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  Exposure Draft of Accounting Standard (AS) 19, Employee Benefits (Comments to be received by August 10, 2018)
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Exposure Draft of Accounting Standard (AS) 19, Employee Benefits (Comments to be received by August 10, 2018)
July, 10th 2018
                                               ED/AS19/2018/03




             Exposure Draft

  Accounting Standard (AS) 19

           Employee Benefits
Last Date of comments: August 10, 2018




                     Issued by
            Accounting Standards Board
  The Institute of Chartered Accountants of India
                                     Exposure Draft
                           Accounting Standard (AS) 19

                                  Employee Benefits
(The Indian Accounting Standards (Ind AS), as notified by the Ministry of Corporate Affairs in
February, 2015, have been applicable to the specified class of companies. For other class of
companies, i.e., primarily the unlisted entities having net worth less than Rs. 250 crores,
Accounting Standards, as notified under Companies (Accounting Standards) Rules, 2006, have
been applicable. However, the Ministry of Corporate Affairs has requested the Accounting
Standards Board (ASB) of The Institute of Chartered Accountants of India (ICAI) to upgrade
Accounting Standards, as notified under Companies (Accounting Standards) Rules, 2006, to
bring them nearer to Indian Accounting Standards. Accordingly, the Accounting Standards
Board, ICAI, initiated to upgrade these standards which will be applicable to companies having
net-worth less than Rs. 250 crores and non-corporate entities. While formulating these
Accounting Standards, the Accounting Standards Board, ICAI, decided to maintain the
consistency with the paragraph numbers and with the numbering of Standards of the Indian
Accounting Standards).

Following is the Exposure Draft of the Accounting Standard (AS) 19, Employee Benefits, issued
by the Accounting Standards Board of the Institute of Chartered Accountants of India, for
comments. The Board invites comments on any aspect of this Exposure Draft. Comments are
most helpful if they indicate the specific paragraph or group of paragraphs to which they relate,
contain a clear rationale and, where applicable, provide a suggestion for alternative wording.

How to Comment

Comments can be submitted using one of the following methods so as to receive not later than
August 10, 2018:

1. Electronically: Visit the following link http://www.icai.org/comments/asb/

2. Email: Comments can be sent at commentsasb@icai.in

3. Postal: Secretary, Accounting Standards Board,
          The Institute of Chartered Accountants of India, ICAI Bhawan,
         Post Box No. 7100, Indraprastha Marg, New Delhi ­ 110 002

Further clarifications on any aspect of this Exposure Draft may be sought by e-mail to
asb@icai.in.
Question for respondents

Question 1

Paragraph 64 of Ind AS 19, Employee Benefits, limits the measurement of the defined benefit
asset to the lower of the surplus in the defined benefit plan and the asset ceiling. Paragraph 8 of
Ind AS 19 defined asset ceiling as `present value of economic benefits available in the form of
refunds from the plan or reductions in future contributions to the plan'. Appendix B, The Limit
on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, of Ind AS 19
provides guidance on interaction of ceiling of asset recognition and minimum funding
requirements in case of defined benefit obligations. It addresses about when refunds or
reductions in future contributions is regarded as available, particularly when minimum funding
requirement exists.

The concept of asset ceiling and paragraph 64 of Ind AS 19 are retained in AS 19. However,
Appendix B of Ind AS 19 has not been included in AS 19.

(a) Do you agree with removal of Appendix B in draft AS 19?

(b) If you do not agree with (a) above, do you recommend that Appendix B should be included
   in AS 19?
(This Accounting Standard includes paragraphs set in bold type and plain type, which have
equal authority. Paragraphs in bold type indicate the main principles.)

Objective
1 The objective of this Standard is to prescribe the accounting and disclosure for employee
  benefits. The Standard requires an entity to recognise:

    (a) a liability when an employee has provided service in exchange for employee benefits to
        be paid in the future; and

    (b) an expense when the entity consumes the economic benefit arising from service
        provided by an employee in exchange for employee benefits.

Scope
2 This Standard shall be applied by an employer in accounting for all employee benefits,
  except those to which AS 102, Share-based Payment, applies.

3 This Standard does not deal with reporting by employee benefit plans.

4 The employee benefits to which this Standard applies include those provided:

    (a) under formal plans or other formal agreements between an entity and individual
        employees, groups of employees or their representatives;

    (b) under legislative requirements, or through industry arrangements, whereby entities are
        required to contribute to state, industry or other multi-employer plans; or

    (c) by those informal practices that give rise to a constructive obligation. Informal practices
        give rise to a constructive obligation where the entity has no realistic alternative but to
        pay employee benefits. An example of a constructive obligation is where a change in
        the entity's informal practices would cause unacceptable damage to its relationship with
        employees.

5 Employee benefits include:

    (a) short-term employee benefits, such as the following, if expected to be settled wholly
        before twelve months after the end of the annual reporting period in which the
        employees render the related services:

         (i) wages, salaries and social security contributions;

         (ii) paid annual leave and paid sick leave;

         (iii) profit-sharing and bonuses; and

                                                 1
         (iv) non-monetary benefits (such as medical care, housing, cars and free or subsidised
              goods or services) for current employees;

    (b) post-employment benefits, such as the following:

         (i) retirement benefits (e.g., pensions, gratuity and lump sum payments on
             retirement); and

         (ii) other post-employment benefits, such as post-employment life insurance and post-
              employment medical care;

    (c) other long-term employee benefits, such as the following:

         (i) long-term paid absences such as long-service leave or sabbatical leave;

         (ii) jubilee or other long-service benefits; and

         (iii) long-term disability benefits; and

    (d) termination benefits.

6 Employee benefits include benefits provided either to employees or to their dependants or
  beneficiaries and may be settled by payments (or the provision of goods or services) made
  either directly to the employees, to their spouses, children or other dependants or to others,
  such as insurance companies.

7 An employee may provide services to an entity on a full-time, part-time, permanent, casual
  or temporary basis. For the purpose of this Standard, employees include directors and other
  management personnel.

Definitions
8   The following terms are used in this Standard with the meanings specified:

    Definitions of employee benefits
    Employee benefits are all forms of consideration given by an entity in exchange for
    service rendered by employees or for the termination of employment.

    Short-term employee benefits are employee benefits (other than termination benefits)
    that are expected to be settled wholly before twelve months after the end of the annual
    reporting period in which the employees render the related service.

    Post-employment benefits are employee benefits (other than termination benefits and
    short-term employee benefits) that are payable after the completion of employment.

                                                2
    Other long-term employee benefits are all employee benefits other than short-term
    employee benefits, post-employment benefits and termination benefits.

    Termination benefits are employee benefits provided in exchange for the termination of
    an employee's employment as a result of either:

    (a) an entity's decision to terminate an employee's employment before the normal
        retirement date; or

    (b) an employee's decision to accept an offer of benefits in exchange for the
        termination of employment.

    Vested employee benefits are employee benefits that are not conditional on future
    employment.

    Interest cost is the increase during a period in the present value of a defined benefit
    obligation which arises because the benefits are one period closer to settlement.

Definitions relating to classification of plans
    Post-employment benefit plans are formal or informal arrangements under which an
    entity provides post-employment benefits for one or more employees.

    Defined contribution plans are post-employment benefit plans under which an entity
    pays fixed contributions into a separate entity (a fund) and will have no legal or
    constructive obligation to pay further contributions if the fund does not hold sufficient
    assets to pay all employee benefits relating to employee service in the current and prior
    periods.

    Defined benefit plans are post-employment benefit plans other than defined
    contribution plans.

    Multi-employer plans are defined contribution plans (other than state plans) or defined
    benefit plans (other than state plans) that:

    (a) pool the assets contributed by various entities that are not under common control;
        and

    (b) use those assets to provide benefits to employees of more than one entity, on the
        basis that contribution and benefit levels are determined without regard to the
        identity of the entity that employs the employees.

Definitions relating to the net defined benefit liability (asset)
    The net defined benefit liability (asset) is the deficit or surplus, adjusted for any effect of

                                                3
limiting a net defined benefit asset to the asset ceiling.

The deficit or surplus is:

(a) the present value of the defined benefit obligation less
(b) the fair value of plan assets (if any).

The asset ceiling is the present value of any economic benefits available in the form of
refunds from the plan or reductions in future contributions to the plan.

The present value of a defined benefit obligation is the present value, without deducting
any plan assets, of expected future payments required to settle the obligation resulting
from employee service in the current and prior periods.

Plan assets comprise:

(a) assets held by a long-term employee benefit fund; and

(b) qualifying insurance policies.

Assets held by a long-term employee benefit fund are assets (other than non-transferable
financial instruments issued by the reporting entity) that:

(a) are held by an entity (a fund) that is legally separate from the reporting entity and
    exists solely to pay or fund employee benefits; and

(b) are available to be used only to pay or fund employee benefits, are not available to
    the reporting entity's own creditors (even in bankruptcy), and cannot be returned
    to the reporting entity, unless either:

     (i) the remaining assets of the fund are sufficient to meet all the related
         employee benefit obligations of the plan or the reporting entity; or

     (ii) the assets are returned to the reporting entity to reimburse it for employee
          benefits already paid.

A qualifying insurance policy is an insurance policy issued by an insurer that is not a
related party (as defined in AS 24, Related Party Disclosures) of the reporting entity, if
the proceeds of the policy:

(a) can be used only to pay or fund employee benefits under a defined benefit plan;
    and

(b) are not available to the reporting entity's own creditors (even in bankruptcy) and
    cannot be paid to the reporting entity, unless either:



                                            4
        (i)   the proceeds represent surplus assets that are not needed for the policy to
              meet all the related employee benefit obligations; or

       (ii)   the proceeds are returned to the reporting entity to reimburse it for
              employee benefits already paid.

   Fair Value is the value as defined in AS 113, Fair Value Measurement.

Definitions relating to defined benefit cost
   Service cost comprises:

   (a) current service cost, which is the increase in the present value of the defined benefit
       obligation resulting from employee service in the current period;

   (b) past service cost, which is the change in the present value of the defined benefit
       obligation for employee service in prior periods, resulting from a plan amendment
       (the introduction or withdrawal of, or changes to, a defined benefit plan) or a
       curtailment (a significant reduction by the entity in the number of employees
       covered by a plan); and

   (c) any gain or loss on settlement.

   Net interest on the net defined benefit liability (asset) is the change during the period in
   the net defined benefit liability (asset) that arises from the passage of time.

   Remeasurements of the net defined benefit liability (asset) comprise:

   (a) actuarial gains and losses;

   (b) the return on plan assets, excluding amounts included in net interest on the net
       defined benefit liability (asset); and

   (c) any change in the effect of the asset ceiling, excluding amounts included in net
       interest on the net defined benefit liability (asset).

   Actuarial gains and losses are changes in the present value of the defined benefit
   obligation resulting from:

   (a) experience adjustments (the effects of differences between the previous actuarial
       assumptions and what has actually occurred); and

   (b) the effects of changes in actuarial assumptions.

   The return on plan assets is interest, dividends and other income derived from the plan
   assets, together with realised and unrealised gains or losses on the plan assets, less:

                                               5
    (a) any costs of managing plan assets; and

    (b) any tax payable by the plan itself, other than tax included in the actuarial
        assumptions used to measure the present value of the defined benefit obligation.

    A settlement is a transaction that eliminates all further legal or constructive obligations
    for part or all of the benefits provided under a defined benefit plan, other than a
    payment of benefits to, or on behalf of, employees that is set out in the terms of the
    plan and included in the actuarial assumptions.

   Short-term employee benefits
9 Short-term employee benefits include items such as the following, if expected to be settled
  wholly before twelve months after the end of the annual reporting period in which the
  employees render the related services:

   (a) wages, salaries and social security contributions;

   (b) paid annual leave and paid sick leave;

   (c) profit-sharing and bonuses; and

   (d) non-monetary benefits (such as medical care, housing, cars and free or subsidised goods
       or services) for current employees.

10 An entity need not reclassify a short-term employee benefit if the entity's expectations of the
   timing of settlement change temporarily. However, if the characteristics of the benefit change
   (such as a change from a non-accumulating benefit to an accumulating benefit) or if a change
   in expectations of the timing of settlement is not temporary, then the entity considers whether
   the benefit still meets the definition of short-term employee benefits.

   Recognition and measurement
   All short-term employee benefits

11 Short term employee benefits are measured on undiscounted basis. When an employee
   has rendered service to an entity during an accounting period, the entity shall recognise
   the undiscounted amount of short-term employee benefits expected to be paid in
   exchange for that service:

   (a) as a liability (accrued expense), after deducting any amount already paid. If the
       amount already paid exceeds the undiscounted amount of the benefits, an entity
       shall recognise that excess as an asset (prepaid expense) to the extent that the
       prepayment will lead to, for example, a reduction in future payments or a cash
       refund.

                                                6
   (b) as an expense, unless another AS requires or permits the inclusion of the benefits in
       the cost of an asset (see, for example, AS 2, Inventories, and AS 16, Property, Plant
       and Equipment).

12 Paragraphs 13, 16 and 19 explain how an entity shall apply paragraph 11 to short-term
   employee benefits in the form of paid absences and profit-sharing and bonus plans.

   Short-term paid absences

13 An entity shall recognise the expected cost of short-term employee benefits in the form
   of paid absences under paragraph 11 as follows:

   (a) in the case of accumulating paid absences, when the employees render service that
       increases their entitlement to future paid absences.

   (b) in the case of non-accumulating paid absences, when the absences occur.

14 An entity may pay employees for absence for various reasons including holidays, sickness
   and short-term disability, maternity or paternity, jury service and military service.
   Entitlement to paid absences falls into two categories:

   (a) accumulating; and

   (b) non-accumulating.

15 Accumulating paid absences are those that are carried forward and can be used in future
   periods if the current period's entitlement is not used in full. Accumulating paid absences
   may be either vesting (in other words, employees are entitled to a cash payment for unused
   entitlement on leaving the entity) or non-vesting (when employees are not entitled to a cash
   payment for unused entitlement on leaving). An obligation arises as employees render
   service that increases their entitlement to future paid absences. The obligation exists, and is
   recognised, even if the paid absences are non-vesting, although the possibility that employees
   may leave before they use an accumulated non-vesting entitlement affects the measurement
   of that obligation.

16 An entity shall measure the expected cost of accumulating paid absences as the
    additional amount that the entity expects to pay as a result of the unused entitlement
    that has accumulated at the end of the reporting period.

17 The method specified in the previous paragraph measures the obligation at the amount of the
    additional payments that are expected to arise solely from the fact that the benefit
    accumulates. In many cases, an entity may not need to make detailed computations to
    estimate that there is no material obligation for unused paid absences. For example, a sick
    leave obligation is likely to be material only if there is a formal or informal understanding
    that unused paid sick leave may be taken as paid annual leave.


                                                7
   Example illustrating paragraphs 16 and 17

   An entity has 100 employees, who are each entitled to five working days of paid sick leave
   for each year. Unused sick leave may be carried forward for one calendar 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 31 December 20X1 the average unused
   entitlement is two days per employee. The entity expects, on the basis of experience that is
   expected to continue, that 92 employees will take no more than five days of paid sick leave
   in 20X2 and that the remaining eight employees will take an average of six and a half days
   each.
   The entity expects that it will pay an additional twelve days of sick pay as a result of the
   unused entitlement that has accumulated at 31 December 20X1 (one and a half days each,
   for eight employees). Therefore, the entity recognises a liability equal to twelve days of sick
   pay.

18 Non -accumulating paid absences do not carry forward: they lapse if the current period's
   entitlement is not used in full and do not entitle employees to a cash payment for unused
   entitlement on leaving the entity. This is commonly the case for sick pay (to the extent that
   unused past entitlement does not increase future entitlement), maternity or paternity leave
   and paid absences for jury service or military service. An entity recognises no liability or
   expense until the time of the absence, because employee service does not increase the
   amount of the benefit.

   Provided that a Small and Medium sized Company as defined in the MCA notification
   and Small and Medium-sized Entity (Levels II and III non-corporates entity) as per
   criteria prescribed by the ICAI, may not comply with paragraphs 13-18 of the Standard
   to the extent they deal with recognition and measurement of short-term accumulating
   paid absences which are non-vesting (i.e., short-term accumulating paid absences in
   respect of which employees are not entitled to cash payment of unused entitlement on
   leaving).

   Profit-sharing and bonus plans

19 An entity shall recognise the expected cost of profit-sharing and bonus payments under
   paragraph 11 when, and only when:

   (a) the entity has a present legal or constructive obligation to make such payments as a
       result of past events; and

   (b) a reliable estimate of the obligation can be made.

   A present obligation exists when, and only when, the entity has no realistic alternative
   but to make the payments.

20 Under some profit-sharing plans, employees receive a share of the profit only if they remain

                                                8
   with the entity for a specified period. Such plans create a constructive obligation as
   employees render service that increases the amount to be paid if they remain in service until
   the end of the specified period. The measurement of such constructive obligations reflects the
   possibility that some employees may leave without receiving profit-sharing payments.

    Example illustrating paragraph 20

   A profit-sharing plan requires an entity to pay a specified proportion of its profit for the year
   to employees who serve throughout the year. If no employees leave during the year, the total
   profit-sharing payments for the year will be 3 per cent of profit. The entity estimates that
   staff turnover will reduce the payments to 2.5 per cent of profit.

   The entity recognises a liability and an expense of 2.5 per cent of profit.

21 An entity may have no legal obligation to pay a bonus. Nevertheless, in some cases, an entity
   has a practice of paying bonuses. In such cases, the entity has a constructive obligation
   because the entity has no realistic alternative but to pay the bonus. The measurement of the
   constructive obligation reflects the possibility that some employees may leave without
   receiving a bonus.

22 An entity can make a reliable estimate of its legal or constructive obligation under a profit-
   sharing or bonus plan when, and only when:

   (a) the formal terms of the plan contain a formula for determining the amount of the benefit;

   (b) the entity determines the amounts to be paid before the financial statements are
       approved for issue; or

   (c) past practice gives clear evidence of the amount of the entity's constructive obligation.

23 An obligation under profit-sharing and bonus plans results from employee service and not
   from a transaction with the entity's owners. Therefore, an entity recognises the cost of profit -
   sharing and bonus plans not as a distribution of profit but as an expense.

24 If profit-sharing and bonus payments are not expected to be settled wholly before twelve
   months after the end of the annual reporting period in which the employees render the related
   service, those payments are other long-term employee benefits (see paragraphs 153­158).

   Disclosure
25 Although this Standard does not require specific disclosures about short-term employee
   benefits, other ASs may require disclosures. For example, AS 24 requires disclosures about
   employee benefits for key management personnel. AS 1, Presentation of Financial
   Statements, requires disclosure of employee benefits expense.




                                                 9
Post-employment benefits: distinction between defined contribution
plans and defined benefit plans
26 Post-employment benefits include items such as the following:

   (a) retirement benefits (e.g., pensions, gratuity and lump sum payments on retirement); and

   (b) other post-employment benefits, such as post-employment life insurance and post-
       employment medical care.

   Arrangements whereby an entity provides post-employment benefits are post-employment
   benefit plans. An entity applies this Standard to all such arrangements whether or not they
   involve the establishment of a separate entity to receive contributions and to pay benefits.

27 Post-employment benefit plans are classified as either defined contribution plans or defined
   benefit plans, depending on the economic substance of the plan as derived from its principal
   terms and conditions.

28 Under defined contribution plans the entity's legal or constructive obligation is limited to the
   amount that it agrees to contribute to the fund. Thus, the amount of the post-employment
   benefits received by the employee is determined by the amount of contributions paid by an
   entity (and perhaps also the employee) to a post-employment benefit plan or to an insurance
   company, together with investment returns arising from the contributions. In consequence,
   actuarial risk (that benefits will be less than expected) and investment risk (that assets
   invested will be insufficient to meet expected benefits) fall, in substance, on the employee.






29 Examples of cases where an entity's obligation is not limited to the amount that it agrees to
   contribute to the fund are when the entity has a legal or constructive obligation through:

   (a) a plan benefit formula that is not linked solely to the amount of contributions and
       requires the entity to provide further contributions if assets are insufficient to meet the
       benefits in the plan benefit formula;

   (b) a guarantee, either indirectly through a plan or directly, of a specified return on
       contributions; or

   (c) those informal practices that give rise to a constructive obligation. For example, a
       constructive obligation may arise where an entity has a history of increasing benefits for
       former employees to keep pace with inflation even where there is no legal obligation to
       do so.

30 Under defined benefit plans:

   (a) the entity's obligation is to provide the agreed benefits to current and former employees;
       and


                                                10
   (b) actuarial risk (that benefits will cost more than expected) and investment risk fall, in
       substance, on the entity. If actuarial or investment experience are worse than expected,
       the entity's obligation may be increased.

31 Paragraphs 32­49 explain the distinction between defined contribution plans and defined
   benefit plans in the context of multi-employer plans, defined benefit plans that share risks
   between entities under common control, state plans and insured benefits.

   Multi-employer plans
32 An entity shall classify a multi-employer plan as a defined contribution plan or a defined
   benefit plan under the terms of the plan (including any constructive obligation that goes
   beyond the formal terms).

33 If an entity participates in a multi-employer defined benefit plan, unless paragraph 34
   applies, it shall:

   (a) account for its proportionate share of the defined benefit obligation, plan assets
       and cost associated with the plan in the same way as for any other defined benefit
       plan; and

   (b) disclose the information required by paragraphs 135­148 (excluding paragraph
       148(d)).

34 When sufficient information is not available to use defined benefit accounting for a
   multi-employer defined benefit plan, an entity shall:

   (a) account for the plan in accordance with paragraphs 51 and 52 as if it were a
       defined contribution plan; and

   (b) disclose the information required by paragraph 148.

35 One example of a multi-employer defined benefit plan is one where:

   (a) the plan is financed on a pay-as-you-go basis: contributions are set at a level that is
       expected to be sufficient to pay the benefits falling due in the same period; and future
       benefits earned during the current period will be paid out of future contributions; and

   (b) employees' benefits are determined by the length of their service and the participating
       entities have no realistic means of withdrawing from the plan without paying a
       contribution for the benefits earned by employees up to the date of withdrawal. Such a
       plan creates actuarial risk for the entity: if the ultimate cost of benefits already earned at
       the end of the reporting period is more than expected, the entity will have either to
       increase its contributions or to persuade employees to accept a reduction in benefits.
       Therefore, such a plan is a defined benefit plan.


                                                11
36 Where sufficient information is available about a multi-employer defined benefit plan, an
   entity accounts for its proportionate share of the defined benefit obligation, plan assets and
   post-employment cost associated with the plan in the same way as for any other defined
   benefit plan. However, an entity may not be able to identify its share of the underlying
   financial position and performance of the plan with sufficient reliability for accounting
   purposes. This may occur if:

   (a) the plan exposes the participating entities to actuarial risks associated with the current
       and former employees of other entities, with the result that there is no consistent and
       reliable basis for allocating the obligation, plan assets and cost to individual entities
       participating in the plan; or

   (b) the entity does not have access to sufficient information about the plan to satisfy the
       requirements of this Standard.

   In those cases, an entity accounts for the plan as if it were a defined contribution plan and
   discloses the information required by paragraph 148.

37 There may be a contractual agreement between the multi-employer plan and its participants
   that determines how the surplus in the plan will be distributed to the participants (or the
   deficit funded). A participant in a multi- employer plan with such an agreement that accounts
   for the plan as a defined contribution plan in accordance with paragraph 34 shall recognise
   the asset or liability that arises from the contractual agreement and the resulting income or
   expense in profit or loss.

    Example illustrating paragraph 37
    An entity participates in a multi-employer defined benefit plan that does not prepare
    plan valuations on an AS 19 basis. It therefore accounts for the plan as if it were a
    defined contribution plan. A non-AS 19 funding valuation shows a deficit of Rs.100
    million in the plan. The plan has agreed under contract a schedule of contributions
    with the participating employers in the plan that will eliminate the deficit over the
    next five years. The entity's total contributions under the contract are Rs.8 million.
    The entity recognises a liability for the contributions adjusted for the time value of
    money and an equal expense in profit or loss.


38 Multi-employer plans are distinct from group administration plans. A group administration
   plan is merely an aggregation of single employer plans combined to allow participating
   employers to pool their assets for investment purposes and reduce investment management
   and administration costs, but the claims of different employers are segregated for the sole
   benefit of their own employees. Group administration plans pose no particular accounting
   problems because information is readily available to treat them in the same way as any other
   single employer plan and because such plans do not expose the participating entities to
   actuarial risks associated with the current and former employees of other entities. The
   definitions in this Standard require an entity to classify a group administration plan as a

                                                12
   defined contribution plan or a defined benefit plan in accordance with the terms of the plan
   (including any constructive obligation that goes beyond the formal terms).

39 In determining when to recognise, and how to measure, a liability relating to the wind-
   up of a multi-employer defined benefit plan, or the entity's withdrawal from a multi -
   employer defined benefit plan, an entity shall apply AS 37, Provisions, Contingent
   Liabilities and Contingent Assets.

   Defined benefit plans that share risks between entities under common
   control
40 Defined benefit plans that share risks between entities under common control, for example, a
   parent and its subsidiaries, are not multi-employer plans.

41 An entity participating in such a plan shall obtain information about the plan as a whole
   measured in accordance with this Standard on the basis of assumptions that apply to the plan
   as a whole. If there is a contractual agreement or stated policy for charging to individual
   group entities the net defined benefit cost for the plan as a whole measured in accordance
   with this Standard, the entity shall, in its separate or individual financial statements,
   recognise the net defined benefit cost so charged. If there is no such agreement or policy, the
   net defined benefit cost shall be recognised in the separate or individual financial statements
   of the group entity that is legally the sponsoring employer for the plan. The other group
   entities shall, in their separate or individual financial statements, recognise a cost equal to
   their contribution payable for the period.

42 Participation in such a plan is a related party transaction for each individual group entity. An
   entity shall therefore, in its separate or individual financial statements, disclose the
   information required by paragraph 149.

   State plans
43 An entity shall account for a state plan in the same way as for a multi-employer plan
   (see paragraphs 32­39).

44 State plans are established by legislation to cover all entities (or all entities in a particular
   category, for example, a specific industry) and are operated by national or local government
   or by another body (for example, an autonomous agency created specifically for this
   purpose) that is not subject to control or influence by the reporting entity. Some plans
   established by an entity provide both compulsory benefits, as a substitute for benefits that
   would otherwise be covered under a state plan, and additional voluntary benefits. Such plans
   are not state plans.

45 State plans are characterised as defined benefit or defined contribution, depending on the
   entity's obligation under the plan. Many state plans are funded on a pay-as-you-go basis:
   contributions are set at a level that is expected to be sufficient to pay the required benefits
   falling due in the same period; future benefits earned during the current period will be paid

                                                13
   out of future contributions. Nevertheless, in most state plans the entity has no legal or
   constructive obligation to pay those future benefits: its only obligation is to pay the
   contributions as they fall due and if the entity ceases to employ members of the state plan, it
   will have no obligation to pay the benefits earned by its own employees in previous years.
   For this reason, state plans are normally defined contribution plans. However, when a state
   plan is a defined benefit plan an entity applies paragraphs 32­39.

   Insured benefits
46 An entity may pay insurance premiums to fund a post-employment benefit plan. The
   entity shall treat such a plan as a defined contribution plan unless the entity will have
   (either directly, or indirectly through the plan) a legal or constructive obligation either:

   (a) to pay the employee benefits directly when they fall due; or

   (b) to pay further amounts if the insurer does not pay all future employee benefits
       relating to employee service in the current and prior periods.

   If the entity retains such a legal or constructive obligation, the entity shall treat the plan
   as a defined benefit plan.

47 The benefits insured by an insurance policy need not have a direct or automatic relationship
   with the entity's obligation for employee benefits. Post-employment benefit plans involving
   insurance policies are subject to the same distinction between accounting and funding as
   other funded plans.

48 Where an entity funds a post-employment benefit obligation by contributing to an insurance
   policy under which the entity (either directly, indirectly through the plan, through the
   mechanism for setting future premiums or through a related party relationship with the
   insurer) retains a legal or constructive obligation, the payment of the premiums does not
   amount to a defined contribution arrangement. It follows that the entity:

   (a) accounts for a qualifying insurance policy as a plan asset (see paragraph 8); and

   (b) recognises other insurance policies as reimbursement rights (if the policies satisfy the
       criterion in paragraph 116).

49 Where an insurance policy is in the name of a specified plan participant or a group of plan
   participants and the entity does not have any legal or constructive obligation to cover any
   loss on the policy, the entity has no obligation to pay benefits to the employees and the
   insurer has sole responsibility for paying the benefits. The payment of fixed premiums under
   such contracts is, in substance, the settlement of the employee benefit obligation, rather than
   an investment to meet the obligation. Consequently, the entity no longer has an asset or a
   liability. Therefore, an entity treats such payments as contributions to a defined contribution
   plan.


                                               14
Post-employment benefits: defined contribution plans
50 Accounting for defined contribution plans is straightforward because the reporting entity's
   obligation for each period is determined by the amounts to be contributed for that period.
   Consequently, no actuarial assumptions are required to measure the obligation or the expense
   and there is no possibility of any actuarial gain or loss. Moreover, the obligations are
   measured on an undiscounted basis, except where they are not expected to be settled wholly
   before twelve months after the end of the annual reporting period in which the employees
   render the related service.

   Recognition and measurement
51 When an employee has rendered service to an entity during a period, the entity shall
   recognise the contribution payable to a defined contribution plan in exchange for that
   service:

   (a) as a liability (accrued expense), after deducting any contribution already paid. If
       the contribution already paid exceeds the contribution due for service before the
       end of the reporting period, an entity shall recognise that excess as an asset
       (prepaid expense) to the extent that the prepayment will lead to, for example, a
       reduction in future payments or a cash refund.

   (b) as an expense, unless another AS requires or permits the inclusion of the
       contribution in the cost of an asset (see, for example, AS 2 and AS 16).

52 When contributions to a defined contribution plan are not expected to be settled wholly
   before twelve months after the end of the annual reporting period in which the
   employees render the related service, they shall be discounted using the discount rate
   specified in paragraph 83.

   Disclosure
53 An entity shall disclose the amount recognised as an expense for defined contribution
   plans.

54 Where required by AS 24 an entity discloses information about contributions to defined
   contribution plans for key management personnel.

Post-employment benefits: defined benefit plans
55 Accounting for defined benefit plans is complex because actuarial assumptions are required to
   measure the obligation and the expense and there is a possibility of actuarial gains and losses.
   Moreover, the obligations are measured on a discounted basis because they may be settled
   many years after the employees render the related service.



                                               15
   Recognition and measurement
56 Defined benefit plans may be unfunded, or they may be wholly or partly funded by
   contributions by an entity, and sometimes its employees, into an entity, or fund, that is
   legally separate from the reporting entity and from which the employee benefits are paid. The
   payment of funded benefits when they fall due depends not only on the financial position and
   the investment performance of the fund but also on an entity's ability, and willingness, to
   make good any shortfall in the fund's assets. Therefore, the entity is, in substance,
   underwriting the actuarial and investment risks associated with the plan. Consequently, the
   expense recognised for a defined benefit plan is not necessarily the amount of the
   contribution due for the period.

57 Accounting by an entity for defined benefit plans involves the following steps:

   (a) determining the deficit or surplus. This involves:

        (i)    using an actuarial technique, the projected unit credit method, to make a reliable
               estimate of the ultimate cost to the entity of the benefit that employees have earned
               in return for their service in the current and prior periods (see paragraphs 67­69).
               This requires an entity to determine how much benefit is attributable to the current
               and prior periods (see paragraphs 70­74) and to make estimates (actuarial
               assumptions) about demographic variables (such as employee turnover and
               mortality) and financial variables (such as future increases in salaries and medical
               costs) that will affect the cost of the benefit (see paragraphs 75­98).

        (ii)   discounting that benefit in order to determine the present value of the defined
               benefit obligation and the current service cost (see paragraphs 67­69 and 83­86).

        (iii) deducting the fair value of any plan assets (see paragraphs 113­115) from the
              present value of the defined benefit obligation.

   (b) determining the amount of the net defined benefit liability (asset) as the amount of the
       deficit or surplus determined in (a), adjusted for any effect of limiting a net defined
       benefit asset to the asset ceiling (see paragraph 64).

   (c) determining amounts to be recognised in profit or loss:

         (i) current service cost (see paragraphs 70­74).

         (ii) any past service cost and gain or loss on settlement (see paragraphs 99­112).

         (iii) net interest on the net defined benefit liability (asset) (see paragraphs 123­126).

   (d) determining the remeasurements of the net defined benefit liability (asset), to be
       recognised in other comprehensive income, comprising:


                                                 16
         (i) actuarial gains and losses (see paragraphs 128 and 129);

         (ii) return on plan assets, excluding amounts included in net interest on the net defined
              benefit liability (asset) (see paragraph 130); and

         (iii) any change in the effect of the asset ceiling (see paragraph 64), excluding amounts
               included in net interest on the net defined benefit liability (asset).

        Where an entity has more than one defined benefit plan, the entity applies these
        procedures for each material plan separately.

58 An entity shall determine the net defined benefit liability (asset) with sufficient
   regularity that the amounts recognised in the financial statements do not differ
   materially from the amounts that would be determined at the end of the reporting
   period.

59 This Standard encourages, but does not require, an entity to involve a qualified actuary in the
   measurement of all material post-employment benefit obligations. For practical reasons, an
   entity may request a qualified actuary to carry out a detailed valuation of the obligation
   before the end of the reporting period. Nevertheless, the results of that valuation are updated
   for any material transactions and other material changes in circumstances (including changes
   in market prices and interest rates) up to the end of the reporting period. The detailed
   actuarial valuation of the present value of defined benefit obligations may be made at
   intervals not exceeding three years.

 60 In some cases, estimates, averages and computational short cuts may provide a reliable
    approximation of the detailed computations illustrated in this Standard.

    Accounting for the constructive obligation
 61 An entity shall account not only for its legal obligation under the formal terms of a
    defined benefit plan, but also for any constructive obligation that arises from the
    entity's informal practices. Informal practices give rise to a constructive obligation
    where the entity has no realistic alternative but to pay employee benefits. An example
    of a constructive obligation is where a change in the entity's inf ormal practices would
    cause unacceptable damage to its relationship with employees.

62 The formal terms of a defined benefit plan may permit an entity to terminate its obligation
    under the plan. Nevertheless, it is usually difficult for an entity to terminate its obligation
    under a plan (without payment) if employees are to be retained. Therefore, in the absence of
    evidence to the contrary, accounting for post-employment benefits assumes that an entity
    that is currently promising such benefits will continue to do so over the remaining working
    lives of employees.




                                               17
Balance Sheet
63 An entity shall recognise the net defined benefit liability (asset) in the balance sheet.

64 When an entity has a surplus in a defined benefit plan, it shall measure the net defined
   benefit asset at the lower of:

    (a) the surplus in the defined benefit plan; and

    (b) the asset ceiling, determined using the discount rate specified in paragraph 83.

65 A net defined benefit asset may arise where a defined benefit plan has been overfunded or
   where actuarial gains have arisen. An entity recognises a net defined benefit asset in such
   cases because:

    (a) the entity controls a resource, which is the ability to use the surplus to generate future
        benefits;

    (b) that control is a result of past events (contributions paid by the entity and service
        rendered by the employee); and

    (c) future economic benefits are available to the entity in the form of a reduction in future
        contributions or a cash refund, either directly to the entity or indirectly to another plan
        in deficit. The asset ceiling is the present value of those future benefits.

Recognition and measurement: present value of defined benefit obligations
and current service cost
66 The ultimate cost of a defined benefit plan may be influenced by many variables, such as final
   salaries, employee turnover and mortality, employee contributions and medical cost trends.
   The ultimate cost of the plan is uncertain and this uncertainty is likely to persist over a long
   period of time. In order to measure the present value of the post-employment benefit
   obligations and the related current service cost, it is necessary:

   (a) to apply an actuarial valuation method (see paragraphs 67­69);

   (b) to attribute benefit to periods of service (see paragraphs 70­74); and

   (c) to make actuarial assumptions (see paragraphs 75­98).

   Actuarial valuation method

67 An entity shall use the projected unit credit method to determine the present value of its
   defined benefit obligations and the related current service cost and, where applicable,
   past service cost.


                                               18
68 The projected unit credit method (sometimes known as the accrued benefit method pro-rated
   on service or as the benefit/years of service method) sees each period of service as giving rise
   to an additional unit of benefit entitlement (see paragraphs 70­74) and measures each unit
   separately to build up the final obligation (see paragraphs 75­98).

    Example illustrating paragraph 68

    A lump sum benefit is payable on termination of service and equal to 1 per cent of
    final salary for each year of service. The salary in year 1 is Rs.10,000 and is assumed
    to increase at 7 per cent (compound) each year. The discount rate used is 10 per cent
    per year. The following table shows how the obligation builds up for an employee
    who is expected to leave at the end of year 5, assuming that there are no changes in
    actuarial assumptions. For simplicity, this example ignores the additional adjustment
    needed to reflect the probability that the employee may leave the entity at an earlier
    or later date.
                   Year                    1              2          3          4        5
                                          Rs.             Rs.        Rs.        Rs.      Rs.
      Benefit attributed to:
      ­ prior years
                                                 0            131        262     393      524
      ­ current year
      (1% of final salary)
                                               131            131        131     131      131
      ­ current and prior years                131            262        393     524      655
      Opening Obligation
                                                 ­              89       196     324      476
      Interest at 10%
                                                 ­               9         20       33       48
      Current service cost
                                                89             98        108     119      131
      Closing Obligation                        89            196        324     476      655
    Note:
       1. The opening obligation is the present value of the benefit attributed to prior
          years.
       2. The current service cost is the present value of the benefit attributed to the
          current year.
       3. The closing obligation is the present value of the benefit attributed to current
          and prior years

69 An entity discounts the whole of a post-employment benefit obligation, even if part of the
   obligation is expected to be settled before twelve months after the reporting period.



                                                     19
   Attributing benefit to periods of service

70 In determining the present value of its defined benefit obligations and the related
   current service cost and, where applicable, past service cost, an entity shall attribute
   benefit to periods of service under the plan's benefit formu la. However, if an
   employee's service in later years will lead to a materially higher level of benefit than in
   earlier years, an entity shall attribute benefit on a straight-line basis from:

   (a) the date when service by the employee first leads to benefits under the plan
       (whether or not the benefits are conditional on further service) until

   (b) the date when further service by the employee will lead to no material amount of
       further benefits under the plan, other than from further salary increases.

71 The projected unit credit method requires an entity to attribute benefit to the current period
   (in order to determine current service cost) and the current and prior periods (in order to
   determine the present value of defined benefit obligations). An entity attributes benefit to
   periods in which the obligation to provide post-employment benefits arises. That obligation
   arises as employees render services in return for post-employment benefits that an entity
   expects to pay in future reporting periods.

   Actuarial techniques allow an entity to measure that obligation with sufficient reliability to
   justify recognition of a liability.

       Examples illustrating paragraph 71
    1. A defined benefit plan provides a lump sum benefit of Rs.100 payable on
       retirement for each year of service.
        A benefit of Rs.100 is attributed to each year. The current service cost is the
        present value of Rs.100. The present value of the defined benefit obligation is the
        present value of Rs.100, multiplied by the number of years of service up to the
        end of the reporting period.
        If the benefit is payable immediately when the employee leaves the entity, the
        current service cost and the present value of the defined benefit obligation
        reflect the date at which the employee is expected to leave. Thus, because of the
        effect of discounting, they are less than the amounts that would be determined if
        the employee left at the end of the reporting period.
    2. A plan provides a monthly pension of 0.2 per cent of final salary for each year of
       service. The pension is payable from the age of 65.
        Benefit equal to the present value, at the expected retirement date, of a monthly
        pension of 0.2 per cent of the estimated final salary payable from the expected
        retirement date until the expected date of death is attributed to each year of
        service. The current service cost is the present value of that benefit. The present
        value of the defined benefit obligation is the present value of monthly pension

                                                20
        payments of 0.2 per cent of final salary, multiplied by the number of years of
        service up to the end of the reporting period. The current service cost and the
        present value of the defined benefit obligation are discounted because pension
        payments begin at the age of 65.


72 Employee service gives rise to an obligation under a defined benefit plan even if the benefits
   are conditional on future employment (in other words they are not vested). Employee service
   before the vesting date gives rise to a constructive obligation because, at the end of each
   successive reporting period, the amount of future service that an employee will have to
   render before becoming entitled to the benefit is reduced. In measuring its defined benefit
   obligation, an entity considers the probability that some employees may not satisfy any
   vesting requirements. Similarly, although some post-employment benefits, for example, post-
   employment medical benefits, become payable only if a specified event occurs when an
   employee is no longer employed, an obligation is created when the employee renders service
   that will provide entitlement to the benefit if the specified event occurs. The probability that
   the specified event will occur affects the measurement of the obligation, but does not
   determine whether the obligation exists.

   Examples illustrating paragraph 72
     1. A plan pays a benefit of Rs.100 for each year of service. The benefits vest after
        ten years of service.
         A benefit of Rs.100 is attributed to each year. In each of the first ten years, the
         current service cost and the present value of the obligation reflect the
         probability that the employee may not complete ten years of service.
     2. A plan pays a benefit of Rs.100 for each year of service, excluding service
        before the age of 25. The benefits vest immediately.
         No benefit is attributed to service before the age of 25 because service before
         that date does not lead to benefits (conditional or unconditional). A benefit of
         Rs.100 is attributed to each subsequent year.


 73 The obligation increases until the date when further service by the employee will lead to
    no material amount of further benefits. Therefore, all benefit is attributed to periods
    ending on or before that date. Benefit is attributed to individual accounting periods under
    the plan's benefit formula. However, if an employee's service in later years will lead to a
    materially higher level of benefit than in earlier years, an entity attributes benefit on a
    straight-line basis until the date when further service by the employee will lead to no
    material amount of further benefits. That is because the employee's service throughout
    the entire period will ultimately lead to benefit at that higher level.

      Examples illustrating paragraph 73
      1. A plan pays a lump sum benefit of Rs.1,000 that vests after ten years of service.

                                                21
   The plan provides no further benefit for subsequent service.
   A benefit of Rs.100 (Rs.1,000 divided by ten) is attributed to each of the first ten
   years.
   The current service cost in each of the first ten years reflects the probability that
   the employee may not complete ten years of service. No benefit is attributed to
   subsequent years.
2. A plan pays a lump sum retirement benefit of Rs.2,000 to all employees who are
   still employed at the age of 55 after twenty years of service, or who are still
   employed at the age of 65, regardless of their length of service.
   For employees who join before the age of 35, service first leads to benefits
   under the plan at the age of 35 (an employee could leave at the age of 30 and
   return at the age of 33, with no effect on the amount or timing of benefits). Those
   benefits are conditional on further service. Also, service beyond the age of 55
   will lead to no material amount of further benefits. For these employees, the
   entity attributes benefit of Rs.100 (Rs.2,000 divided by twenty) to each year from
   the age of 35 to the age of 55.
   For employees who join between the ages of 35 and 45, service beyond twenty
   years will lead to no material amount of further benefits. For these employees,
   the entity attributes benefit of 100 (2,000 divided by twenty) to each of the first
   twenty years.
   For an employee who joins at the age of 55, service beyond ten years will lead
   to no material amount of further benefits. For this employee, the entity attributes
   benefit of Rs.200 (Rs.2,000 divided by ten) to each of the first ten years.
   For all employees, the current service cost and the present value of the
   obligation reflect the probability that the employee may not complete the
   necessary period of service.
3. A post-employment medical plan reimburses 40 per cent of an employee's post -
   employment medical costs if the employee leaves after more than ten and less
   than twenty years of service and 50 per cent of those costs if the employee
   leaves after twenty or more years of service.
   Under the plan's benefit formula, the entity attributes 4 per cent of the present
   value of the expected medical costs (40 per cent divided by ten) to each of the
   first ten years and 1 per cent (10 per cent divided by ten) to each of the second
   ten years. The current service cost in each year reflects the probability that the
   employee may not complete the necessary period of service to earn part or all of
   the benefits. For employees expected to leave within ten years, no benefit is
   attributed.
4. A post-employment medical plan reimburses 10 per cent of an employee's post -
   employment medical costs if the employee leaves after more than ten and less

                                         22
     than twenty years of service and 50 per cent of those costs if the employee
     leaves after twenty or more years of service.
     Service in later years will lead to a materially higher level of benefit than in
     earlier years. Therefore, for employees expected to leave after twenty or more
     years, the entity attributes benefit on a straight-line basis under paragraph 71.
     Service beyond twenty years will lead to no material amount of further benefits.
     Therefore, the benefit attributed to each of the first twenty years is 2.5 per cent
     of the present value of the expected medical costs (50 per cent divided by
     twenty).
     For employees expected to leave between ten and twenty years, the benefit
     attributed to each of the first ten years is 1 per cent of the present value of the
     expected medical costs.
     For these employees, no benefit is attributed to service between the end of the
     tenth year and the estimated date of leaving.
     For employees expected to leave within ten years, no benefit is attributed.
5.   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 Rs.1,000,000.
     The amount of gratuity attributed to each year of service will be calculated as
     follows: Number of employees not likely to fulfil the eligibility criteria will be
     ignored.
     Other employees will be grouped according to period of service they are
     expected to render taking into account mortality rate, disablement and
     resignation after 5 years. Gratuity payable will be calculated in accordance
     with 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.
     For those employees for whom the amount payable as per the formula does not
     exceed Rs.1,000,000, over the expected period of service, the amount payable
     will be divided by the expected period of service and the resulting amount will
     be attributed to each year of the expected period of service, including the period
     before the stipulated period of 5 years.
     In case of the remaining employees, the amount as per the formula exceeds Rs.
     1,000,000 over the expected period of service of 10 years, and the amount of the

                                           23
              statutory threshold of Rs. 1,000,000 is reached at the end of 8 years. Rs.
              1,25,000 (Rs. 1,000,000 divided by 8) is attributed to each of the first 8 years.
              In this case, no benefit is attributed to subsequent two years. This is because
              service beyond 8 years will lead to no material amount of further benefits


74 Where the amount of a benefit is a constant proportion of final salary for each year of
   service, future salary increases will affect the amount required to settle the obligation that
   exists for service before the end of the reporting period, but do not create an additional
   obligation. Therefore:

   (a) for the purpose of paragraph 70(b), salary increases do not lead to further benefits, even
       though the amount of the benefits is dependent on final salary; and

   (b) the amount of benefit attributed to each period is a constant proportion of the salary to
       which the benefit is linked.

       Example illustrating paragraph 74
       Employees are entitled to a benefit of 3 per cent of final salary for each year of
       service before the age of 55.
       Benefit of 3 per cent of estimated final salary is attributed to each year up to the
       age of 55. This is the date when further service by the employee will lead to no
       material amount of further benefits under the plan. No benefit is attributed to
       service after that age.


   Actuarial assumptions

75 Actuarial assumptions shall be unbiased and mutually compatible.

76 Actuarial assumptions are an entity's best estimates of the variables that will determine the
   ultimate cost of providing post-employment benefits. Actuarial assumptions comprise:

   (a) demographic assumptions about the future characteristics of current and former
       employees (and their dependants) who are eligible for benefits. Demographic
       assumptions deal with matters such as:

        (i)     mortality (see paragraphs 81 and 82);

        (ii)    rates of employee turnover, disability and early retirement;

        (iii) the proportion of plan members with dependants who will be eligible for benefits;

        (iv) the proportion of plan members who will select each form of payment option
             available under the plan terms; and

                                                  24
        (v)    claim rates under medical plans.

   (b) financial assumptions, dealing with items such as:

        (i)    the discount rate (see paragraphs 83­86);

        (ii)   benefit levels, excluding any cost of the benefits to be met by employees, and
               future salary (see paragraphs 87­95);

        (iii) in the case of medical benefits, future medical costs, including claim handling
              costs (ie the costs that will be incurred in processing and resolving claims,
              including legal and adjuster's fees) (see paragraphs 96­98); and

        (iv) taxes payable by the plan on contributions relating to service before the reporting
             date or on benefits resulting from that service.

77 Actuarial assumptions are unbiased if they are neither imprudent nor excessively
   conservative.

78 Actuarial assumptions are mutually compatible if they reflect the economic relationships
   between factors such as inflation, rates of salary increase and discount rates. For example, all
   assumptions that depend on a particular inflation level (such as assumptions about interest
   rates and salary and benefit increases) in any given future period assume the same inflation
   level in that period.

79 An entity determines the discount rate and other financial assumptions in nominal (stated)
   terms, unless estimates in real (inflation-adjusted) terms are more reliable or where the
   benefit is index-linked and there is a deep market in index-linked bonds of the same currency
   and term.

80 Financial assumptions shall be based on market expectations, at the end of the
   reporting period, for the period over which the obligations are to be settled.

   Actuarial assumptions: mortality

81 An entity shall determine its mortality assumptions by reference to its best estimate of
   the mortality of plan members both during and after employment.

82 In order to estimate the ultimate cost of the benefit an entity takes into consideration expected
    changes in mortality, for example by modifying standard mortality tables with estimates of
    mortality improvements.

   Actuarial assumptions: discount rate

83 The rate used to discount post-employment benefit obligations (both funded and


                                                  25
    unfunded) shall be determined by reference to market yields at the end of the reporting
    period on government bonds. However, subsidiaries, associates, joint ventures and
    branches domiciled outside India shall discount post-employment benefit obligations
    arising on account of post-employment benefit plans using the rate determined by
    reference to market yields at the end of the reporting period on high quality corporate
    bonds. In case, such subsidiaries, associates, joint ventures and branches are domiciled
    in countries where there is no deep market in such bonds, the market yields (at the end
    of the reporting period) on government bonds of that country shall be used. The
    currency and term of the government bonds or corporate bonds shall be consistent with
    the currency and estimated term of the post-employment benefit obligations.

84 One actuarial assumption that has a material effect is the discount rate. The discount rate
   reflects the time value of money but not the actuarial or investment risk. Furthermore, the
   discount rate does not reflect the entity-specific credit risk borne by the entity's creditors, nor
   does it reflect the risk that future experience may differ from actuarial assumptions.

85 The discount rate reflects the estimated timing of benefit payments. In practice, an entity
   often achieves this by applying a single weighted average discount rate that reflects the
   estimated timing and amount of benefit payments and the currency in which the benefits are
   to be paid.

86 In some cases, there may be no deep market in government bonds with a sufficiently long
   maturity to match the estimated maturity of all the benefit payments. In such cases, an entity
   uses current market rates of the appropriate term to discount shorter-term payments, and
   estimates the discount rate for longer maturities by extrapolating current market rates along
   the yield curve. The total present value of a defined benefit obligation is unlikely to be
   particularly sensitive to the discount rate applied to the portion of benefits that is payable
   beyond the final maturity of the available government bonds.

    Actuarial assumptions: salaries, benefits and medical costs

87 An entity shall measure its defined benefit obligations on a basis that reflects:

   (a) the benefits set out in the terms of the plan (or resulting from any constructive
       obligation that goes beyond those terms) at the end of the reporting period;

   (b) any estimated future salary increases that affect the benefits payable;

   (c) the effect of any limit on the employer's share of the cost of the future benefits;

   (d) contributions from employees or third parties that reduce the ultimate cost to the
       entity of those benefits; and

   (e) estimated future changes in the level of any state benefits that affect the benefits
       payable under a defined benefit plan, if, and only if, either:



                                                 26
        (i)    those changes were enacted before the end of the reporting period; or

        (ii)   historical data, or other reliable evidence, indicate that those state benefits
               will change in some predictable manner, for example, in line with future
               changes in general price levels or general salary levels.

88 Actuarial assumptions reflect future benefit changes that are set out in the formal terms of a
   plan (or a constructive obligation that goes beyond those terms) at the end of the reporting
   period. This is the case if, for example:

   (a) the entity has a history of increasing benefits, for example, to mitigate the effects of
       inflation, and there is no indication that this practice will change in the future;

   (b) the entity is obliged, by either the formal terms of a plan (or a constructive obligation
       that goes beyond those terms) or legislation, to use any surplus in the plan for the benefit
       of plan participants (see paragraph 108(c)); or

   (c) benefits vary in response to a performance target or other criteria. For example, the
       terms of the plan may state that it will pay reduced benefits or require additional
       contributions from employees if the plan assets are insufficient. The measurement of the
       obligation reflects the best estimate of the effect of the performance target or other
       criteria.

89 Actuarial assumptions do not reflect future benefit changes that are not set out in the formal
   terms of the plan (or a constructive obligation) at the end of the reporting period. Such
   changes will result in:

   (a) past service cost, to the extent that they change benefits for service before the change;
       and

   (b) current service cost for periods after the change, to the extent that they change benefits
       for service after the change.

90 Estimates of future salary increases take account of inflation, seniority, promotion and other
   relevant factors, such as supply and demand in the employment market.

91 Some defined benefit plans limit the contributions that an entity is required to pay. The
   ultimate cost of the benefits takes account of the effect of a limit on contributions. The effect
   of a limit on contributions is determined over the shorter of:

   (a) the estimated life of the entity; and

   (b) the estimated life of the plan.

92 Some defined benefit plans require employees or third parties to contribute to the cost of the
   plan. Contributions by employees reduce the cost of the benefits to the entity. An entity


                                                27
   considers whether third-party contributions reduce the cost of the benefits to the entity, or are
   a reimbursement right as described in paragraph 116. Contributions by employees or third
   parties are either set out in the formal terms of the plan (or arise from a constructive
   obligation that goes beyond those terms), or are discretionary. Discretionary contributions by
   employees or third parties reduce service cost upon payment of these contributions to the
   plan.

93 Contributions from employees or third parties set out in the formal terms of the plan either
   reduce service cost (if they are linked to service), or affect remeasurements of the net defined
   benefit liability (asset) (if they are not linked to service). An example of contributions that
   are not linked to service is when the contributions are required to reduce a deficit arising
   from losses on plan assets or from actuarial losses. If contributions from employees or third
   parties are linked to service, those contributions reduce the service cost as follows:

     (a) if the amount of the contributions is dependent on the number of years of service, an
         entity shall attribute the contributions to periods of service using the same attribution
         method required by paragraph 70 for the gross benefit (ie either using the plan's
         contribution formula or on a straight-line basis); or

     (b) if the amount of the contributions is independent of the number of years of service, the
         entity is permitted to recognise such contributions as a reduction of the service cost in
         the period in which the related service is rendered. Examples of contributions that are
         independent of the number of years of service include those that are a fixed percentage
         of the employee's salary, a fixed amount throughout the service period or dependent on
         the employee's age.

94 For contributions from employees or third parties that are attributed to periods of service in
   accordance with paragraph 93(a), changes in the contributions result in:

   (a) current and past service cost (if those changes are not set out in the formal terms of a
       plan and do not arise from a constructive obligation); or

   (b) actuarial gains and losses (if those changes are set out in the formal terms of a plan, or
       arise from a constructive obligation).

95 Some post-employment benefits are linked to variables such as the level of state retirement
   benefits or state medical care. The measurement of such benefits reflects the best estimate of
   such variables, based on historical data and other reliable evidence.

96 Assumptions about medical costs shall take account of estimated future changes in the
   cost of medical services, resulting from both inflation and specific changes in medical
   costs.

97 Measurement of post-employment medical benefits requires assumptions about the level and
   frequency of future claims and the cost of meeting those claims. An entity estimates future
   medical costs on the basis of historical data about the entity's own experience, supplemented


                                                28
   where necessary by historical data from other entities, insurance companies, medical
   providers or other sources. Estimates of future medical costs consider the effect of
   technological advances, changes in health care utilisation or delivery patterns and changes in
   the health status of plan participants.

98 The level and frequency of claims is particularly sensitive to the age, health status and sex of
   employees (and their dependants) and may be sensitive to other factors such as geographical
   location. Therefore, historical data are adjusted to the extent that the demographic mix of the
   population differs from that of the population used as a basis for the data. They are also
   adjusted where there is reliable evidence that historical trends will not continue.

   Past service cost and gains and losses on settlement
99 Before determining past service cost, or a gain or loss on settlement, an entity shall
   remeasure the net defined benefit liability (asset) using the current fair value of plan
   assets and current actuarial assumptions (including current market interest rates and
   other current market prices) reflecting the benefits offered under the plan before the
   plan amendment, curtailment or settlement.

100 An entity need not distinguish between past service cost resulting from a plan amendment,
    past service cost resulting from a curtailment and a gain or loss on settlement if these
    transactions occur together. In some cases, a plan amendment occurs before a settlement,
    such as when an entity changes the benefits under the plan and settles the amended benefits
    later. In those cases an entity recognises past service cost before any gain or loss on
    settlement.

101 A settlement occurs together with a plan amendment and curtailment if a plan is terminated
    with the result that the obligation is settled and the plan ceases to exist. However, the
    termination of a plan is not a settlement if the plan is replaced by a new plan that offers
    benefits that are, in substance, the same.

    Past service cost

102 Past service cost is the change in the present value of the defined benefit obligation resulting
    from a plan amendment or curtailment.

103 An entity shall recognise past service cost as an expense at the earlier of the following
    dates:

    (a) when the plan amendment or curtailment occurs; and

    (b) when the entity recognises related restructuring costs (see AS 37) or termination
        benefits (see paragraph 165).

104 A plan amendment occurs when an entity introduces, or withdraws, a defined benefit plan or
    changes the benefits payable under an existing defined benefit plan.

                                                29
105 A curtailment occurs when an entity significantly reduces the number of employees covered
    by a plan. A curtailment may arise from an isolated event, such as the closing of a plant,
    discontinuance of an operation or termination or suspension of a plan.

106 Past service cost may be either positive (when benefits are introduced or changed so that the
    present value of the defined benefit obligation increases) or negative (when benefits are
    withdrawn or changed so that the present value of the defined benefit obligation decreases).

107 Where an entity reduces benefits payable under an existing defined benefit plan and, at the
    same time, increases other benefits payable under the plan for the same employees, the
    entity treats the change as a single net change.

108 Past service cost excludes:

    (a) the effect of differences between actual and previously assumed salary increases on the
        obligation to pay benefits for service in prior years (there is no past service cost because
        actuarial assumptions allow for projected salaries);

    (b) underestimates and overestimates of discretionary pension increases when an entity has
        a constructive obligation to grant such increases (there is no past service cost because
        actuarial assumptions allow for such increases);

    (c) estimates of benefit improvements that result from actuarial gains or from the return on
        plan assets that have been recognised in the financial statements if the entity is obliged,
        by either the formal terms of a plan (or a constructive obligation that goes beyond those
        terms) or legislation, to use any surplus in the plan for the benefit of plan participants,
        even if the benefit increase has not yet been formally awarded (there is no past service
        cost because the resulting increase in the obligation is an actuarial loss, see paragraph
        88); and

    (d) the increase in vested benefits (ie benefits that are not conditional on future
        employment, see paragraph 72) when, in the absence of new or improved benefits,
        employees complete vesting requirements (there is no past service cost because the
        entity recognised the estimated cost of benefits as current service cost as the service
        was rendered).

    Gains and losses on settlement

109 The gain or loss on a settlement is the difference between:

    (a) the present value of the defined benefit obligation being settled, as determined on the
        date of settlement; and

    (b) the settlement price, including any plan assets transferred and any payments made
        directly by the entity in connection with the settlement.


                                                30
110 An entity shall recognise a gain or loss on the settlement of a defined benefit plan when
    the settlement occurs.

111 A settlement occurs when an entity enters into a transaction that eliminates all further legal
    or constructive obligation for part or all of the benefits provided under a defined benefit plan
    (other than a payment of benefits to, or on behalf of, employees in accordance with the
    terms of the plan and included in the actuarial assumptions). For example, a one-off transfer
    of significant employer obligations under the plan to an insurance company through the
    purchase of an insurance policy is a settlement; a lump sum cash payment, under the terms
    of the plan, to plan participants in exchange for their rights to receive specified post-
    employment benefits is not.

112 In some cases, an entity acquires an insurance policy to fund some or all of the employee
    benefits relating to employee service in the current and prior periods. The acquisition of
    such a policy is not a settlement if the entity retains a legal or constructive obligation (see
    paragraph 46) to pay further amounts if the insurer does not pay the employee benefits
    specified in the insurance policy. Paragraphs 116­119 deal with the recognition and
    measurement of reimbursement rights under insurance policies that are not plan assets.

    Recognition and measurement: plan assets
    Fair value of plan assets

113 The fair value of any plan assets is deducted from the present value of the defined benefit
    obligation in determining the deficit or surplus.

114 Plan assets exclude unpaid contributions due from the reporting entity to the fund, as well as
    any non-transferable financial instruments issued by the entity and held by the fund. Plan
    assets arereduced by any liabilities of the fund that do not relate to employee benefits, for
    example, trade and other payables and liabilities resulting from derivative financial
    instruments.







115 Where plan assets include qualifying insurance policies that exactly match the amount and
    timing of some or all of the benefits payable under the plan, the fair value of those insurance
    policies is deemed to be the present value of the related obligations (subject to any reduction
    required if the amounts receivable under the insurance policies are not recoverable in full).

    Reimbursements

116 When, and only when, it is virtually certain that another party will reimburse some or
    all of the expenditure required to settle a defined benefit obligation, an entity shall:

    (a) recognise its right to reimbursement as a separate asset. The entity shall measure
        the asset at fair value.


                                                31
    (b) disaggregate and recognise changes in the fair value of its right to reimbursement
        in the same way as for changes in the fair value of plan assets (see paragraphs 124
        and 125).The components of defined benefit cost recognised in accordance with
        paragraph 120 may be recognised net of amounts relating to changes in the
        carrying amount of the right to reimbursement.

117 Sometimes, an entity is able to look to another party, such as an insurer, to pay part or all of
    the expenditure required to settle a defined benefit obligation. Qualifying insurance policies,
    as defined in paragraph 8, are plan assets. An entity accounts for qualifying insurance
    policies in the same way as for all other plan assets and paragraph 116 is not relevant (see
    paragraphs 46­49 and 115).

118 When an insurance policy held by an entity is not a qualifying insurance policy, that
    insurance policy is not a plan asset. Paragraph 116 is relevant to such cases: the entity
    recognises its right to reimbursement under the insurance policy as a separate asset, rather
    than as a deduction in determining the defined benefit deficit or surplus. Paragraph 140(b)
    requires the entity to disclose a brief description of the link between the reimbursement right
    and the related obligation.

119 If the right to reimbursement arises under an insurance policy that exactly matches the
    amount and timing of some or all of the benefits payable under a defined benefit plan, the
    fair value of the reimbursement right is deemed to be the present value of the related
    obligation (subject to any reduction required if the reimbursement is not recoverable in full).

    Components of defined benefit cost
120 An entity shall recognise the components of defined benefit cost, except to the extent
    that another Ind AS requires or permits their inclusion in the cost of an asset, as
    follows:

    (a) service cost (see paragraphs 66­112) in profit or loss;

    (b) net interest on the net defined benefit liability (asset) (see paragraphs 123 ­126) in
        profit or loss; and

   (c) remeasurements of the net defined benefit liability (asset) (see paragraphs 127 ­130)
       in other comprehensive income.

121 Other Ind ASs require the inclusion of some employee benefit costs within the cost of assets,
    such as inventories and property, plant and equipment (see Ind AS 2 and Ind AS 16). Any
    post-employment benefit costs included in the cost of such assets include the appropriate
    proportion of the components listed in paragraph 120.

122 Remeasurements of the net defined benefit liability (asset) recognised in other
    comprehensive income shall not be reclassified to profit or loss in a subsequent period.
    However, the entity may transfer those amounts recognised in other comprehensive

                                                32
    income within equity.

    Net interest on the net defined benefit liability (asset)

123 Net interest on the net defined benefit liability (asset) shall be determined by
    multiplying the net defined benefit liability (asset) by the discount rate specified in
    paragraph 83, both as determined at the start of the annual reporting period, taking
    account of any changes in the net defined benefit liability (asset) during the period as a
    result of contribution and benefit payments.

124 Net interest on the net defined benefit liability (asset) can be viewed as comprising interest
    income on plan assets, interest cost on the defined benefit obligation and interest on the
    effect of the asset ceiling mentioned in paragraph 64.

125 Interest income on plan assets is a component of the return on plan assets, and is determined
    by multiplying the fair value of the plan assets by the discount rate specified in paragraph
    83, both as determined at the start of the annual reporting period, taking account of any
    changes in the plan assets held during the period as a result of contributions and benefit
    payments. The difference between the interest income on plan assets and the return on plan
    assets is included in the remeasurement of the net defined benefit liability (asset).

126 Interest on the effect of the asset ceiling is part of the total change in the effect of the asset
    ceiling, and is determined by multiplying the effect of the asset ceiling by the discount rate
    specified in paragraph 83, both as determined at the start of the annual reporting period. The
    difference between that amount and the total change in the effect of the asset ceiling is
    included in the remeasurement of the net defined benefit liability (asset).

    Remeasurements of the net defined benefit liability (asset)

127 Remeasurements of the net defined benefit liability (asset) comprise:

    (a) actuarial gains and losses (see paragraphs 128 and 129);

    (b) the return on plan assets (see paragraph 130), excluding amounts included in net
        interest on the net defined benefit liability (asset) (see paragraph 125); and

    (c) any change in the effect of the asset ceiling, excluding amounts included in net interest
        on the net defined benefit liability (asset) (see paragraph 126).

128 Actuarial gains and losses result from increases or decreases in the present value of the
    defined benefit obligation because of changes in actuarial assumptions and experience
    adjustments. Causes of actuarial gains and losses include, for example:

    (a) unexpectedly high or low rates of employee turnover, early retirement or mortality or of
        increases in salaries, benefits (if the formal or constructive terms of a plan provide for
        inflationary benefit increases) or medical costs;


                                                 33
    (b) the effect of changes to assumptions concerning benefit payment options;

    (c) the effect of changes in estimates of future employee turnover, early retirement or
        mortality or of increases in salaries, benefits (if the formal or constructive terms of a
        plan provide for inflationary benefit increases) or medical costs; and

    (d) the effect of changes in the discount rate.

129 Actuarial gains and losses do not include changes in the present value of the defined benefit
    obligation because of the introduction, amendment, curtailment or settlement of the defined
    benefit plan, or changes to the benefits payable under the defined benefit plan. Such changes
    result in past service cost or gains or losses on settlement.

130 In determining the return on plan assets, an entity deducts the costs of managing the plan
    assets and any tax payable by the plan itself, other than tax included in the actuarial
    assumptions used to measure the defined benefit obligation (paragraph 76). Other
    administration costs are not deducted from the return on plan assets.

Provided that a Small and Medium-sized Company as defined in the MCA notification and
a Small and Medium­sized Entity (Levels II and III non-corporate entity) as per criteria
prescribed by the ICAI, whose average number of persons employed during the year is 100
or more, may not apply the recognition and measurement principles laid down in
paragraphs 56 to 130 in respect of accounting for defined benefit plans. However, such
companies/entities should actuarially determine and provide for accrued liability in respect
of defined benefit plans as follows:

       The method used for actuarial valuation should be projected unit credit method;
       and
       The discount rate used should be determined by reference to market yields at the
       balance sheet date on government bonds as per paragraph 78 of the Standards.

If such companies/entities are not able to, without undue cost or effort, use projected unit
credit method to measure its obligation and cost under defined benefit plans, such
company/ entity is permitted to make the following simplifications in measuring its defined
benefit obligation with respect to current employees:

   (a) ignore estimated future salary increases (i.e. assume current salaries continue until
       current employees are expected to begin receiving post-employment benefits).
   (b) ignore future service of current employees.
   (c) ignore possible in-service mortality of current employees between the reporting date
       and the date employees are expected to begin receiving post-employment benefits
       (i.e. assume all current employees will receive the post-employment benefits).
       However, mortality after service (ie life expectancy) will still need to be considered.

Such entities that take advantage of the foregoing measurement simplifications must
nonetheless include both vested benefits and unvested benefits in measuring its defined

                                                34
benefit obligation.

Provided further that a Small and Medium­sized Entity (Levels II and III non-corporate
entities), as per criteria prescribed by the ICAI, whose average number of persons
employed during the year is less than 100 may not apply the recognition and measurement
principles laid down in paragraphs 56 to 130 in respect of accounting for defined benefit
plans. However, such entities may calculate and account for the accrued liability under the
defined benefit plans by reference to some other rational method, e.g. a method based on
the assumption that such benefits are payable to all employees at the end of the accounting
year.

Presentation
Offset

131 An entity shall offset an asset relating to one plan against a liability relating to another
    plan when, and only when, the entity:

    (a) has a legally enforceable right to use a surplus in one plan to settle obligations
        under the other plan; and

    (b) intends either to settle the obligations on a net basis, or to realize the surplus in
        one plan and settle its obligation under the other plan simultaneously.

132 The offsetting criteria are similar to those established for financial instruments in AS 109,
    Financial Instruments.

    Current/non-current distinction

133 Some entities distinguish current assets and liabilities from non-current assets and liabilities.
    This Standard does not specify whether an entity should distinguish current and non-current
    portions of assets and liabilities arising from post-employment benefits.

    Components of defined benefit cost

134 Paragraph 120 requires an entity to recognise service cost and net interest on the net defined
    benefit liability (asset) in profit or loss. This Standard does not specify how an entity should
    present service cost and net interest on the net defined benefit liability (asset). An entity
    presents those components in accordance with AS1.

    Disclosure

135 An entity shall disclose information that:

    (a) explains the characteristics of its defined benefit plans and risks associated with
        them (see paragraph 139);

                                                 35
    (b) identifies and explains the amounts in its financial statements arising from its
        defined benefit plans (see paragraphs 140­144); and

    (c) [Refer Appendix 1].

136 [Refer Appendix 1]

137 If the disclosures provided in accordance with the requirements in this Standard and other
    Ind ASs are insufficient to meet the objectives in paragraph 135, an entity shall disclose
    additional information necessary to meet those objectives. For example, an entity may
    present an analysis of the present value of the defined benefit obligation that distinguishes
    the nature, characteristics and risks of the obligation. Such a disclosure could distinguish:

    (a) between amounts owing to active members, deferred members, and pensioners.

    (b) between vested benefits and accrued but not vested benefits.

    (c) between conditional benefits, amounts attributable to future salary increases and other
        benefits.

138 [Refer Appendix 1]

    Characteristics of defined benefit plans and risks associated with them

139 An entity shall disclose:

    (a) information about the characteristics of its defined benefit plans, including:

         (i)    the nature of the benefits provided by the plan (eg final salary defined benefit plan
                or contribution-based plan with guarantee).

         (ii)   [Refer Appendix 1].

         (iii) [Refer Appendix 1].

    (b) [Refer Appendix 1].

    (c) a description of any plan amendments, curtailments and settlements.

    Explanation of amounts in the financial statements

140 An entity shall provide a reconciliation from the opening balance to the closing balance for
    each of the following, if applicable:

    (a) the net defined benefit liability (asset), showing separate reconciliations for:


                                                 36
         (i)    plan assets.

         (ii)   the present value of the defined benefit obligation.

         (iii) the effect of the asset ceiling.

    (b) any reimbursement rights. An entity shall also describe the relationship between any
        reimbursement right and the related obligation.

141 Each reconciliation listed in paragraph 140 shall show each of the following, if applicable:

    (a) current service cost.

    (b) interest income or expense.

    (c) remeasurements of the net defined benefit liability (asset), showing separately:

         (i)    the return on plan assets, excluding amounts included in interest in (b).

         (ii)   actuarial gains and losses arising from changes in demographic assumptions and
                financial assumptions (see paragraph 76(a) & (b)).

         (iii) [Refer Appendix 1]

         (iv) changes in the effect of limiting a net defined benefit asset to the asset ceiling,
              excluding amounts included in interest in (b)..

    (d) past service cost and gains and losses arising from settlements.

    (e) the effect of changes in foreign exchange rates.

    (f) contributions to the plan, showing separately those by the employer and by plan
        participants.

    (g) payments from the plan, showing separately the amount paid in respect of any
        settlements.

    (h) the effects of business combinations and disposals.

142 An entity shall disaggregate the fair value of the plan assets into classes that distinguish the
   nature and risks of those assets

143 An entity shall disclose the fair value of the entity's own transferable financial instruments
    held as plan assets, and the fair value of plan assets that are property occupied by, or other
    assets used by, the entity.


                                                  37
144 An entity shall disclose the significant actuarial assumptions used to determine the present
    value of the defined benefit obligation (see paragraph 76). Such disclosure shall be in
    absolute terms (e.g. as an absolute percentage, and not just as a margin between different
    percentages and other variables). When an entity provides disclosures in total for a grouping
    of plans, it shall provide such disclosures in the form of weighted averages or relatively
    narrow ranges.

     Amount, timing and uncertainty of future cash flows

145 -147 [Refer Appendix 1]

     Multi-employer plans

148 If an entity participates in a multi-employer defined benefit plan, it shall disclose:

  (a) a description of the funding arrangements, including the method used to determine the
      entity's rate of contributions and any minimum funding requirements.

  (b) a description of the extent to which the entity can be liable to the plan for other entities'
      obligations under the terms and conditions of the multi-employer plan.

  (c) a description of any agreed allocation of a deficit or surplus on:

      (i)    wind-up of the plan; or

      (ii)   the entity's withdrawal from the plan.

  (d) if the entity accounts for that plan as if it were a defined contribution plan in accordance
      with paragraph 34, it shall disclose the following, in addition to the information
      required by (a)­(c) and instead of the information required by paragraphs 139­147:

      (i)    the fact that the plan is a defined benefit plan.

      (ii)   the reason why sufficient information is not available to enable the entity to account
             for the plan as a defined benefit plan.

      (iii) the expected contributions to the plan for the next annual reporting period.

      (iv) information about any deficit or surplus in the plan that may affect the amount of
           future contributions, including the basis used to determine that deficit or surplus and
           the implications, if any, for the entity.

      (v)    an indication of the level of participation of the entity in the plan compared with
             other participating entities.



                                                   38
Defined benefit plans that share risks between entities under common control

149 If an entity participates in a defined benefit plan that shares risks between entities under
    common control, it shall disclose:

  (a) the contractual agreement or stated policy for charging the net defined benefit cost or the
      fact that there is no such policy.

  (b) the policy for determining the contribution to be paid by the entity.

  (c) if the entity accounts for an allocation of the net defined benefit cost as noted in
      paragraph 41, all the information about the plan as a whole required by paragraphs 135­
      147.

  (d) if the entity accounts for the contribution payable for the period as noted in paragraph 41,
      the information about the plan as a whole required by paragraphs 135­137, 139, 142­144
      and 147(a) and (b).

150 The information required by paragraph 149(c) and (d) can be disclosed by cross-reference to
    disclosures in another group entity's financial statements if:

    (a) that group entity's financial statements separately identify and disclose the information
        required about the plan; and

    (b) that group entity's financial statements are available to users of the financial statements
        on the same terms as the financial statements of the entity and at the same time as, or
        earlier than, the financial statements of the entity.

     Disclosure requirements in other ASs

151 Where required by AS 24 an entity discloses information about:

    (a) related party transactions with post-employment benefit plans; and

    (b) post-employment benefits for key management personnel.

152 Where required by AS 37 an entity discloses information about contingent liabilities arising
    from post-employment benefit obligations.

Provided that a Small and Medium-sized Company as defined in the MCA notification and
a Small and Medium-sized Entity (Levels II and III non-Corporate entities) as per criteria
prescribed by the ICAI, may not apply the disclosure requirements laid down in respect of
accounting for defined benefit plans. However, such company/entity, except a Small and
Medium-sized Entity (Levels II and III non-Corporate entities), as per criteria prescribed
by the ICAI, whose average number of persons employed during the year are less than 100,
should disclose actuarial assumptions as per paragraph 144 of the standard.


                                                 39
Other long-term employee benefits
153 Other long-term employee benefits include items such as the following, if not expected to be
    settled wholly before twelve months after the end of the annual reporting period in which
    the employees render the related service:

    (a) long-term paid absences such as long-service or sabbatical leave;

    (b) jubilee or other long-service benefits;

    (c) long-term disability benefits;

    (d) profit-sharing and bonuses; and

    (e) deferred remuneration.

154 The measurement of other long-term employee benefits is not usually subject to the same
    degree of uncertainty as the measurement of post-employment benefits. For this reason, this
    Standard requires a simplified method of accounting for other long-term employee benefits.
    Unlike the accounting required for post-employment benefits, this method does not
    recognise remeasurements in other comprehensive income.

    Recognition and measurement
155 In recognising and measuring the surplus or deficit in an other long-term employee
    benefit plan, an entity shall apply paragraphs 56­98 and 113­115. An entity shall
    apply paragraphs 116­119 in recognising and measuring any reimbursement right.

156 For other long-term employee benefits, an entity shall recognise the net total of the
    following amounts in profit or loss, except to the extent that another AS requires or
    permits their inclusion in the cost of an asset:

    (a) service cost ;

    (b) net interest on the net defined benefit liability (asset) ; and

    (c) remeasurements of the net defined benefit liability (asset) .

157 One form of other long-term employee benefit is long-term disability benefit. If the level of
    benefit depends on the length of service, an obligation arises when the service is rendered.
    Measurement of that obligation reflects the probability that payment will be required and the
    length of time for which payment is expected to be made. If the level of benefit is the same
    for any disabled employee regardless of years of service, the expected cost of those benefits
    is recognised when an event occurs that causes a long-term disability.


                                                  40
    Provided that a Small and Medium-sized Company as defined in the MCA notification
    and a Small and Medium-sized Entity (Levels II and III non-corporate entities), as per
    criteria prescribed by the ICAI, whose average number of persons employed during
    the year is 100 or more, may not apply the recognition and measurement principles
    laid down in paragraphs 155-157 in respect of accounting for other long-term
    employee benefits. However, such companies/entities shall actuarially determine and
    provide for accrued liability in respect of other long-term employee benefits as follows:

           The method used for actuarial valuation should be the Projected Unit Credit
           Method;

           The discount rate used shall be determined by reference to market yields at the
           balance sheet date on government bonds as per paragraph 83 of the Standard.

    If such an entity is not able to, without undue cost or effort, use projected unit credit
    method to measure its obligation and cost under defined benefit plans, such an entity is
    permitted to make the following simplifications in measuring its other long-term
    employee benefits with respect to current employees:

    (a) ignore estimated future salary increases (i.e. assume current salaries continue until
        current employees are expected to begin receiving post-employment benefits).
    (b) ignore future service of current employees.
    (c) ignore possible in-service mortality of current employees between the reporting
        date and the date employees are expected to begin receiving post-employment
        benefits (i.e. assume all current employees will receive the post-employment
        benefits). However, mortality after service (ie life expectancy) will still need to be
        considered.

    Provided further that a Small and Medium-sized Entity (Levels II and III non-
    corporate entities), as per criteria prescribed by the ICAI, whose average number of
    persons employed during the year is less than 100, may not apply the recognition and
    measurement principles laid down in paragraphs 155-157 in respect of accounting for
    other long-term employee benefits. However, such entities may calculate and account
    for the accrued liability under other long-term employee benefits by reference to some
    other rational method, e.g., a method based on the assumption that such benefits are
    payable to all employees at the end of the accounting year.

    Disclosure
158 Although this Standard does not require specific disclosures about other long-term employee
    benefits, other ASs may require disclosures. For example, AS 24 requires disclosures about
    employee benefits for key management personnel. AS 1 requires disclosure of employee
    benefits expense.




                                              41
Termination benefits
159 This Standard deals with termination benefits separately from other employee benefits
    because the event that gives rise to an obligation is the termination of employment rather
    than employee service. Termination benefits result from either an entity's decision to
    terminate the employment or an employee's decision to accept an entity's offer of benefits
    in exchange for termination of employment.

160 Termination benefits do not include employee benefits resulting from termination of
    employment at the request of the employee without an entity's offer, or as a resu lt of
    mandatory retirement requirements, because those benefits are post-employment benefits.
    Some entities provide a lower level of benefit for termination of employment at the request
    of the employee (in substance, a post-employment benefit) than for termination of
    employment at the request of the entity. The difference between the benefit provided for
    termination of employment at the request of the employee and a higher benefit provided at
    the request of the entity is a termination benefit.

161 The form of the employee benefit does not determine whether it is provided in exchange for
    service or in exchange for termination of the employee's employment. Termination benefits
    are typically lump sum payments, but sometimes also include:

    (a) enhancement of post-employment benefits, either indirectly through an employee
        benefit plan or directly.

    (b) salary until the end of a specified notice period if the employee renders no further
        service that provides economic benefits to the entity.

162 [Refer Appendix 1].

163 [Refer Appendix 1].

164 Some employee benefits are provided regardless of the reason for the employee's departure.
    The payment of such benefits is certain (subject to any vesting or minimum service
    requirements) but the timing of their payment is uncertain. Although such benefits are
    described in some jurisdictions as termination indemnities or termination gratuities, they are
    post-employment benefits rather than termination benefits, and an entity accounts for them
    as post-employment benefits.

    Recognition

165 An entity shall recognise a liability and expense for termination benefits at the earlier
    of the following dates:

    (a) when the entity can no longer withdraw the offer of those benefits; and

    (b) when the entity recognises costs for a restructuring that is within the scope of AS

                                               42
         37 and involves the payment of termination benefits.

166 For termination benefits payable as a result of an employee's decision to accept an offer of
    benefits in exchange for the termination of employment, the time when an entity can no
    longer withdraw the offer of termination benefits is the earlier of:

     (a) when the employee accepts the offer; and

     (b) when a restriction (e.g. a legal, regulatory or contractual requirement or other
         restriction) on the entity's ability to withdraw the offer takes effect. This would be
         when the offer is made, if the restriction existed at the time of the offer.

167 [Refer Appendix 1]

168 When an entity recognises termination benefits, the entity may also have to account for a
    plan amendment or a curtailment of other employee benefits (see paragraph 103).

    Measurement
169 An entity shall measure termination benefits on initial recognition, and shall measure
    and recognise subsequent changes, in accordance with the nature of the employee
    benefit, provided that if the termination benefits are an enhancement to post-
    employment benefits, the entity shall apply the requirements for post-employment
    benefits. Otherwise:

    (a) if the termination benefits are expected to be settled wholly before twelve months
        after the end of the annual reporting period in which the termination benefit is
        recognised, the entity shall apply the requirements for short-term employee
        benefits.

    (b) if the termination benefits are not expected to be settled wholly before twelve
        months after the end of the annual reporting period, the entity shall apply the
        requirements for other long-term employee benefits.

    Provided that a Small and Medium-sized Company as defined in the MCA notification
    and a Small and Medium-sized Entity (levels II and III non-corporate entities) as per
    criteria prescribed by the ICAI, may not discount amounts that fall due more than 12
    months after the balance sheet date.

170 Because termination benefits are not provided in exchange for service, paragraphs 70­74
    relating to the attribution of the benefit to periods of service are not relevant.

      Example illustrating paragraphs 159­170

      Background
      As a result of a recent acquisition, an entity plans to close a factory in ten months and, at

                                                 43
           that time, terminate the employment of all of the remaining employees at the factory.
           Because the entity needs the expertise of the employees at the factory to complete some
           contracts, it announces a plan of termination as follows.
           Each employee who stays and renders service until the closure of the factory will
           receive on the termination date a cash payment of Rs 30,000. Employees leaving before
           closure of the factory will receive Rs.10,000.
           There are 120 employees at the factory. At the time of announcing the plan, the entity
           expects 20 of them to leave before closure. Therefore, the total expected cash outflows
           under the plan are Rs.3,200,000 (i.e. 20 × RS.10,000 + 100 × Rs.30,000). As required
           by paragraph 160, the entity accounts for benefits provided in exchange for termination
           of employment as termination benefits and accounts for benefits provided in exchange
           for services as short-term employee benefits.
           Termination benefits

           The benefit provided in exchange for termination of employment is Rs.10,000. This is
           the amount that an entity would have to pay for terminating the employment regardless
           of whether the employees stay and render service until closure of the factory or they
           leave before closure. Even though the employees can leave before closure, the
           termination of all employees' employment is a result of the entity's decision to close the
           factory and terminate their employment (ie all employees will leave employment when
           the factory closes). Therefore the entity recognises a liability of Rs.1,200,000 (i.e. 120 ×
           Rs.10,000) for the termination benefits provided in accordance with the employee
           benefit plan at the earlier of when the plan of termination is announced and when the
           entity recognises the restructuring costs associated with the closure of the factory.

           Benefits provided in exchange for service

           The incremental benefits that employees will receive if they provide services for the full
           ten-month period are in exchange for services provided over that period. The entity
           accounts for them as short- term employee benefits because the entity expects to settle
           them before twelve months after the end of the annual reporting period. In this example,
           discounting is not required, so an expense of Rs.200,000 (i.e. Rs.2,000,000 ÷ 10) is
           recognised in each month during the service period of ten months, with a corresponding
           increase in the carrying amount of the liability.

    Disclosure
171 Although this Standard does not require specific disclosures about termination benefits, other ASs
    may require disclosures. For example, AS 24 requires disclosures about employee benefits for
    key management personnel. AS 1 requires disclosure of employee benefits expense.




                                                     44
  Appendix A

  Application Guidance
  This appendix is an integral part of the Ind AS. It describes the application of paragraphs 92­ 93
  and has the same authority as the other parts of the Ind AS.

  A1     The accounting requirements for contributions from employees or third parties are
         illustrated in the diagram below.

                                       Contributions from employees or third parties



            Set out in the formal terms of the plan (or arise from a                     Discretionary
            constructive obligation that goes beyond those terms)



                   Linked to service                     Not linked to
                                                          service (for
                                                       example, reduce a
                                                            deficit)



        Dependent on            Independent
        the number of          on the number
           years of              of years of
            service                service

                                          (1)
Reduce service cost by        Reduce service cost in                 Affect               Reduce service cost
  being attributed to           the period in which             remeasurements            upon payment to the
  periods of service           the related service is            (paragraph 93)           plan (paragraph 92)
  (paragraph 93(a))            rendered (paragraph
                                       93(b))

  (1) This dotted arrow means that an entity is permitted to choose either accounting.




                                                           45
Appendix 1
Note: This Appendix is not a part of the Accounting Standard. The purpose of this Appendix is only to
bring out the major differences, if any, between Accounting Standard (AS) 19 and the corresponding
Indian Accounting Standard (Ind AS) 19, Employee Benefits.

Comparison with Ind AS 19, Employee Benefits
1. Paragraph 5(b)(i) of Ind AS 19 is modified in AS 19 by adding example of gratuity.

2. Definitions of Vested employee benefits and Interest cost are added in AS 19.

3. Paragraph 11 has been modified to clarify that the short-term employee benefits are
   measured on undiscounted basis.

4. Paragraph 59 has been modified to specify that detailed actuarial valuation of present value
   of defined benefit obligations may be made at intervals not exceeding three years.

5. Paragraph 79 has been modified to remove example for hyperinflationary economy since it
   was decided not to formulate AS corresponding to Ind AS 29, Financial Reporting in
   Hyperinflationary Economies.

6. Under AS 19, certain recognition, measurement and disclosure exemptions have been
    exempted to small and medium-sized companies as defined in the MCA notification and
    small and medium-sized entities (Level II and III non-corporate entities) as per criteria
    prescribed by the ICAI as follows:
     (i) Exemptions from complying recognition and measurement of short-term accumulating
         paid absences which are non-vesting (i.e., short-term accumulating paid absences in
         respect of which employees are not entitled to cash payment of unused entitlement on
         leaving) (Paragraphs 13-18)
    (ii) Exemption from applying recognition and measurement principles laid down in respect
         of accounting for defined benefit plans (Paragraphs 56-130)
   (iii) Exemption from applying disclosure requirements laid down in respect of accounting
         for defined benefit plans (paragraphs 135-152)
   (iv) Exemption from applying recognition and measurement principles laid down in respect
         of accounting for other long-term employee benefits (Paragraphs 155-157),
    (v) Exemption from discounting termination benefit amounts that fall due more than 12
         months after the balance sheet date (Paragraph 169)
   (vi) Further exemptions have been given to small and medium-sized entities (Level II and
         III non-corporate entities) as per criteria prescribed by the ICAI with less than 100
         average number of employees with respect to paragraphs 56-130, 144 and 155-157)

7. The following paragraphs related to disclosures have been deleted/modified since it was felt
   that these are too onerous for the entities to whom this standard would be applicable:

      (i)   Paragraph 5(b)
     (ii)   Paragraph 135(c)
                                                 46
     (iii)   Paragraph 136
     (iv)    Paragraph 138
      (v)    Paragraph 139 (a) (ii) and (iii) and 139(b)
     (vi)    Paragraph 141 (c) (ii), (iii) & (iv) and 141(d)
    (vii)    Paragraph 142
   (viii)    Paragraphs 145-147
     (ix)    Paragraph 148(d)(v)
      (x)    Paragraphs 162-163
     (xi)    Paragraph 167

8. Appendix B, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and
   their Interaction, of Ind AS 19 providing guidance on interaction of ceiling of asset
   recognition and minimum funding requirements in case of defined benefit obligations has not
   been included in AS 19.




                                                   47
Appendix 2
Note: This Appendix is not a part of the Accounting Standard. The purpose of this Appendix is only to
bring out the major differences, if any, between Accounting Standard (AS) 15 and the Accounting
Standard (AS) 19, Employee Benefits.

Comparison with AS 15, Employee Benefits
1. In AS 19, employee benefits arising from constructive obligations are specifically covered
   whereas AS 15 does not specifically covers the same. (Paragraph 4(c) of AS 19).

2. The term `employee' includes directors in AS 19 whereas under AS 15 `employee' includes
   whole-time directors.

3. Definitions of short-term employee benefits, other long-term employee benefits and past
   service cost as per AS 15 have been changed in AS 19. (Paragraph 8 of AS 19).

4. Paragraph 37 of AS 19 deal with situations where there is a contractual agreement between a
   multi-employer plan and its participants that determine how the surplus in the plan will be
   distributed to the participants (or the deficit funded). AS 15 does not deals with the same.

5. Paragraph 42 of AS 19 provides that participation in a defined benefit plan sharing risks
   between various entities under common control is a related party transaction for each group
   entity and some disclosures are required in the separate or individual financial statements of
   an entity. AS 15 does not contain similar provisions.

6. AS 19 encourages, but does not require, an entity to involve a qualified actuary in the
   measurement of all material post ­employment benefit obligations whereas AS 15 though
   does not require involvement of a qualified actuary, does not specifically encourage the
   same. (Paragraph 59 of AS 19)

7. AS 19 requires recognition of actuarial gains and losses in other comprehensive income. AS
   15 requires recognition of actuarial gains and losses immediately in the profit and loss.

8. Paragraph 80 of AS 19 makes it clear that financial assumptions shall be based on market
   expectations, at the end of the reporting period, for the period over which the obligations are
   to be settled. AS 15 does not clarify the same.

9. Paragraph 83 of AS 19 provides that subsidiaries, associates, joint ventures and branches
   domiciled outside India shall discount post-employment benefit obligations arising on
   account of post-employment benefit plans using the rate determined by reference to market
   yields at the end of the reporting period on high quality corporate bonds. Under AS 15, rate
   used to discount post-employment benefit obligations is determined by reference to market
   yields at the balance sheet date on government bond.




                                                 48
10. Under AS 19, there is a concept of assets ceiling, i.e., net defined benefit liability (asset) is
    adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. AS 15 does
    not have such concept.

11. Paragraph 165 of AS 19 provides guidance for timing of recognition of termination benefits.
    No guidance is available under AS 15.




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