Employee Benefit cost overview under AS and IndAS

1. AS 15 revised v/s IND AS 19

2. The main Objective of this standard is to prescribe :
 the accounting includes Recognition, measurement and presentation.
 Disclosure for employee benefits
Scope:
 Applied by an employer in accounting for all employee benefits except share
based payments which is covered by separate standard under Ind AS whereas
under AS, a separate guidance note is issued for the same.

3. Short term employee
benefit
Other
Long Term employee
benefit
Post employment
employee benefit
Termination
benefit

4. Recognition: Employee benefits including both
monetary and non monetary benefits wholly discharged
within 12 months of the consumption of services provided
by the employee.
Measurement: It should be measured in nominal value

5. Presentation: In Balance sheet, as a Liability (accrued
expense) or as an asset (Prepaid expense). In P&L, as an
expense.

6. Recognition: These are benefits which are payable
beyond the period of 12 months from receiving services by
the employee.
 The only difference between long term employee benefit
and post employment benefit is that LTEB’s are received
by the employee when he is still in employment, whereas
PEEB’s are received post employment

7. Measurement: LTEB and PEEB is always measured on
present value terms as time flows time value of money
accounting will be followed.
 The plan can be run in two possible ways as chosen by the
employer entity subject to local laws and regulations are as
follows,

8. Defined Contribution Plan Defined Benefit Plan
 The entity only responsibility is in
defined contribution.
 The risk passes to third party and
the employee
 Managing plan assets, earning
returns, suffling of investments,
payout to the employees is the
responsibility of the Third Party.
 The scheme in its entirety is the
responsibility of the employer
entity.
 The risk lies with the employer
entity fully
 Managing plan assets, earning
returns, suffling of investments,
payout to the employees is the
responsibility of the employer
entity.

9. Accounting treatment
 When expenses due : Accounting
for DCP is relatively straight
forward.
 An expense is recognised for the
contribution when due, and any
unpaid expense shown as a
liability or any overpayment as an
asset
 Disclosure: The amount
recognised as an expense in the
DCP in the period should be
disclosed.
 Ind AS requires disclosure of DCP
under separate Ind AS 24 - related
parties transaction (ie.,) Disclosure
of relationship and transactions
whereas AS does not require it to
be disclosed under related party.

10.  To match and accrue employee benefit cost with the
consumption of services and to ensure liquidity
management, the following steps are to be followed,
 Step 1:Current service cost & Interest Cost
Current service cost is the present value of estimated
obligation to be matched with the current year
consumption of services by the employee.
Interest cost is the time value of money accounting since
the initial provisioning is in PV terms.

11. Eg., Rs.5 lacs retention bonus to be paid after 5 years.
Ans: Therefore, CSC is the Present Value of
equated cost for every single year.
Equated cost = 500,000/5years = 100,000 PY
Provision For 1st year, CSC = PVIF(100,000)
Provision For 2nd Year, CSC= PVIF(100,000)+Interest
cost*
Similarly for the balance years to be followed.

12. Journal Entry:
 CSC & Interest Cost -
Employee Benefit Cost/ P&L A/c Dr
To Provision A/c
• For AS and Ind AS – Yield of govt bond securities can be
used for the Interest cost discount rate.
• Exception in case of Ind AS, where companies can follow
high quality rated corporate bond rate.

13.  Step 2: Past Service Cost
Where the terms of the scheme (or) plan are
changed in between, Prior years effect due to the
change (short provisioning or excess provisioning) in
the current year called as Past Service Cost.
Journal Entry:
 Creation of PSC: Past service cost A/c Dr
To Provision A/c

14.  For Amortisation: AS 15 allows to amortise the cost
to the P&L A/c over the remaining life of the
scheme. Whereas Ind AS 19 requires Immediate
ammortisation for the entire amount and no deferral
is permitted.
Therefore, In IndAS B/s, there will be nothing
called as unamortised past service cost on the asset
side.

15.  Step 3: Contribution to the trust:
Journal Entry: Plan assets A/c Dr
To Bank A/c
 Step 4: Expected Rate of Return on Plan Assets: In AS,
Expected Rate of return can be based on market
assessment of return, which can differ from Discounting
rate used to value liability. However IndAS, requires both
ROR and Discounting rate to be same.

16. Jounal Entry: Plan Assets A/c Dr
To EB cost A/c
Step:5 Payout to the employees:
Jounal Entry: Provision / Gross Obligation A/c Dr
To Plan Asset A/c
Step:6 (I) Remeasure the Plan assets on Reporting Date at Fair Value:
Jounal Entry: (i) Plan assets A/c Dr
To Remeasurement Gain A/c
(ii) Remeasurement Loss A/c Dr
To Plan Assets A/c

17. (II) Remeasure the Gross Obligation or Provision to an actuarial value:
Jounal Entry: (i) Provision A/c Dr
To Remeasurement Gain A/c
(ii) Remeasurement Loss A/c Dr
To Provision A/c
Under AS, all remeasurement gain/loss for both OLTEB’s and PEEB’s will only
go to the P&L A/c for the year.
Under Ind AS, remeasurement gain/loss on OLTEB’s will go through the P&L
but in respect of PEEB’s will be routed through any other reserve (ie.,) in the
Statement of Comprehensive Income (SOCI)

18.  Step:7 Presentation
Particulars Amount (Rs)
Gross obligation (at actuarial
value)
XXX
(-) Fair Value of Plan assets (XXX)
(-) Unamortised Past service cost
[ only for AS ]
(XXX)
Net obligation XXX / (XXX)

19. Particulars Amount (Rs) Amount (Rs)
Current Service Cost XXX
(+) Interest cost on
Obligation
XXX
(-) Expected Return on
Plan assets
(XXX) XXX
(+) / (-) Amortised
Past service cost
XXX / (XXX)
(+) / (-)
Remeasurement gains
/ Losses *
XXX / (XXX)
Employee Benefit Cost XXX
* Remeasurement gain / loss for OLTEB will impact the P&L. For PEEB only
in AS, its impact will be in P&L A/c. For IndAS, its impact will be through
other reserve as a part of SOCI

20. Particulars Amount (Rs)
Opening Actuarial Value XXX
(+) Current Service cost XXX
(+) Interest cost on the opening
obligation
XXX
(+) Full past service cost (if
applicable)
XXX / (XXX)
(-) Pay out to employees (XXX)
(+) / (-) Remeasurement gain /
Loss
XXX / (XXX)
Closing Actuarial Value XXX

21. Particulars Amount (Rs.) Amount (Rs.)
Opening Fair Value XXX
(+) Contribution by
the employer
XXX
(-) Payout to
employees
(XXX)
(+) Expected Return
on Plan assets
XXX
(+) / (-)
Remeasurement gain/
loss
XXX / (XXX)
Actual Returns
( Expectations –
Variance )
XXX
Closing FV of Plan
Assets
XXX

22. Disclosures under IndAS are far wider in coverage in comparison to AS.
Briefly the following require in depth disclosures,
 Details or information about the Plan
 Method of operating the plan and the reasons thereof DCP or DBP
 Details of any contracts with employees or Labour union
 Cash flow informations such as planed contributions, expected pay outs and
any minimum contribution requirements under statute.
 Demographical assumptions made including reason for change in
assumptions from earlier assumption
 Financial assumptions such as Interest rates, inflation rates, growth rates of
salary to employees.

23.  This appendix is only included in Ind AS 19. Basically contains Impairment
testing for employee benefit assets. Therefore the general impairment
standards for Ind AS 36 does not apply to Ind AS 19, since this appendix itself
provide for impairment testing.
 IMPAIRMENT – reduction in value of asset where the asset is carried at a
higher amount than what is recoverable from it, the asset is impaired and its
impairment loss is to be provided.

24.  Recoverable amount – Net selling price (or)
PV of future economic benefits
(whichever is high)
Impairment occurs when Carrying amount is greater than recoverable
amount (ie.,) Impairment Loss.
However AS 28 General Impairment Standard for AS companies does not
exclude from its coverage AS – 15.
Therefore AS 15 does not have its own appendix

25. By
D ARCHANA Bcom PA.,