Questions 1-2 Objectives Ind AS 19

Question 1:
Saral Ltd., a company to which Ind AS applies, accounts for Leave Encashment when the same is paid to
its employees. Comment on the accounting treatment followed by the company.

Answer:
Leave Encashment Benefit is covered under "Other Long Term Employee Benefits" under Ind AS-19. It should be
measured on actuarial basis using the Projected Unit Cost Method. (EAC Opinion Jul 2009).
Accounting for these benefits only when the Employees retire or receive benefit payments (i.e. Pay-as-you-go
Method) is not in tune with 'accrual' principle, and also violates Ind AS-19.

Question 2:
An extract from the accounting policies of Ranganath Ltd., a Government Company, is given below:
“Retrospective Wage Revision pursuant to the 7th Pay Commission coming in force has resulted in an
increase in the Pension Liability by ₹ 240 crores. Such increased liability is being provided in the
accounts in a deferred manner over 6 instalments commencing from the year 2019-20.”
As the auditor of Ranganath Ltd., comment on the accounting policy followed.

Answer:
1. Revision of Wages and consequent increase in Pension Liability of the Employer is not a prior-period item,
since there are no errors or omissions of the previous year.
2. It is an expense arising out of the ordinary activity of the Entity. So, it should be charged in full during the
current year and disclosed separately. Providing for the same in 6 instalments with the intention to smoothen the
impact on the profits is not permissible.
3. The company's policy is not in line with Ind AS-19.

Accordingly, the company should charge the entire expenses to the Statement of Profit or Loss, failing which a
modified opinion would need to be issued.
 Questions 3-8: Attributing benefits to periods of service Ind AS 19

Question 3:
A plan pays a benefit of ₹ 15,000 for each year of service. The benefits vest after ten years of
service. Compute the benefit to be attributed each year.

Answer:
1. A benefit of ₹ 15,000 is attributed to each year.
2. In each of the first 10 years, the Current Service Cost and the Present Value of the Obligation
reflect the probability that the employee may not complete 10 years of service.

Question 4:
A plan pays a benefit of ₹ 25,000 for each year of service, excluding service prior to the age of
25. The benefits vest immediately. How should the benefit be attributed to each year of
service?

Answer:
1. No benefit is attributed to service before the age of 25, because service before that date does not
lead to benefits (conditional or unconditional).
2. A benefit of ₹ 25,000 is attributed to each subsequent year.

Question 5:
A lump-sum of ₹ 10 lakhs is payable for all employees who are in service for 10 years, payable
upon termination of employment. The plan provides no further benefit for subsequent service.
Advise on attributing this benefit to the periods of service.

Answer:
Benefit of ₹ 10 lakhs is attributed to the first 10 years (10 lakhs / 10 = ₹ 1 lakh to each year). As it is
vested to 10 years condition, current service cost should reflect probability that employee will leave
before completing 10 years. No benefit is attributed to subsequent years.

Question 6:
A plan pays a lump-sum benefit of ₹ 15 lakhs that vests after 12 years of service. The plan
provides no further benefit for subsequent service. Attribute the benefit to each year of
service.

Answer:
Benefit of ₹ 15 lakhs is attributed to the first 12 years (15 lakhs / 12 = ₹ 1.25 lakh to each year). As it
is vested to 12 years condition, current service cost should reflect probability that employee will leave
before completing 12 years. No benefit is attributed to subsequent years.

Question 7:
Acer Ltd. provides the following benefits to its employees:
(a) A lump-sum of ₹ 30 lakhs for all employees who are in service for 20 years at the age of 50,
or for all employees who are in service at the age of 60 regardless length of service (if not
fulfilling the 1st condition at the age of 50).
(b) Amount of ₹ 2 lakhs for each year of service payable upon termination of employment. This
benefit becomes vested after 5 years of service.
Advise Acer Ltd. on attributing these benefits to the periods of service.

Answer:
(a):
12.1 For employees who join before the age of 30 (thus will be in service for 20 years at the age of
50), the service leads to benefits at the age of 30 and are conditional of further service. However,
service beyond age of 50 leads to no material amount of further benefits (benefit will still be the
same). Therefore, Acer should attribute benefit of ₹ 1,50,000 (₹ 30 lakhs / 20) to each year from the
age of 30 to the age of 50.
 Questions 3-8: Attributing benefits to periods of service Ind AS 19

age of 30 to the age of 50.

12.2 For all other employees who join after 30 (thus will not be in service for 20 years at the age of 50
and must wait until the age of 60 - regardless years of service), the service leads to benefits at the
beginning of employment and service beyond age 60 leads to no material amount of further benefits.
Therefore, Acer should attribute benefit of ₹ 30 lakhs / (60 - age when employment started) to each
year of service from the start until the age of 60.
In both cases, reflect probability of not completing necessary service period.

(b):
Benefit of ₹ 2,00,000 is attributed to each year of service. In the first 5 years of service, probability of
not completing 5 years must be reflected in determination of current service cost and present value of
the obligation.
Question 8:
An entity has 1,000 employees. As per the statutory requirements, gratuity shall be payable to
an employee on the termination of his employment after he has rendered continuous service
for not less than five years (a) on his superannuation, or (b) on his retirement or resignation,
or (c) on his death or disablement due to accident or disease. The completion of continuous
service of five years shall not be necessary where the termination of the employment of any
employee is due to death or disablement. The amount payable is determined by a formula
linked to number of years of service and last drawn salary. As per the law, the amount payable
shall not exceed ₹ 20,00,000. How will the entity attribute the Gratuity over the period of
service?

Answer:
The amount of gratuity attributed to each year of service will be calculated as under:
1. Number of employees not likely to fulfil the eligibility criteria will be ignored.
2. Other employees will be grouped according to the period of service they are expected to render
taking into account factors like Mortality Rate, Disablement and Resignation after 5 years.
3. Gratuity payable will be calculated as per the Formula prescribed in the Governing Statute based
on the period of service and the Salary at the time of termination of employment, assuming
Promotion, Salary Increases etc.
4. For those employees for whom the amount payable as per the formula does not exceed ₹
20,00,000, over the expected period of service -
(a) The amount payable will be divided by the Expected Period of Service, and
(b) The Resulting amount will be attributed to each year of expected year of service, including the
period before the stipulated period of 5 years.
5. For remaining employees for whom the amount payable as per the formula exceeds ₹ 20,00,000,
over the expected period of service of (say) 10 years, the amount of statutory threshold is reached at
the end of (say) 8 years. Hence
(a) ₹ 20,00,000 ÷ 8 years = ₹ 2,50,000 is attributed to each of the first 8 years;
(b) No benefit is attributed to subsequent two years.
This is because service beyond 8 years will lead to no material amount of further benefits.
 Question 9: Projected unit credit method Ind AS 19

Question 9:
Acer Ltd. hired a professional in April 2017 for 6 years of service terminating in March 2023. Apart from regular salary
and annual bonus, Acer Ltd will pay a lump-sum remuneration of ₹ 45 lakhs to her upon termination of employment.
Discount rate used for actuarial valuations is 10% per year.
Show how the obligation builds up over the employee's service. Ignore actuarial assumptions other than presented
discount rate.

1. Attributing benefit to the periods of service

2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
1 2 3 4 5 6
Previous years (total from previous period) 0 7,50,000 15,00,000 22,50,000 30,00,000 37,50,000
Current year (45,00,000 / 6) 7,50,000 7,50,000 7,50,000 7,50,000 7,50,000 7,50,000
Total: 7,50,000 15,00,000 22,50,000 30,00,000 37,50,000 45,00,000

2. Measurement
2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
1 2 3 4 5 6
Opening obligation
0 4,65,691 10,24,520 16,90,458 24,79,339 34,09,091
(closing obligation from previous period)
Interest at 10%
0 46,569 1,02,452 1,69,046 2,47,934 3,40,909
(10% applied on opening obligation)
Discount factor at 10%
0.6209 0.6830 0.7513 0.8264 0.9091 1.0000
[1/(1+10%)^(years from individual year to 2022-23)]
Current service cost
(present value of benefit attributed to the current 4,65,691 5,12,260 5,63,486 6,19,835 6,81,818 7,50,000
year - 7,50,000 x discount factor)
Closing obligation (total): 4,65,691 10,24,520 16,90,458 24,79,339 34,09,091 45,00,000

3. Illustrative accounting treatment

2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
1 2 3 4 5 6

Debit Expense - Employee Benefits 4,65,691 5,12,260 5,63,486 6,19,835 6,81,818 7,50,000
Debit Expense - Interest (Employee Benefits) 0 46,569 1,02,452 1,69,046 2,47,934 3,40,909
Credit Liabilities -provision for employee -4,65,691 -5,58,829 -6,65,938 -7,88,881 -9,29,752 -10,90,909
benefits
 Question 10: Past Service Costs Ind AS 19

Question 10:
Ratna Ltd. pays a lumpsum benefit on termination of service equal to 1% of Final Salary for each year of
service. The salary in Year 1 is ₹ 1,00,00,000 which is assumed to increase at 7% per year. The discount
rate used is 10% p.a. Show the build-up of the obligation in respect of an employee who is expected to
leave at the end of Year 5. Ignore all actuarial assumptions other than the given discount rate.
Ratna Ltd. wishes to revise the percentage of the benefit from 1% to 2.5%. Discuss the impact of this
change if:
(a) The benefit was revised at the end of Year 2;
(b) The benefit was revised at the end of Year 5

Accounting as per original assumptions:

1. Ultimate Cost of Benefit

Salary in Year 1 100,00,000
Salary Assumed at the end of Year 5: 131,07,960
(₹ 1,00,00,000 x 1.07 x 1.07 x 1.07 x 1.07)
Cost of Benefit on termination 6,55,398
(₹ 1,31,07,960 x 1% x 5 years)

2. Attributing benefit to the periods of service

1 2 3 4 5
Previous years (total from previous period) 0 1,31,080 2,62,159 3,93,239 5,24,318
Current year (6,55,398 / 5) 1,31,080 1,31,080 1,31,080 1,31,080 1,31,080
Total: 1,31,080 2,62,159 3,93,239 5,24,318 6,55,398

3. Measurement

1 2 3 4 5
Opening obligation
0 89,529 1,96,964 3,24,991 4,76,653
(closing obligation from previous period)
Interest at 10%
0 8,953 19,696 32,499 47,665
(10% applied on opening obligation)
Discount factor at 10%
0.6830 0.7513 0.8264 0.9091 1.0000
[1/(1+10%)^(years from Year 1 to Year 5)]
Current service cost
(present value of benefit attributed to the current 89,529 98,482 1,08,330 1,19,163 1,31,080
year - 1,31,080 x discount factor)
Closing obligation (total): 89,529 1,96,964 3,24,991 4,76,653 6,55,398

3. Illustrative accounting treatment

1 2 3 4 5

Debit Expense - Employee Benefits 89,529 98,482 1,08,330 1,19,163 1,31,080

Debit Expense - Interest (Employee Benefits) 0 8,953 19,696 32,499 47,665
Credit Liabilities - Provision for -89,529 -1,07,435 -1,28,027 -1,51,662 -1,78,745
Employee Benefits

Accounting as per revised assumptions:

(a) Revised at the end of Year 2:

1. Ultimate Cost of Benefit - Revised

Salary in Year 1 100,00,000
Salary Assumed at the end of Year 5: 131,07,960
(₹ 1,00,00,000 x 1.07 x 1.07 x 1.07 x 1.07)
Cost of Benefit on termination 16,38,495
(₹ 1,31,07,960 x 2.5% x 5 years)
 Question 10: Past Service Costs Ind AS 19

2. Attributing benefit to the periods of service - revised

1 2 3 4 5
Previous years (total from previous period) 0 3,27,699 6,55,398 9,83,097 13,10,796
Current year (16,38,495 / 5) 3,27,699 3,27,699 3,27,699 3,27,699 3,27,699
Total: 3,27,699 6,55,398 9,83,097 13,10,796 16,38,495

3. Measurement

1 2 3 4 5
Opening obligation
0 2,23,823 4,92,410 8,12,477 11,91,633
(closing obligation from previous period)
Interest at 10%
0 22,382 49,241 81,248 1,19,163
(10% applied on opening obligation)
Discount factor at 10%
0.6830 0.7513 0.8264 0.9091 1.0000
[1/(1+10%)^(years from Year 1 to Year 5)]
Current service cost
(present value of benefit attributed to the current 2,23,823 2,46,205 2,70,826 2,97,908 3,27,699
year - 3,27,699 x discount factor)
Closing obligation (total): 2,23,823 4,92,410 8,12,477 11,91,633 16,38,495

Increase in Liability in Year 2 (Past Service Cost) 2,95,446

3. Illustrative accounting treatment

1 2 3 4 5

Debit Expense - Employee Benefits 89,529 98,482 2,70,826 2,97,908 3,27,699

Debit Expense - Interest (Employee Benefits) 0 8,953 49,241 81,248 1,19,163
Debit Expense - Past Service Cost 0 2,95,446 0 0 0
Credit Liabilities - Provision for -89,529 -4,02,881 -3,20,067 -3,79,156 -4,46,862
Employee Benefits

(b) Revised at the end of Year 5:

1. Ultimate Cost of Benefit - Revised

Salary in Year 1 100,00,000
Salary Assumed at the end of Year 5: 131,07,960
(₹ 1,00,00,000 x 1.07 x 1.07 x 1.07 x 1.07)
Cost of Benefit on termination 16,38,495
(₹ 1,31,07,960 x 2.5% x 5 years)

Increase in Liability in Year 5 (Past Service Cost) 9,83,097

2. Illustrative accounting treatment

1 2 3 4 5

Debit Expense - Employee Benefits 89,529 98,482 1,08,330 1,19,163 1,31,080

Debit Expense - Interest (Employee Benefits) 0 8,953 19,696 32,499 47,665
Debit Expense - Past Service Cost 0 0 0 0 9,83,097
Credit Liabilities - Provision for -89,529 -1,07,435 -1,28,027 -1,51,662 -11,61,842
Employee Benefits
 Question 11: Actual Return on Plan Assets Ind AS 19

Question 11:
From the following information, compute the Actual Return on Plan Assets in respect of Vinayak Ltd for the year
ending 31st March, 2020:
Particulars Amount (₹)
Benefits Paid 5,00,000
Employers' Contribution during 2019-20 7,00,000
Fair Market Value of Plan Assets at 31 March 2020 - year end 28,50,000
Fair Market Value of Plan Assets at 1 April 2019 - beginning of the year 20,00,000

Answer:
Plan Assets Account
Particulars ₹ Particulars ₹
To balance b/d (given) 20,00,000 By Benefits paid out of Plan Assets 5,00,000
(Fair Value of Plan Assets at 1.4.2019) (Outflow out of Plan Assets)
To Employers' Contribution for the period 7,00,000 By balance b/d (given) 28,50,000
(Inflow to increase Plan Assets in 2019-20) (Fair Value of Plan Assets at 31.3.2020)
To Surplus (balancing figure) 6,50,000
(being Actual Return on Plan Assets)
Total 33,50,000 Total 33,50,000

OR

Computation of Actual Return on Plan Assets

Particulars Amount (₹)
Fair Market Value of Plan Assets at the end of the year - on 31.3.2020 28,50,000
Less: Employer's Contribution during the year 2019-20 -7,00,000
Add: Benefits Paid during the year 2019-20 5,00,000
Less: Fair Market Value of Plan Assets at the beginning of the year - on 1.4.2019 -20,00,000
Actual Return on Plan Assets 6,50,000
 Question 12: Recognition Ind AS 19

Question 12:
Bharat Power Ltd. is a company with turnover of ₹ 27,500 crores having a large employee base. The company has
provided a Defined Benefit Plan to its Employees. The following information pertains to the balances of the Fund’s
Assets and Liabilities for the Financial Year 2019-20:

(₹ in lakhs)
Particulars 1.4.2019 31.3.2020
Present Value of Defined Benefit Obligation 4,200 4,740
Fair Value of Plan Assets 3,420 3,825
For the Financial Year 2019-20, the Service Cost was ₹ 1.65 crores. The company made a contribution of ₹ 3.33 crores
to the Plan. No benefits were paid during the year. Consider a Discount Rate of 8%. You are required to:
(a) Compute the balance(s) to be included in its Balance Sheet and amounts to be recognized in the Statement of
Profit and Loss and Other Comprehensive Income for 2019-20.
(b) Give the journal entries in respect of amount(s) to be recognized.

Actual Return on Plan Assets ₹ in lakhs Actuarial Loss ₹ in lakhs

Closing Fair Value of Plan Assets 3,825 Closing Balance of DBO 4,740
Less: Employer Contribution -333 Less: Opening Balance of DBO -4,200
Add: Benefits Paid 0 Less: Current Service Cost -165
Less: Opening Fair Value of Assets -3,420 Less: Interest on Opening Balance of DBO -336
Actual Return on Plan Assets 72 Actuarial Loss 39

OR

Plan Assets Account

Particulars ₹ in lakhs Particulars ₹ in lakhs
To balance b/d (given) 3,420 By Benefits paid out of Plan Assets 0
(Fair Value of Plan Assets at 1.4.2019) (Outflow out of Plan Assets)
To Employers' Contribution for the period 333 By balance b/d (given) 3,825
(Inflow to increase Plan Assets in 2019-20) (Fair Value of Plan Assets at 31.3.2020)
To Surplus (balancing figure) 72
(being Actual Return on Plan Assets)
Total 3,825 Total 3,825
 Question 12: Recognition Ind AS 19

Defined Benefit Obligation Account

Particulars ₹ in lakhs Particulars ₹ in lakhs
By balance b/d (given) 4,200
(Present Value of DBO at 1.4.2019)
By Current Service Cost (given) 165
(Cost for 2019-20 which increases obligation)
By Interest Cost (4,200 x 8%) 336
(Cost for 2019-20 which increases obligation)
By Actuarial Loss (balancing figure) 39
To balance b/d (given) 4,740 (being increase in DBO due to change in
(Present Value of DBO at 31.3.2020) actuarial assumptions)
Total 4,740 Total 4,740

Items to be recognized in the Financial Statements for the year 2019-20

Particulars ₹ in lakhs
1. Opening Net Liability = Opening Present Value of DBO = ₹ 4,200 Less Opening FV of Plan Assets = ₹ 3,420 780
2. Net Interest Expense on Net Defined Benefit Obligation debited to P&L = ₹ 780 x 8% (r/off) 62
3. Closing Net Liability = Closing Present Value of DBO = ₹ 4,740 Less Closing FV of Plan Assets = ₹ 3,825 915
4. Increase in Liability = Closing Net Liability = ₹ 915 Less Opening Net Liability = ₹ 780 135
5. Remeasurement = Actual Return on Plan Assets = ₹ 72 Less Interest on ₹ 3,420 at 8% = ₹ 274 -202
6. Net Remeasurement = Remeasurement (₹ 202) Less Actuarial Loss (₹ 39) -241

Journal Entries: Extract of Statement of Profit and Loss (₹ in lakhs)

Profit and Loss A/c (165 + 62) Dr. 227 Profit or Loss - Service Cost 165
Other Comprehensive Income Dr. 241 - Net Interest 62
To Cash 333 Other Comprehensive Income - Remeasurement 241
To Net Defined Benefit Liability 135 Total Comprehensive Income 468

Extract of Balance Sheet as at 31.3.2020 (₹ in lakhs): Closing Net Liability = ₹ 4,740 - ₹ 3,825 = ₹ 915
 Questions 13-14: Actuarial Assumptions Ind AS 19

Question 13:
Ratna Ltd. pays a lumpsum benefit on termination of service equal to 1% of Final Salary for each year of
service. The salary in Year 1 is ₹ 1,00,00,000 which is assumed to increase at 7% per year. The discount
rate used is 10% p.a. Show the build-up of the obligation in respect of an employee who is expected to
leave at the end of Year 5. Ignore all actuarial assumptions other than the given discount rate.
During the second year, based on the performance of the employee, Ratna Ltd. expects the last drawn
salary of the employee to be ₹ 1,50,00,000. What will be the impact of this change? Discuss with suitable
journal entries.

Accounting as per original assumptions:

1. Ultimate Cost of Benefit

Salary in Year 1 100,00,000
Salary Assumed at the end of Year 5: 131,07,960
(10,00,000 x 1.07 x 1.07 x 1.07 x 1.07)
Cost of Benefit on termination 6,55,398
(1,31,07,960 x 1% x 5 years)

2. Attributing benefit to the periods of service

1 2 3 4 5
Previous years (total from previous period) 0 1,31,080 2,62,159 3,93,239 5,24,318
Current year (6,55,398 / 5) 1,31,080 1,31,080 1,31,080 1,31,080 1,31,080
Total: 1,31,080 2,62,159 3,93,239 5,24,318 6,55,398

3. Measurement

1 2 3 4 5
Opening obligation
0 89,529 1,96,964 3,24,991 4,76,653
(closing obligation from previous period)
Interest at 10%
0 8,953 19,696 32,499 47,665
(10% applied on opening obligation)
Discount factor at 10%
[1/(1+10%)^(years from individual year to Year 0.6830 0.7513 0.8264 0.9091 1.0000
5)]
Current service cost
(present value of benefit attributed to the current 89,529 98,482 1,08,330 1,19,163 1,31,080
year - 1,31,080 x discount factor)
Closing obligation (total): 89,529 1,96,964 3,24,991 4,76,653 6,55,398

4. Illustrative accounting treatment

1 2 3 4 5

Debit Expense - Employee Benefits 89,529 98,482 1,08,330 1,19,163 1,31,080

Debit Expense - Interest (Employee Benefits) 0 8,953 19,696 32,499 47,665
Credit Liabilities - Provision for -89,529 -1,07,435 -1,28,027 -1,51,662 -1,78,745
Employee Benefits

Accounting as per revised assumptions:

1. Ultimate Cost of Benefit - Revised

Salary in Year 1 100,00,000
Salary Assumed at the end of Year 5: 150,00,000
Cost of Benefit on termination 7,50,000
(₹ 1,50,00,000 x 1% x 5 years)
 Questions 13-14: Actuarial Assumptions Ind AS 19

2. Attributing benefit to the periods of service - revised

1 2 3 4 5
Previous years (total from previous period) 0 1,50,000 3,00,000 4,50,000 6,00,000
Current year (7,50,000 / 5) 1,50,000 1,50,000 1,50,000 1,50,000 1,50,000
Total: 1,50,000 3,00,000 4,50,000 6,00,000 7,50,000

3. Measurement

1 2 3 4 5
Opening obligation
0 1,02,452 2,25,394 3,71,901 5,45,455
(closing obligation from previous period)
Interest at 10%
0 10,245 22,539 37,190 54,545
(10% applied on opening obligation)
Discount factor at 10%
[1/(1+10%)^(years from individual year to Year 0.6830 0.7513 0.8264 0.9091 1.0000
5)]
Current service cost
(present value of benefit attributed to the current 1,02,452 1,12,697 1,23,967 1,36,364 1,50,000
year - 7,50,000 x discount factor)
Closing obligation (total): 1,02,452 2,25,394 3,71,901 5,45,455 7,50,000

Increase in Liability in Year 2 (Actuarial Loss) 28,430

4. Illustrative accounting treatment

1 2 3 4 5

Debit Expense - Employee Benefits 89,529 98,482 1,23,967 1,36,364 1,50,000

Debit Expense - Interest (Employee Benefits) 0 8,953 22,539 37,190 54,545
Debit OCI - Actuarial Loss 0 28,430 0 0 0
Credit Liabilities - Provision for -89,529 -1,35,865 -1,46,506 -1,73,554 -2,04,545
Employee Benefits

Question 14:
At 1 April, 2019, the fair value of the Plan Assets was ₹ 10,00,000. The Plan paid benefits of ₹ 1,90,000
and received contributions of ₹ 4,90,000 on 30 September, 2019. The company computes the Fair Value
of Plan Assets to be ₹ 15,00,000 as on 31 March, 2020 and the Present Value of the Defined Benefit
Obligation to amount to ₹ 14,79,200 on the same date. Actuarial losses on the obligation were ₹ 6,000.
At 1 April, 2019, the company made the following estimates based on market prices at that date-

Particulars %
Interest and Dividend Income, after tax payable by the Fund 9.25
Add: Realized and Unrealized Gains on Plan Assets (after tax) 2.00
Less: Administration Costs -1.00
Expected Rate of Return 10.25
Determine – (a) Actual Return, (b) Expected Return
Also compute amount to be recognized in "Other Comprehensive Income" in this case.

1. Assumptions for Academic Purposes

(a) Interest Rate given is always Effective Interest Rate, which in this case is 10.25%.
(b) Compounding happens half-yearly.
(c) Any contribution paid into / benefit paid from the Plan will always be in the middle of the year.

To convert Effective Interest Rate into 6-month Interest Rate:

6-months Interest Rate = (1 + Annual IRR)^(6/12)-1
Therefore, 6-months Interest Rate = 5%
 Questions 13-14: Actuarial Assumptions Ind AS 19

2. Expected Return on Plan Assets

Return on ₹ 10,00,000 for 2019-20 at 10.25% = ₹ 10,00,000 x 10.25% = 1,02,500

Add: Return on ₹ 3,00,000 for 6 months at 10% Normal Rate = ₹ 3,00,000 x 10% x 6/12 = 15,000
(Inflow ₹ 4,90,000 Less Payments ₹ 1,90,000)
Expected Return on Plan Assets 1,17,500

3. Actual Return on Plan Assets

Fair Value of Plan Assets at year-end - 31.3.2020 15,00,000

Less: Fair Value of Plan Assets at the beginning - 1.4.2019 -10,00,000
Less: Contributions Received during the year 2019-20 -4,90,000
Add: Benefits paid during the year 2019-20 1,90,000
Actual Return on Plan Assets 2,00,000

OR

Plan Assets Account

Particulars Debit Credit
To balance b/d (given - Fair Value of Plan Assets on 1.4.2019) 10,00,000
To Employers' Contribution for the period (Inflow to increase Plan Assets in 2019-20) 4,90,000
By Benefits paid out of Plan Assets (Outflow out of Plan Assets) 1,90,000
To Surplus (balancing figure - being Actual Return on Plan Assets) 2,00,000
By balance c/d (given - Fair Value of Plan Assets on 31.3.2020) 15,00,000
16,90,000 16,90,000

4. Net Actuarial Gain

Actual Return on Plan Assets 2,00,000

Less: Expected Return on Plan Assets -1,17,500
Actuarial Gain on Plan Assets 82,500
Less: Loss on Defined Benefit Obligation (given) -6,000
Net Actuarial Gain to be recognized in "Other Comprehensive Income" 76,500

The Expected Return on Plan Assets for 2020-21 will be based on the market expectations at 1.4.2020 over
the entire life of the obligation.
 Question 15: Summary Ind AS 19

Question 15:
Arunachalam Ltd. operates a Defined Retirement Benefits Plan for its current and former employees. Given the large size of the organization, it
engaged a firm of Actuaries for advice on the Contribution Levels and overall Liabilities of the Plan to pay benefits. The following details are
presented:
(a) On 1st April, 2019, the Actuarial Valuation of the Present Value of the Defined Benefit Obligation was ₹ 15 crores. On the same date, the Fair
Value of the Assets of the Defined Benefit Plan was ₹ 13 crores. On 1st April, 2019, the annual market yield based on Government Bonds was 5%.
(b) During the year ended 31st March, 2020, Arunachalam made contributions of ₹ 1.75 crores into the Plan and the Plan paid out benefits of ₹
1.05 crores to retired members. Assume that both these payments were made on 31st March, 2020.
(c) The Actuarial Firm estimated that the Current Service Cost for the year ended 31st March, 2020 would be ₹ 1.55 crores. On 28th February, 2020,
the rules of the Plan were amended with retrospective effect which led to an increase in the Present Value of the Defined Benefit Obligation by ₹
37.5 lakhs from that date.
(d) During the year ended 31st March, 2020, Arunachalam was in negotiation with employee representatives regarding planned redundancies.
These negotiations were completed shortly before the year end and the Redundancy Packages were agreed. The impact of these redundancies
was to reduce the Present Value of the Defined Benefit Obligation by ₹ 2 crores. Before 31st March, 2020, Arunachalam made payments of ₹ 1.875
crores to the employees affected by the Redundancies in compensation for a curtailment of their benefits. These payments were made out of the
assets of the Retirement Benefits Plan.
(e) On 31st March, 2020, the Present Value of the Defined Benefit Obligation was ₹ 17 crores and the Fair Value of the Assets of the Defined
Benefit Plan was ₹ 14 crores.
Discuss how the above will be accounted for in the books of Arunachalam Ltd. for the year 2019-20.

PV of defined benefit obligation: FV of plan assets:

Description INR Description INR
PV of obligation b/f 1500,00,000 FV of plan assets b/f 1300,00,000
Interest cost (5% x 1500,00,000) 75,00,000 Adj. (a) Interest income on plan assets Adj. (a) 65,00,000
Current service cost 155,00,000 Adj. (c) Contributions Adj. (b) 175,00,000
Benefits paid to the employees -105,00,000 Adj. (b) Benefits paid to the employees Adj. (b) -105,00,000
Curtailment and Settlement -200,00,000 Adj. (d) Curtailment and Settlement Adj. (d) -187,50,000
Past Service Cost 37,50,000 Adj. (c)
Remeasurement Loss (bal. figure) 237,50,000 Remeasurement Gain (balancing figure) 152,50,000
PV of obligation c/f 1700,00,000 Adj. (e)
FV of plan assets c/f Adj. (e) 1400,00,000

1. Net amount in the statement of financial position

b/f - 1.4.2019 c/f - 31.3.2020
PV of defined benefit obligation -1500,00,000 -1700,00,000
FV of plan assets 1300,00,000 1400,00,000
Net defined benefit liability -200,00,000 -300,00,000

2. Amounts in the profit or loss statement

Current service cost 155,00,000
Past Service Cost 37,50,000
Gain on Settlement -12,50,000
Interest cost on DBO 75,00,000
Interest income on plan assets -65,00,000
Total to profit or loss 190,00,000
 Question 15: Summary Ind AS 19

3. Remeasurements to other comprehensive income

Actuarial loss -237,50,000

Return on plan assets other than
interest income: 152,50,000
Total to other comprehensive income -85,00,000

4. Verification and accounting entries Present together as one net figure!

PV of defined benefit obligation: Plan assets:

Description Debit Credit Description Debit Credit
Balance b/f from 1.4.2019 1500,00,000 Balance b/f from 1.4.2019 1300,00,000
By Current service cost 155,00,000 By Benefits paid 105,00,000
By Interest cost 75,00,000 To Interest income 65,00,000
To Benefits paid 105,00,000 To Contributions paid 175,00,000
To Gain on Settlement 200,00,000 By Curtailment & Settlement 187,50,000
By Past Service Cost 37,50,000 To Actuarial Gain 152,50,000
By Actuarial loss (balancing figure) 237,50,000 (Difference actual vs. int. income)
Balance c/f 31.3.2020 1700,00,000 Balance c/f 31.3.2020 1400,00,000
Total 2005,00,000 2005,00,000 Total 1692,50,000 1692,50,000

Extract of Profit or loss Extract of Other comprehensive income

Description Expenses Incomes Description Debit Credit
Balance b/f from 1.4.2019
Current service cost 155,00,000 Actuarial loss on Defined Benefit Obligation 237,50,000
Interest cost 75,00,000 Actuarial Gain on Plan Assets -152,50,000
Interest income 65,00,000 Balance c/f 31.3.2020 85,00,000
Past Service Cost 37,50,000
Gain on Settlement 12,50,000
Net Employee Benefit Exp. 2019-20 190,00,000
Total Total

Extract of Cash/Bank
Description Debit Credit
Balance b/f from 1.4.2019
Entry 6: Contributions 175,00,000
Balance c/f 31.3.2020
Total
 Question 16: Other long-term benefits Ind AS 19

Question 16:
Indrayani Ltd. wants to motivate its sales personnel by way of an additional bonus. According to Indrayani's HR policy,
the sales personnel would receive bonus at 10th anniversary of their service amounting to 1x of their current monthly
salary. In 2019-20, Indrayani's management decided to increase this bonus to 3x of their current monthly salary. Indrayani
makes regular contributions to the fund for covering payments of this bonus. Based on the information in the table
below, advise Indrayani how to present the employee benefit liability in the financial statements as of 31 March 2020.

Description INR ('000s)

PV of obligation - 1.4.2019 7,200
PV of obligation - 31.3.2020 22,050
FV of plan assets - 1.4.2019 6,750
FV of plan assets - 31.3.2020 16,605
Interest cost 360
Current service cost 1,935
Past service cost 13,995
Interest income on plan assets 338
Contributions to plan assets 10,800
Actuarial gain (on the liability) 90
Return on plan assets less interest income 68
Benefits paid to sales personnel 1,350

1. Movements in PV of obligation and FV of assets during 20X1

PV of obligation: FV of plan assets:

Description ₹ ('000s) Description ₹ ('000s)
PV of obligation b/f 7,200 FV of plan assets b/f 6,750
Interest cost 360 Interest income on plan assets 338
Current service cost 1,935 Contributions 10,800
Benefits paid to the employees -1,350 Benefits paid to the employees -1,350
Actuarial gain (on the liability) -90 Return less interest income 68
Past service cost 13,995
PV of obligation c/f 22,050 FV of plan assets c/f 16,605
 Question 16: Other long-term benefits Ind AS 19

2. Presentation in the financial statements

Net defined benefit liability (INR): 1.4.2019 31.3.2020

PV of defined benefit obligation -7,200 -22,050
FV of plan assets 6,750 16,605
Net total: -450 -5,445

Amounts to be presented in the profit or loss / OCI: INR ('000s)

Current service cost P&L 1,935
Interest cost P&L 360
Past service cost P&L 13,995
Actuarial gain OCI -90
Interest income on plan assets P&L -338
Return on plan assets less interest income OCI -68
Net total: 15,795

Debit Expense - Employee benefits Expenses 15,953

Credit - Other Comprehensive Income -158
Credit Liabilities - Net Defined Benefit Liability -15,795

Debit Liabilities - Net Defined Benefit Liability 10,800

Credit Cash -10,800

3. Verification of movement in the net total

Balance b/f as on 1.4.2019 -450

Less: Net expense in P/L -15,953
Add: Actuarial Gains recognized in OCI 158
Less: Contributions to the fund 10,800
Balance c/f as of 31.3.2020 -5,445
 Question 17: Termination benefits Ind AS 19

Question 17:
After assessing the impact of the COVID-19 pandemic which adversely affected its operations since
January, 2020, EnjoyTravel Ltd. decided to shut down one of its divisions towards the end of 2019-
20 and published a detailed formal plan of closure together with redundancies of employees and
termination of their employment. The details of plan are as follows:
- EnjoyTravel expects the commencement of closure in 2020-21 and completing the full closure of
the division by the end of 2021-22.
- EnjoyTravel offers to pay ₹ 13,50,000 to each employee leaving the company before the closure.
- As EnjoyTravel needs qualified employees to carry out the closure proceedings, total benefit of ₹
22,50,000 is promised to all employees staying in the company until the closure is completed.
Total number of employees affected by the closure is 400. EnjoyTravel assumes that 100 of them
leaves before closure and 300 of them stays until the closure.
How should EnjoyTravel recognize and measure termination benefits as at 31 March 2020 and
2021? Applicable discount rate is 8%?

1. Calculation of termination benefit vs. benefit in exchange for service

₹ in lakhs
Benefit in exchange for termination:
5,400
(400 x ₹ 13,50,000)
Benefit in exchange for the service:
2,700
(300 x ₹ 9,00,000)
Total benefits: 8,100

2. Termination benefits

₹ in lakhs
Termination benefits payable within 12 months
1,350
(100 x ₹ 13,50,000)
Termination benefits payable beyond 12 months
3,750
[300 x ₹ 13,50,000 x 1/(1+8%)]
Total termination benefits: 5,100

3. Benefits in exchange for service (recognized from 2020-21 as service is provided from 2020-21)

₹ in lakhs
Attributing the benefits:
Total amount of benefits for the services
(300 x ₹ 9,00,000) 2,700
Number of years of the service (2020-21 and 2021-22) 2
Attributed benefit per year: 1,350

2020-21 2021-22
1 2
Opening obligation
0 1,250
(closing obligation from previous period)
Interest at 8%
0 100
(8% applied on opening obligation)
Discount factor at 5%
0.9259 1.0000
[1/(1+8%)^(years from individual year to 2021-22)]
Current service cost
(present value of benefit attributed to the current year - ₹ 1,250 1,350
13,50,00,000 x discount factor)
Closing obligation (total): 1,250 2,700
 Question 17: Termination benefits Ind AS 19

4. Accounting treatment

In 2019-20
Debit Expenses - Employee Benefits 5,100
Credit Liabilities - Provision for Termination Benefits -5,100

In 2020-21:
Payment of termination benefits:
Debit Liabilities - Provision for Termination Benefits 1,350
Credit - Bank -1,350

Unwinding the discount on termination benefits (₹ 37,50,00,000 x 8%):

Debit Finance cost 300
Credit Liabilities - Provision for Termination Benefits -300

Balance of termination benefits as of 31 March 2021: -4,050

Recognition of other long-term benefits - cost for 2020-21:

Debit Personnel expenses (profit or loss) 1,250
Credit Liabilities - other long-term benefits -1,250

In 2021-22:
Payment of termination benefits:
Debit Liabilities - Provision for Termination Benefits 4,050
Credit Cash -4,050

Balance of termination benefits as of 31 March 2022: 0

Unwinding the discount on other long-term benefits (₹ 12,50,00,000 x 8%):

Debit Interest cost 100
Credit Liabilities - Provision for Other Long-term Benefits -100

Recognition of other long-term benefits - cost for 2021-22:

Debit Personnel expenses (profit or loss) 1,350
Credit Liabilities - Provision for Other Long-term Benefits -1,350

Payment of other long-term benefits:

Debit Liabilities - Provision for Other Long-term Benefits 2,700
Credit Cash -2,700

Balance of other long-term benefits as of 31 March 2022: 0