Financial Reporting · Ind AS 19 Employee Benefits

Ind AS 19 Termination Benefits: Recognition and Measurement

Updated 5 October 2026 · Fact-checked

Termination benefits are employee benefits payable because the entity ends employment, or because the employee accepts an offer of benefits in exchange for leaving. Recognise the liability and expense at the earlier of two dates: when you can no longer withdraw the offer, or when you recognise related restructuring costs under Ind AS 37. Measure by the type of benefit.

Understand Termination Benefits

A termination benefit arises because employment ends. It is not a reward for service rendered. Two situations create it: the entity decides to end employment (for example, retrenchment), or the employee accepts an offer in exchange for leaving (for example, a voluntary retirement scheme, or VRS).

Because the benefit is not linked to past service, you cannot spread it over service years. The obligating event is the termination or the offer, so the cost is recognised when the entity is committed. Benefits that employees get anyway on retirement or resignation under normal terms, such as gratuity, are not termination benefits. They are post-employment benefits.

The key question is: when is the entity committed? For an offer made to encourage voluntary redundancy, the entity is committed at the earlier of the date the employee accepts and the date a restriction on the entity's ability to withdraw the offer takes effect (for example, a legal or contractual restriction). If the termination is the entity's own decision, the entity can no longer withdraw the offer when it communicates the plan of termination to the affected employees, and the plan meets specified criteria. The plan must identify the number, classification and location of the employees to be terminated, the expected completion date, and the benefits in enough detail for employees to determine what they will get. The actions required must also show that significant changes to the plan are unlikely. Only then is the communication the date the offer cannot be withdrawn.

There is a second test. If the termination benefits are part of a restructuring that falls under Ind AS 37, recognise them no later than when the restructuring provision is recognised. So the liability is recognised at the earlier of the two dates.

Measurement follows the nature of the benefit. For an offer to encourage voluntary redundancy, measure on the number of employees expected to accept, once the entity can no longer withdraw the offer. If the offer can still be withdrawn until each employee accepts, the entity is committed only for the employees who have actually accepted, so those acceptances are what you measure.

Then classify by expected settlement timing. If the benefits are expected to be settled wholly before twelve months after the end of the annual reporting period in which they are recognised, apply the requirements for short-term employee benefits. If they are not expected to be settled wholly within that period, apply the requirements for other long-term employee benefits. Benefits that are not expected to be settled wholly before twelve months after the end of the annual reporting period in which they are recognised are discounted using the discount rate used for post-employment benefits. Under Ind AS 19, this rate is determined by reference to market yields on government bonds at the end of the reporting period. Treat the unwinding of the discount as a finance cost in later periods.

Key rules to remember

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.

How to solve Termination Benefits questions

Use this sequence for any question on VRS, retrenchment or severance payments.

1Check it is a termination benefit: is it payable because employment ends or because the employee agrees to leave? Normal gratuity or leave encashment on retirement is not.
2Identify the type: entity-initiated termination or an offer to encourage voluntary redundancy.
3Find the date the entity can no longer withdraw the offer (employee acceptance, communication of a plan that meets the criteria, or legal restriction).
4Check for a related restructuring under Ind AS 37 and the date its provision is recognised. Take the earlier of the two dates.
5Decide the number of employees: if the offer can no longer be withdrawn, use expected acceptances for a voluntary offer; if it is withdrawable until acceptance, use actual acceptances; use all affected employees for an entity-initiated termination.
6Measure the benefit per employee and total. If the benefits are not expected to be settled wholly before 12 months after the end of the annual reporting period in which they are recognised, discount using the post-employment discount rate, based on market yields on government bonds at the end of the reporting period.
7Pass the entry: Dr Employee benefits expense (profit or loss), Cr Provision or liability. Unwind any discount in later periods.
8State the conclusion with the reason, for example: recognised in this year because the offer could not be withdrawn before the reporting date.

Quickest way: Two-date test in 30 seconds

When to use it: Use for short MCQs and for case scenarios where you must decide whether a liability exists at the reporting date.

Underline the dates: offer date, acceptance date, communication date, reporting date.
Ask: before the reporting date, could the entity still withdraw? If yes, no liability yet, except for employees who have already accepted.
Ask: was a restructuring provision already recognised? If yes, termination benefits are recognised too.
Multiply the right number of employees by the benefit: expected acceptances if the offer cannot be withdrawn, actual acceptances if it can. Discount only 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.

Common mistakes in Termination Benefits

Recognising the VRS cost when the board approves the scheme.
Students treat a management decision as the obligating event.
Fix: A board decision alone is not enough. Recognise when the entity can no longer withdraw the offer, or when restructuring costs are recognised, whichever is earlier.
Spreading termination benefits over the employees' remaining service period.
Students confuse them with defined benefit plans.
Fix: Termination benefits are not for service rendered. Recognise the full amount when the recognition criteria are met.
Using all employees offered the VRS in the measurement, or always using expected acceptances.
Students memorise the phrase about expected acceptances and ignore whether the offer can still be withdrawn.
Fix: Once the entity can no longer withdraw the offer, measure on the number expected to accept. If the offer is withdrawable until each employee accepts, recognise only the actual acceptances at the reporting date.
Treating gratuity or accrued leave paid on exit as a termination benefit.
The payment happens at the time of exit.
Fix: Benefits owed under normal terms regardless of the reason for leaving are post-employment or short-term benefits. Only the extra amount offered for leaving is a termination benefit.
Not discounting benefits that are not expected to be settled wholly within the 12-month window.
Students assume provisions are always at face value.
Fix: If benefits are not expected to be settled wholly before 12 months after the end of the annual reporting period in which they are recognised, discount them using the rate based on market yields on government bonds at the end of the reporting period.
Ignoring the link to Ind AS 37 restructuring.
Students study the two standards separately.
Fix: Ind AS 19 governs the employee cost within a restructuring. Ind AS 37 sets the restructuring recognition date. Apply the earlier-date rule.

Worked examples

Example 1

Alpha Ltd (year end 31 March 2027) announced a VRS on 10 March 2027 to its 200 plant employees. Employees have until 30 April 2027 to accept, and the offer can be withdrawn by Alpha until accepted. By 31 March 2027, 40 employees had accepted. Alpha expects a total of 60 acceptances. Benefit is ₹5,00,000 per employee, payable within 3 months of acceptance. No restructuring provision has been recognised. How much should be recognised at 31 March 2027?

Show the solution

This is an offer to encourage voluntary redundancy, so it is a termination benefit.
The offer can be withdrawn until accepted, so the entity is committed only for employees who accepted by the reporting date.
Accepted by 31 March 2027: 40 employees.
The rule of expected acceptances × benefit applies once the offer can no longer be withdrawn. That is not the case here, so use actual acceptances of 40, not the expected 60.
Benefit: 40 × ₹5,00,000 = ₹2,00,00,000.
Payment is expected to be settled wholly within 12 months after the reporting period, so no discounting.
The other 20 expected acceptances are not recognised, because Alpha can still withdraw the offer for them. They are recognised when the employees accept, or earlier if a restriction on withdrawal takes effect.

Answer: Recognise ₹2,00,00,000 as an expense and liability at 31 March 2027. The further 20 expected acceptances are not recognised, because Alpha can still withdraw the offer. They are recognised as the employees accept.

Example 2

Beta Ltd decided to close a division and on 15 February 2027 communicated to the 50 affected employees a detailed plan, including that each will receive ₹3,00,000 on leaving. The plan meets the Ind AS 19 criteria: it identifies the number, classification and location of the employees and the expected completion date, it states the benefits in enough detail, and significant changes to it are unlikely. The communication also meets the Ind AS 37 criteria for a restructuring constructive obligation. The employees leave on 30 June 2027. Reporting date is 31 March 2027. What is the treatment?

Show the solution

This is an entity-initiated termination benefit.
The plan was communicated to employees on 15 February 2027 and meets the Ind AS 19 plan criteria (number, classification, location, completion date, benefit detail, significant changes unlikely), so Beta can no longer withdraw it on that date.
The restructuring provision criteria under Ind AS 37 are also met on the same date, 15 February 2027.
Both dates are 15 February 2027, so the liability is recognised on that date. This is before the reporting date of 31 March 2027, so the liability exists at the reporting date.
Amount: 50 × ₹3,00,000 = ₹1,50,00,000.
Payment is expected to be settled wholly within 12 months after the reporting period, so no discounting.
Entry: Dr Employee benefits expense ₹1,50,00,000, Cr Provision for termination benefits ₹1,50,00,000.

Answer: Recognise a liability and expense of ₹1,50,00,000 in the year ended 31 March 2027.

Exam tips

Write the recognition date rule in your answer first, then apply it to the dates in the case. This earns the provision and conclusion marks.
In MCQs, check whether the question says employees accepted or merely were offered. This decides the amount.
Separate normal retirement dues from the extra VRS amount in your working. Examiners often include both.
Mention Ind AS 37 for restructuring and the 12-month discounting rule in written answers, even briefly.
Show the journal entry with clear narration. A correct entry with the wrong date still loses marks, so state the date reasoning.

Practice questions from Ind AS 19 Employee Benefits

Termination Benefits in other exams

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

Termination Benefits: frequently asked questions

When is a termination benefit liability recognised under Ind AS 19?

At the earlier of two dates: when the entity can no longer withdraw the offer of the benefits, and when it recognises related restructuring costs under Ind AS 37. For employee-accepted offers, the first date is usually acceptance.

Is a VRS payment a termination benefit?

Yes, if the entity offers it to encourage employees to leave voluntarily. The amount offered in exchange for leaving is a termination benefit. Amounts such as gratuity already due under normal terms are accounted separately.

How are termination benefits different from restructuring costs?

Restructuring costs under Ind AS 37 are the wider set of costs of a restructuring plan. Termination benefits are the employee-related part, measured under Ind AS 19. Where both apply, the termination benefits are recognised no later than the restructuring provision.

Do I discount termination benefits?

Only if they are not expected to be settled wholly before 12 months after the end of the annual reporting period in which they are recognised. Then discount them using the post-employment benefit discount rate. Under Ind AS 19 this 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.