Accounting Standard 15

ACCOUNTING STANDARD 15
EMPLOYEE BENEFITS
1. Scope:
• This standard is applicable for all employee benefit expenses except
employee share base payment
• Employee benefit means all form of consideration payable by entity to
its employee for the services rendered by employee (Either
consideration is payable in cash or kind)
• Entity is required to recognise employee benefit arising from
• Formal practice
• Informal practice
• Legislative requirement (Legal obligation)
• Employee will include
• Un skilled employee
• Semi-skilled employee
• Skilled employee
• Full time employee
• Part time employee
• Whole-time Directors
• Other managerial personal
• It will not include contract labour and trainee
• Employee benefit will include any benefit provided to spouse, children
and their dependent.

2. Types of employee Benefit

(a) Short term employee benefit
(b) Long term employee benefit
(c) Post-employment benefit
(d) Termination benefit

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3. Short term employment benefit:

(a) Meaning: Short-term employee benefits (other than termination
benefits) are payable within twelve months after the end of the period
in which the service is rendered.
(b) It will include
• Wages and salaries
• Profit sharing bonus
• Short term compensated absences (leave)
• Other short term employee benefit
(c) Recognise as expense when employee has rendered services at
undiscounted amount
(d) Accounting treatment:
i. Benefit received and amount paid
EB Expense Dr
To cash/bank
ii. Benefit received and amount not paid
EB Expense Dr
To payable
iii. Benefit not received but amount paid
Prepaid EB Dr
To cash/bank
Note: STEB will be recognised as on expense unless included in the
cost price of asset due to the requirement of other AS

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(e) Accounting Treatment of Short term compensated absences:

Accounting treatment - for Short Term Compensated Absences

If availed
during the If not availed during the year
year

Non-
accumulating Accumulating
No treatment
(Which cannot (which can be carried forward
be carried
forward
Unvested (leave Vested (Cash
against leave) against leave)
No treatment

Proportionate amount Full amount

of provision should be of benefit is
created for expected provided for
cost of leave cost of leave

Provision = No of
unveiled leave X Amt = No. of
probability of unavailed
availment X leave X
Salary per working Salary per
working day
days

4. Post-employment benefit (PEB):

a) Meaning: Employee benefits (other than termination benefits and
short-term employee benefits) that are payable after the completion
of employment
b) Types of PEB
(1) Defined contribution plan (DCP) – PF, ESI
(2) Defined benefit plan (DBP) – Gratuity, Pension
(c) Defined contribution plan
(i) Defined contribution plan is a plan under which entity pay a
fixed contribution to a separate entity ie, plan asset and will
have no obligation to further contribute if plan asset does not
have sufficient fund to pay employee

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(ii) Under defined contribution plan obligation of employer is limited

to fixed contribution and investment risk and actuarial risk will
fall on employee
(iii) Employer contribution to defined contribution plan is recognised
as an expense and liability (if not paid) when employer is liable
to contribute.
(iv) If contribution is payable after 12M from reporting date then
such amount should be discounted

d) Defined benefit plan

(i) Under defined benefit plan entity’s obligation is to provide
defined benefit to current and future employee
(ii) Defined benefit plan is a plan where benefit is defined but
amount of obligation/contribution is not defined
(iii) To determine current service cost and PV of DBO Projected unit
credit method (PUCM) is applied.
(iv) To calculate PV discount rate should be determine by reference
to market yield of Govt bonds as on reporting date.
(v) In this plan, employee contribution is not required however such
plan can be funded or unfunded.

(vi) Investment risk and actuarial risk will fall on entity.

(vii) Actuary will estimate the amount of obligation under various
uncertainties on the basis of actuarial assumptions there are two
types of actuarial assumption

a) Demographic assumption
Eg: Labour turnover rate, mortality rate, retirement rate,
med claim rate
b) Financial assumption
Eg: Discount rate, Escalation rate in salary, expected rate
of return on plan asset

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Accounting Treatment of DBO

a) Current service cost (CSC) is an increase in present value of DBO
resulting from employee service during the current period.
Current service cost A/c (PL) Dr
To PV of DBO
b) Actuarial gains and losses are changes in the present value of the
defined benefit obligation resulting from:
(i) experience adjustments (the effects of differences between
the previous actuarial assumptions and what has occurred);
and
(ii) the effects of changes in actuarial assumptions.
Actuarial gains and losses should be recognized immediately in the
statement of profit and loss as income or expense.
If Actuarial Loss
Actuarial Loss on DBO (PL) Dr
To PV of DBO
If Actuarial Gain
PV of DBO Dr
To Actuarial Gain on DBO (PL)
c) Interest cost is calculated by applying discount rate an opening
balance of DBO after changes in actuarial assumption.
Interest Cost (PL) Dr
To PV of DBO
Accounting treatment of plan asset:
d) For contribution to plan asset
Plan asset a/c Dr.
To cash/bank
e) For benefit paid out of plan asset
For amount withdrawn from plan asset
Cash/Bank Dr.

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To plan asset
For benefit paid to employee
PV of DBO Dr.
To cash/bank
f) For recognition of interest income on plan asset by using Expected
Rate of Return
Plan asset a/c Dr.
To Expected Return on PA
Example
FV of PA at the beg 2040
Expected return on PA 5.5%
DBO 2700
Discount rate 6%
Solution:
Interest cost on DBO (2700×5.5%) 148
Expected return on PA (2040×6%) 122
Net charge to P/L – Expense 26

g) Actuarial gain or loss

The difference between the expected return on plan assets and
the actual return on plan assets is an actuarial gain or loss.
For actuarial gain
Plan asset a/c Dr
To Actuarial gain (PL)
For actuarial loss
Actuarial loss (PL) Dr
Plan asset a/c
Note:
Actual Return on plan will be calculated as under
FV of plan asset at year end XXX
Less: CA of Plan Assets at year beg

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FV of Plan Assets at year beg XXX

Add: Contribution received XXX
Less: Benefit paid XXX XXX
Actual Return on Plan Assets XXX
Actuarial gain/loss on Plan Assets
Actual return on Plan Assets XXX
Less: Expected Rate of Return XXX
Actuarial Gain or Loss XXX
Past service cost:
(a) Past service cost is the change in the present value of the
defined benefit obligation for employee service in prior periods,
resulting in the current period from
- the introduction of, or
- changes to, post-employment benefits
(b) Past service cost may be either positive (where benefits are
introduced or improved) or negative (where existing benefits are
reduced).
(c) Past service cost should be recognised as an expense on a straight
line basis over the average period until the benefits become
vested.
Unrecognised PSC a/c Dr
To PV of DBO
To the extent that the benefits are already vested, an enterprise
should recognise past service cost immediately.
PSC (PL) a/c Dr
To PV of DBO
Curtailments and Settlements
a) A curtailment may arise from an isolated event, such as
- the closing of a plant,
- discontinuance of an operation or

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- termination or suspension of a plan.

b) A settlement occurs when an enterprise enters into a transaction
that eliminates all further obligations for part or all of the
benefits provided under a defined benefit plan,
c) An enterprise should recognise gains or losses on the curtailment
or settlement of a defined benefit plan when the curtailment or
settlement occurs.
d) The gain or loss on a curtailment or settlement should comprise:
(i) any resulting change in the present value of the defined
benefit obligation;
(ii) any resulting change in the fair value of the plan assets;
(iii) any related past service cost that had not previously been
recognised.
PV of DBO Dr
To Cash/bank
To Unrecognised PSC
(Any difference will be curtailment gain or settlement gain
or loss)
Presentation of DBO and Plan asset in balance sheet
PV of DBO XXX
Less: Unrecognised PSC XXX
Less FV of plan asset (if funded) XXX
Net Defined Benefit Liability XXX
Note:
• The amount determined above may be negative (an asset).
• An enterprise should measure the resulting asset at the lower of:
(a) the amount determined above; and
(b) the present value of any economic benefits available in
the form of refunds from the plan or reductions in
future contributions to the plan.

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The present value of these economic benefits should be determined

using the same discount rate.
Statement of Profit and Loss:
An enterprise should recognise the net total of the following amounts
in the statement of profit and loss, except to the extent that another
AS requires or permits their inclusion in the cost of an asset:
(a) current service cost
(b) interest cost
(c) the expected return on any plan assets
(d) actuarial gains and losses
(e) past service cost
(f) the effect of any curtailments or settlements;
Example 1: A ltd announced a defined benefit long term bonus plan to pay
benefit at the end of five years. Amount of Bonus will be 40% of last
drawn monthly salary for each year completed year of service.
Salary of 2018-19 is ₹ 40,000 pm. Growth in salary is expected to increase
by 8% p.a compounded annually. Discount rate as on 31.3.2019 is 10%
Calculate Current Service cost, Interest cost and PV of Defined benefit
Obligations for each year.
Example 2: X ltd has a plan asset having FV at year beg of ₹ 1,00,000.
During the year plan asset paid benefit of ₹10,000 and received contribution
of ₹40,000. Discount rate is 8% pa and expected rate of return on plan
assets is 10% pa. FV of plan asset at year end is ₹1,25,000
Calculate:
a) Actual return on planed asset
b) Interest Income on plan asset
c) Calculate actuarial gain/loss on PA

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5. Long term employee benefit (LTEB):

(a) Meaning: Other long-term benefits include the following items (if not
expected to be settled within 12 months after the end of the period
in which the employee renders the related service):
• long-term paid absences such as long-service or sabbatical leave;
• jubilee or other long-service benefits;
• long-term disability benefits;
• profit-sharing and bonuses; and
• deferred remuneration.
(b) Recognition and measurement of LTEB is similar to defined benefit
plan for post-employment benefit with following difference:
All past service cost is recognised immediately (whether benefits are
already vested or unvested)

6. Termination benefit:
(a) Termination Benefit is due entity decision to terminate any employee
or Employee decision to opt for voluntary retirement
(b) An enterprise should recognise termination benefits as a liability and
an expense when, and only when:
(i) the enterprise has a present obligation as a result of a past
event;
(ii) it is probable that an outflow of resources will be required to
settle the obligation; and
(iii) a reliable estimate can be made of the amount of the obligation.
(c) HOW to recognize termination benefits: This depends on the specific
terms of the benefits:
• if the termination benefits are expected to be settled wholly
before 12 months after the end of the reporting period, then
recognize it as an expense to profit or loss on undiscounted basis

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• if the termination benefits are not expected to be settled wholly

before 12 months after the end of the reporting period, then
recognize it as an expense to profit or loss on discounted basis.

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