charged to
Profit & Loss Account.

8).Any alteration in the retirement benefit cost should is charged or credited to Profit & Loss Account and
change in actuarial method is to be disclosed.

9).Financial statements to disclose method by which retirement benefit cost have been determined.
The institute has issued AS-15 which is broadly on lines of IFRS-19. It is applicable for accounting periods
commencing after December 7, 2007. The Standard improves the existing practices mainly in the following
areas.
— It is broad in its applicability as it covers all short-term and long term employee benefits. For example,
annual paid leave (though not encashable), long-term service rewards, subsidised goods or services, etc. are
also covered
— Additional disclosures are required in relation to any defined benefits plans including:
(i) The reconciliation of (opening to closing) of Projected Benefit Obligation.
(ii) The reconciliation of (opening to closing) of Fair Value of Plan Assets.
(iii) The reconciliation of (opening to closing) of Net Liability/Prepaid Asset.
(iv) Components of charge during the year.

(v) Principal actuarial assumptions.

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