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Financial Reporting · Ind AS 19 Employee Benefits

Ind AS 19: Remeasurements, Service Cost and Net Interest

Updated 5 October 2026 · Fact-checked

Defined benefit cost under Ind AS 19 has three parts. Service cost (current, past, settlement gain or loss) and net interest go to profit or loss. Remeasurements (actuarial gains and losses, return on plan assets excluding interest) go to OCI and are never recycled to profit or loss. Compute each part separately, then reconcile the net liability.

Understand Remeasurements, Service Cost and Net Interest

A defined benefit plan promises an employee a set benefit, for example gratuity based on last salary and years of service. The employer bears the risk. So the entity must show a net defined benefit liability (asset): the present value of the defined benefit obligation (DBO) less the fair value of plan assets (subject to the asset ceiling).

Each year this net figure changes for reasons that Ind AS 19 splits into three groups. This split is the core of the topic and the usual exam question.

Service cost is charged to profit or loss. It has three items. Current service cost is the increase in the DBO because employees worked another period. Past service cost is the change in the DBO because of a plan amendment or curtailment. It relates to service already rendered. Gain or loss on settlement arises when the entity settles obligations at a price different from their carrying amount. Past service cost and settlement gains or losses are recognised in profit or loss at the earlier of the date of the plan amendment, curtailment or settlement, and the date the entity recognises related restructuring costs or termination benefits. Past service cost is recognised immediately whether or not the benefits have vested.

Net interest is the net defined benefit liability (asset) multiplied by the discount rate. The discount rate is based on market yields at the end of the reporting period on government bonds (India has no deep market in high-quality corporate bonds, so government bond yields are used). It is applied to the opening net liability, adjusted for contributions and benefit payments during the period. It is shown in profit or loss, normally as finance cost. Because the same rate is used for both obligation and assets, the expected return on assets is no longer a separate item.

Remeasurements are recognised in other comprehensive income in the period they occur. They include actuarial gains and losses on the DBO (changes in assumptions and experience differences), the return on plan assets excluding amounts in net interest, and changes in the asset ceiling effect excluding amounts in net interest. They are not reclassified to profit or loss in later periods, but you may transfer them within equity, for example to retained earnings. In practice Indian companies usually transfer them to retained earnings.

Key rules to remember

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.

How to solve Remeasurements, Service Cost and Net Interest questions

Use the same reconciliation approach for any question. Work the DBO and plan assets as two separate accounts, then combine.

  1. 1List the data: opening DBO, opening plan assets, discount rate, current service cost, contributions, benefits paid, amendments, settlements, and closing actuarial valuation.
  2. 2Compute interest on opening DBO and on opening plan assets at the same rate. Adjust for contributions and benefits paid during the year only if the question gives timing.
  3. 3Build the DBO reconciliation: opening + current service cost + interest + past service cost − benefits paid = expected closing. The difference from the actual closing DBO is the actuarial gain or loss.
  4. 4Build the plan asset reconciliation: opening + interest + contributions − benefits paid = expected closing. The difference from the actual fair value is the return on assets excluding interest.
  5. 5Work out net interest and total profit or loss cost: current service cost + past service cost + settlement gain or loss + net interest.
  6. 6Work out OCI: actuarial gain or loss on DBO plus return on assets excluding interest. Watch the signs: a loss on DBO reduces OCI, a gain on assets increases it.
  7. 7Check that the closing net liability equals closing DBO − closing plan assets, then give journal entries (expense to profit or loss, remeasurement to OCI, contributions to plan assets).

Quickest way: Two-account reconciliation with a balancing figure

When to use it: Use it when the question gives closing actuarial valuations and asks for the P&L and OCI amounts.

  1. Write the DBO and plan asset columns side by side.
  2. Fill every known item. Leave the closing balance and remeasurement as the last line.
  3. Take the remeasurement as the balancing figure in each column.
  4. P&L charge = current service cost + past service cost + interest on DBO − interest on assets. OCI = the two balancing figures with correct signs.
  5. Cross-check: change in net liability = P&L charge + OCI loss − contributions (benefits paid cancel out on both sides).

Common mistakes in Remeasurements, Service Cost and Net Interest

  • Putting actuarial gains and losses in profit or loss.

    Older practice and the old AS 15 allowed this.

    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.

    Students remember the old approach.

    Fix: Interest on assets is opening plan assets × the discount rate. Any difference from the actual return is a remeasurement in OCI.

  • Spreading past service cost over the vesting period.

    Confusion with the old rule for non-vested benefits.

    Fix: Recognise past service cost in profit or loss at the date of amendment or curtailment, whether or not vested.

  • Including interest income in the return on plan assets remeasurement.

    The word 'return' covers both.

    Fix: Remeasurement = actual return − interest income already in net interest.

  • Treating current service cost and past service cost as the same item.

    Both increase the DBO.

    Fix: Current service cost arises from service in this period. Past service cost arises from a plan change affecting service already rendered.

  • Getting the sign of the OCI figure wrong.

    Gains on DBO reduce the liability and gains on assets increase the asset, so signs flip between columns.

    Fix: Tag each as gain or loss to the entity first. Loss reduces OCI; gain increases it.

Worked examples

Example 1

At 1 April 2026 a gratuity plan has DBO of ₹50,00,000 and plan assets of ₹40,00,000. Discount rate is 8%. During 2026-27: current service cost ₹6,00,000; benefits paid ₹4,00,000 from plan assets; contribution ₹5,00,000. Assume contributions and payments occur at year end. At 31 March 2027 the actuarial valuation of DBO is ₹56,00,000 and fair value of plan assets is ₹44,00,000. Compute the profit or loss charge, OCI remeasurement and closing net liability.

Show the solution
  1. Interest on DBO = 50,00,000 × 8% = ₹4,00,000.
  2. Interest on assets = 40,00,000 × 8% = ₹3,20,000. Net interest = ₹80,000.
  3. Expected closing DBO = 50,00,000 + 6,00,000 + 4,00,000 − 4,00,000 = ₹56,00,000. Actual DBO is ₹56,00,000, so the actuarial gain or loss is nil.
  4. Expected closing plan assets = 40,00,000 + 3,20,000 + 5,00,000 − 4,00,000 = ₹44,20,000. Actual is ₹44,00,000, so the return on assets excluding interest is a loss of ₹20,000.
  5. Profit or loss charge = 6,00,000 + 80,000 = ₹6,80,000.
  6. OCI = loss of ₹20,000 (nil on DBO plus 20,000 loss on assets).
  7. Closing net liability = 56,00,000 − 44,00,000 = ₹12,00,000. Check: opening 10,00,000 + 6,80,000 + 20,000 − 5,00,000 = ₹12,00,000.

Answer: Profit or loss charge ₹6,80,000; OCI remeasurement loss ₹20,000 (not recycled); closing net defined benefit liability ₹12,00,000.

Example 2

On 1 October 2026 a company amends its gratuity plan, increasing benefits for past service. An actuary says the DBO rises by ₹3,00,000 because of this amendment. The opening net defined benefit liability was ₹10,00,000 and the discount rate is 9%. On 31 March 2027 the company settles part of the obligation: the DBO settled has a carrying amount of ₹8,00,000 and is settled by paying ₹7,50,000 from plan assets. Ignore current service cost, contributions and other movements. State the amounts recognised in profit or loss for these items.

Show the solution
  1. The amendment relates to service already rendered, so the ₹3,00,000 is past service cost.
  2. Recognise past service cost immediately in profit or loss on 1 October 2026, whether or not benefits have vested.
  3. Settlement: obligation extinguished is ₹8,00,000; settlement price is ₹7,50,000.
  4. Gain on settlement = 8,00,000 − 7,50,000 = ₹50,000, recognised in profit or loss.
  5. Net interest for the year on the opening net liability of ₹10,00,000 × 9% = ₹90,000, as a simplification (ignoring the effect of the amendment and settlement within the year).
  6. Total in profit or loss = 3,00,000 past service cost + 90,000 interest − 50,000 settlement gain = ₹3,40,000.

Answer: Past service cost ₹3,00,000 (expense), settlement gain ₹50,000 (income), net interest ₹90,000 (expense, simplified); net charge to profit or loss ₹3,40,000. None of these is taken to OCI.

Exam tips

  • Always end with a clear split: amount to profit or loss and amount to OCI. Examiners award marks for each.
  • Write the reconciliation as a table-like list in the answer. Partial marks follow the workings even if the final figure slips.
  • Quote the principle in one line: remeasurements in OCI, not reclassified to profit or loss. Add that a transfer within equity is allowed.
  • In theory questions on past service cost, contrast it with current service cost and say it is recognised immediately.
  • If timing of contributions or payments is given, adjust net interest for it. If not, state your assumption.

Practice questions from Ind AS 19 Employee Benefits

Remeasurements, Service Cost and Net Interest in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Remeasurements, Service Cost and Net Interest: frequently asked questions

What is the difference between current service cost and past service cost?

Current service cost is the increase in the DBO from employee service in the current period. Past service cost is the change in the DBO from a plan amendment or curtailment, relating to service in earlier periods. Both go to profit or loss.

Are actuarial gains and losses ever shown in profit or loss under Ind AS 19?

No, for post-employment defined benefit plans they are remeasurements shown in OCI. They are not reclassified to profit or loss in later periods, though you can move them within equity.

How is net interest on the net defined benefit liability calculated?

Multiply the net defined benefit liability (asset) by the discount rate, using the rate fixed at the start of the period. Adjust for changes in the net balance from contributions and benefit payments if timing is given. The result is shown in profit or loss.

What are the journal entries for a defined benefit plan?

Debit employee benefit expense for service cost and finance cost for net interest, and credit the net defined benefit liability. Debit OCI (or credit it for a gain) for remeasurements against the liability. When you contribute to the fund, debit the liability and credit bank.