Ind AS 19 Employee Benefits: formula sheet

Key formulas

Short-term benefit recognition

Liability = Undiscounted amount expected to be paid − Amount already paid

Expense is recognised in profit or loss unless another Ind AS permits capitalising it in the cost of an asset, such as inventory or PPE.

Short-term benefit test

Settlement wholly within 12 months after the end of the annual reporting period in which service is rendered

If the test fails, the benefit is not short-term, so it is accounted for as an other long-term benefit.

Accumulating compensated absence

Accrual = Expected additional unused days × Expected cost per day

Measure at the additional amount you expect to pay because of the unused entitlement at the end of the reporting period.

Non-accumulating compensated absence

Recognise when the absence occurs; no earlier accrual

Typical examples are sick leave that lapses and maternity leave.

Profit-sharing or bonus obligation

Recognise when: present legal or constructive obligation + reliable estimate

The obligation arises from past events, that is, service rendered by employees.

Classification test

Legal or constructive obligation limited to fixed contributions → Defined contribution plan; otherwise → Defined benefit plan

Look at who bears actuarial and investment risk. The plan's name does not decide it.

Defined contribution expense

Expense for the period = Contribution due for service rendered in the period

Charge to profit or loss unless another Ind AS permits capitalisation in the cost of an asset.

Liability or asset for the period

Liability = Contribution due − Contribution already paid. If paid > due, excess = prepaid asset (only if it reduces future payments or is refundable)

Recognise an asset only to the extent of the future benefit.

Discounting rule

Discount contributions not expected to be wholly settled within 12 months after the end of the annual reporting period in which service is rendered

Use the discount rate set by reference to high-quality corporate bond yields (government bonds if no deep market).

Multi-employer plan treatment

Defined benefit nature + enough information → account for proportionate share as defined benefit. Otherwise → account as defined contribution and disclose

Disclose that the plan is defined benefit and why sufficient information is not available.

Disclosure

Disclose the amount recognised as an expense for defined contribution plans

Ind AS 19 requires this expense disclosure. Separately, Ind AS 24 requires disclosure of key management personnel compensation, including post-employment benefits. That is a different requirement.

Net defined benefit liability (asset)

Net DBL (asset) = PV of DBO − Fair value of plan assets (asset recognised limited to asset ceiling)

A positive figure is a liability. A negative figure is a surplus, recognised as an asset only up to the asset ceiling.

Present value of one year's benefit

PV = Benefit attributed to the year ÷ (1 + r)ⁿ

r is the discount rate, based on market yields on high-quality corporate bonds (government bond yields if there is no deep market for them). n is the number of years from the reporting date to the expected payment date.

Benefit attributed per year of service

Benefit per year = Expected total benefit ÷ Total years of service (where the benefit formula is the same each year)

If later years of service lead to a materially higher benefit, attribute on a straight-line basis from the date service first leads to benefits.

Net interest

Net interest = Opening net DBL (asset) × Discount rate

Adjust for contributions and benefit payments during the period, weighted for timing. It is the sum of interest on the DBO less interest on plan assets.

Components of defined benefit cost

Profit or loss: current service cost + past service cost + gain or loss on settlement + net interest. OCI: remeasurements

Remeasurements are actuarial gains and losses, return on plan assets excluding net interest amounts, and asset ceiling changes excluding net interest amounts.

Roll-forward of the DBO

Closing DBO = Opening DBO + Current service cost + Interest cost + Past service cost − Benefits paid ± Actuarial (gain) loss

Settlements and acquisitions or disposals are further items if they occur.

Roll-forward of plan assets

Closing assets = Opening assets + Interest income + Contributions − Benefits paid ± Return on assets excluding interest income

Actual return = interest income at the discount rate + return excluding interest income.

Net defined benefit liability (asset)

DBO − Fair value of plan assets (limited by asset ceiling for a surplus)

This is the amount shown in the balance sheet.

Components in profit or loss

Current service cost + Past service cost + Gain/loss on settlement + Net interest on net defined benefit liability (asset)

Remeasurements are not part of this total.

Net interest

Net defined benefit liability (asset) at start × Discount rate, adjusted for time-weighted contributions and benefit payments

Use the discount rate set at the start of the period. For simple questions, use opening net balance × rate.

Interest on DBO and on plan assets

Opening DBO × r (cost) and Opening plan assets × r (income); net = difference

Same rate r for both. Show them separately if the question asks for it.

Remeasurement of DBO

Closing DBO (actuarial valuation) − [Opening DBO + Current service cost + Interest + Past service cost − Benefits paid ± Settlements]

A positive balancing figure is an actuarial loss.

Remeasurement on plan assets

Closing FV of plan assets − [Opening FV + Interest on assets + Contributions − Benefits paid]

Positive means a gain in OCI. It excludes the interest amount.

Recognition rule

Service cost and net interest → profit or loss; Remeasurements → OCI (not recycled)

Past service cost is never spread over vesting period.

Asset ceiling

Asset ceiling = PV of refunds available + PV of reductions in future contributions available

Discount at the same rate used for the defined benefit obligation. Use PV of reductions only for the benefit that can truly be used.

Net defined benefit asset recognised

Asset recognised = Lower of (Surplus, Asset ceiling)

Surplus = Fair value of plan assets − PV of defined benefit obligation, when this is positive.

Effect of the asset ceiling

Effect of ceiling = Surplus − Asset ceiling (when surplus is higher)

Recognised in OCI as part of remeasurements. The total change in the effect of the ceiling includes interest on the effect of the ceiling. Do not include this interest in net interest in profit or loss.

Reduction in future contribution available

Available reduction (each period) = Future service cost (of that period) − Minimum funding contributions required for future service. Ceiling from reductions = Σ PV of these per-period reductions, discounted at the DBO discount rate

Measure the reduction period by period, then discount each period's amount to present value at the DBO discount rate. The sum of these present values is the ceiling from reductions in future contributions. If the minimum contribution exceeds the service cost in a period, the excess is not a benefit and that period's reduction is nil.

Onerous minimum funding liability

Additional liability = the amount of the Ind AS 19 surplus that would arise after payment but is not available as a refund or reduction in contributions (limited to the contributions payable), recognised in addition to the existing deficit

Applies when the contributions payable will not be fully recoverable as a refund or reduced contributions. It is zero if the whole surplus after payment is available. Any change in this additional liability, including interest on it, is recognised immediately in OCI as a remeasurement.

Net liability (asset)

Present value of defined benefit obligation − Fair value of plan assets (if any)

Use the projected unit credit method. Plan assets are rare for these benefits.

Total cost recognised in profit or loss

Service cost + Net interest on net liability + Remeasurements of the net liability

All three go to profit or loss (unless capitalised under another Ind AS). Nothing goes to OCI.

Service cost

Current service cost + Past service cost + Gain or loss on settlement

Past service cost is recognised in profit or loss at the earlier of the date of the plan amendment or curtailment and the date the related restructuring costs or termination benefits are recognised, with no vesting deferral.

Net interest

Net liability at start of period × Discount rate

Adjust for contributions and benefit payments during the period, weighted for timing.

Remeasurements

Actuarial gains and losses + Return on plan assets (excluding amounts in net interest) + Effect of asset ceiling change (excluding amounts in net interest)

For other long-term benefits these are charged or credited to profit or loss.

Classification test

Settled wholly within 12 months after the end of the reporting period in which service is rendered? Yes: short-term. No: other long-term (if not post-employment or termination).

Check the expected settlement timing, not the legal due date alone.

Recognition date

Liability recognised at the EARLIER of: (a) entity can no longer withdraw the offer; (b) entity recognises related restructuring costs under Ind AS 37

For employee-accepted offers, (a) is when the employee accepts, or earlier if a restriction on withdrawal takes effect.

Measurement of voluntary offers

Number of employees expected to accept × benefit per employee (once the offer can no longer be withdrawn)

Use expected acceptances, not total employees offered, when the entity is committed to the whole offer. If the offer is withdrawable until each employee accepts, recognise only actual acceptances to date.

Discounting rule

PV = Payment ÷ (1 + r)^n, if the benefit is not expected to be settled wholly before 12 months after the end of the annual reporting period in which it is recognised

r is the post-employment benefit discount rate. Under Ind AS 19 it is determined by reference to market yields on government bonds at the end of the reporting period. Treat the unwinding as a finance cost in later periods.

Classification by timing

Expected to be settled wholly before 12 months after the end of the annual reporting period in which recognised: short-term benefit rules. Otherwise: other long-term benefit rules, including discounting

The test is the expected settlement timing of the benefits, not the date of the decision.

Offsetting condition

Offset only if: (legal right to use surplus of one plan to settle another) AND (intention to settle net OR realise surplus and settle obligation simultaneously)

Both parts are needed. If either fails, present the asset and the liability separately.

Discount rate under Ind AS 19

Discount rate = market yield on government bonds at the reporting date, matched to currency and estimated term of the obligations

This is the carve-out. IAS 19 uses high-quality corporate bond yields.

Present value of an obligation

PV = Benefit payable ÷ (1 + r)ⁿ

A higher discount rate gives a lower obligation. Use r from government bonds in Ind AS.

Net defined benefit liability (asset) reconciliation

Simplified: Net liability closing = Opening + Current service cost + Past service cost + Loss (– gain) on settlement + Net interest + Remeasurements (OCI) – Employer contributions, with the effect of the asset ceiling included where a net asset is limited (benefits paid from plan assets have no net effect)

This is a simplified view. Benefits paid reduce both the obligation and the plan assets, so the net figure is unchanged. The disclosure must reconcile opening to closing for each component (obligation, plan assets and asset ceiling effect), not only the net figure.

Classification rule

Current/non-current split follows Ind AS 1; Ind AS 19 does not prescribe it

Say this explicitly in theory answers.

Quick revision

• Four categories: short-term, post-employment, other long-term, termination benefits.
• Short-term benefits are recognised undiscounted as an expense and a liability as service is rendered.
• Defined contribution plan: the entity's obligation is limited to its contribution; the employee bears the risk.
• Defined benefit plan: the entity bears actuarial and investment risk; any plan that is not defined contribution is defined benefit.
• Measure the obligation using the projected unit credit method. The discount rate is based on market yields on government bonds at the end of the reporting period, with currency and term consistent with the obligations.
• Net defined benefit liability (asset) = present value of obligation − fair value of plan assets (subject to the asset ceiling).
• Service cost and net interest go to profit or loss; remeasurements go to OCI and are not reclassified to profit or loss.
• Net interest = net defined benefit liability (asset) × discount rate, at the start of the period, adjusted for contributions and benefit payments.
• Remeasurements include actuarial gains and losses, return on plan assets excluding interest, and asset ceiling changes excluding interest.
• Past service cost is recognised in profit or loss at the earlier of the date of the plan amendment or curtailment and the date the entity recognises related restructuring costs or termination benefits.
• Other long-term benefits: same method as defined benefit, but remeasurements go to profit or loss.
• Termination benefits: recognise at the earlier of when the entity can no longer withdraw the offer and when it recognises related restructuring costs.

Common mistakes

• Accruing non-accumulating leave at year end. Fix: Non-accumulating leave lapses, so service does not increase entitlement. Expense it only when the absence occurs.
• Discounting short-term benefits to present value. Fix: Short-term benefits are measured at the undiscounted amount. Discounting applies to long-term benefits.
• Classifying a plan as defined contribution because it is called a 'contribution' or 'provident' fund. Fix: Test who bears the shortfall. A trust-managed provident fund with a guaranteed return is a defined benefit plan.
• Doing an actuarial valuation for a defined contribution plan. Fix: For a defined contribution plan, the expense is just the contribution due. Actuarial assumptions are not required.
• Using a government bond yield as the discount rate by default Fix: Ind AS 19 bases the rate on market yields on high-quality corporate bonds at the reporting date, with a term matching the obligation. Only if there is no deep market for such bonds do you use government bond yields. Check what rate the question gives and use it.
• Taking actuarial gains and losses to profit or loss Fix: Under Ind AS 19 all remeasurements go to OCI and are not reclassified to profit or loss. Only service cost and net interest go to P&L.
• Putting actuarial gains and losses in profit or loss. Fix: Under Ind AS 19 all remeasurements go to OCI. Do not recycle them later.
• Using an expected rate of return on plan assets instead of the discount rate. Fix: Interest on assets is opening plan assets × the discount rate. Any difference from the actual return is a remeasurement in OCI.
• Recognising the full surplus as an asset without testing the ceiling. Fix: Always compare the surplus with the ceiling. The asset is the lower of the two.
• Taking the ceiling as undiscounted future savings. Fix: Discount the savings to present value at the DBO discount rate before comparing with the surplus.

Exam tips

• Always start a classification answer by naming the category and the reason, such as the twelve-month test.
• In compensated absence questions, say accumulating or non-accumulating in the first line. That decides the whole answer.
• For bonus plans, write both conditions: present obligation and reliable estimate.
• In MCQs, remember that short-term benefits are never discounted.
• Show the entry or amount clearly, and say the amount is undiscounted.
• Always give the reason for classification. Marks are usually split between the classification and the accounting.
• Watch for words like 'guarantees', 'makes good any shortfall' or 'minimum return'. These signal a defined benefit plan.
• In numerical cases, split the contribution into paid and payable. Show the journal entry even if not asked.