CA Intermediate · Advanced Accounting

AS 15 Employee Benefits for CA Intermediate

AS 15 (Employee Benefits) tells an employer when to recognise the cost of employee benefits and how to measure it. First classify the benefit: short-term, post-employment, other long-term or termination. Then apply that class's rule, using the accrual basis for contributions and the projected unit credit method for defined benefit plans.

What this chapter covers

AS 15 Employee Benefits deals with the cost an employer must book for what employees earn from service. The standard sorts benefits into four groups: short-term benefits, post-employment benefits, other long-term benefits and termination benefits. Every question starts with this sorting, because each group has its own recognition and measurement rule.

The heaviest part is post-employment benefits. Defined contribution plans are simple: the expense is the contribution payable for the period. Defined benefit plans are harder. You work with the present value of the obligation, the fair value of plan assets, current service cost, interest cost, expected return on plan assets, actuarial gains and losses, and past service cost. Curtailments and settlements add further adjustments.

The chapter connects to the rest of Advanced Accounting through the statement of profit and loss and the balance sheet under Schedule III, and through the general principle of accrual accounting. Its numerical questions are step-by-step reconciliations, so they reward neat working and clear tables.

This chapter is worth the effort because it is a compact, rule-based standard where precise working earns step marks. The theory questions on classification and the numerical questions on defined benefit plans follow predictable patterns, and MCQs often test the same definitions. Once you know the reconciliation format, you can score on a topic that many students avoid because it looks technical. Mastery also helps you with the related disclosure and presentation points in other accounting standards.

AS 15 Employee Benefits: topics in the order to study them

1AS 15 Scope, Definitions and Classification of BenefitsEvery later rule depends on the four-way classification and on the key definitions, so learn them first.
2Short-term Employee Benefits and Compensated AbsencesThese are the simplest rules (accrual of expected cost) and they build the habit of matching cost to service.
3Post-employment Benefits: Defined Contribution PlansThe expense is just the contribution payable, so this gives a quick win and a clear contrast with defined benefit plans.
4Defined Benefit Plans: Recognition and MeasurementThis is the core of the chapter and needs the most practice, so study it after the simpler plan type.
5Past Service Cost, Curtailments and SettlementsThese adjust the defined benefit model, so they only make sense once you know the basic obligation and asset reconciliation.
6Other Long-term Benefits, Termination Benefits and DisclosuresFinish with the remaining categories and the disclosure points, which are mostly theory and revise well at the end.

How to prepare AS 15 Employee Benefits

Treat this chapter as a classify-then-apply standard. Build the rules in layers, then drill numericals until the format is automatic.

Write the four benefit classes on one page, with one example and the recognition rule for each.
Learn the definitions precisely: defined contribution versus defined benefit plan, plan assets, present value of obligation, actuarial gains and losses.
Solve short-term and compensated absence problems, separating accumulating and non-accumulating absences.
Practise defined benefit plans using a fixed layout: opening obligation, interest cost, current service cost, benefits paid, actuarial gain or loss, closing obligation. Interest cost uses the discount rate, which is determined by reference to market yields on government bonds at the balance sheet date. Repeat for plan assets, starting with the expected return (not the actual return) for the profit and loss charge, and show the difference between actual and expected return as an actuarial gain or loss.
Add past service cost, curtailments and settlements to that layout and note exactly where each effect appears in the statement of profit and loss.
Prepare short written answers on termination benefits, other long-term benefits and disclosures, then attempt MCQs on definitions and classification.
Revise by redoing two full defined benefit problems without looking at the solution.

Common mistakes in AS 15 Employee Benefits

Misclassifying a plan as defined contribution or defined benefit from its name alone.
Fix: Ask who bears the actuarial and investment risk. If the employer must make up any shortfall, treat it as a defined benefit plan.
Mixing up the layout of the obligation and plan asset reconciliations.
Fix: Keep two separate tables and note that benefits paid reduce both. Contributions increase assets only, and current service cost increases the obligation only.
Treating actuarial gains and losses as deferrable.
Fix: Recognise them immediately in the statement of profit and loss for AS 15 numericals. Do not defer any actuarial gain or loss into the liability calculation.
Using the actual return on plan assets in the profit and loss charge.
Fix: Use the expected return in the profit and loss charge. Treat the difference between actual and expected return as an actuarial gain or loss and recognise it immediately.
Recognising non-accumulating compensated absences in advance.
Fix: Check first whether unused leave carries forward. If it does not, recognise the cost only when the absence occurs.
Forgetting the vesting period when treating past service cost.
Fix: Separate vested benefits, which are recognised immediately, from non-vested benefits, which are spread straight-line over the average period until vesting.
Giving theory answers without a classification or condition.
Fix: Open each written answer with the class of benefit, then state the rule, then apply it to the facts in the question.

Last-day revision: AS 15 Employee Benefits

Four classes: short-term, post-employment, other long-term, termination benefits.
Defined contribution plan: employer's obligation is limited to the agreed contribution, and the expense is the contribution payable for the period.
Defined benefit plan: the employer bears the actuarial and investment risk, so it needs actuarial measurement.
Unpaid contributions are shown as a liability; excess paid over the amount due is shown as a prepaid expense to the extent it will be refunded or reduce future payments.
Short-term benefits are recognised at the undiscounted amount expected to be paid for service rendered.
Accumulating compensated absences are recognised as the employees render service that increases their entitlement.
Non-accumulating absences are recognised only when the absence actually occurs.
Defined benefit obligation is measured using the projected unit credit method.
The discount rate for the obligation is determined by reference to market yields on government bonds at the balance sheet date.
Defined benefit liability = present value of the defined benefit obligation − unrecognised past service cost − fair value of plan assets.
Where the formula gives a negative amount, the resulting asset is limited to the net total of unrecognised past service cost plus the present value of available refunds or reductions in future contributions.
Actuarial gains and losses are recognised immediately in the statement of profit and loss, so none is deferred and carried into the liability calculation.
The profit and loss charge uses the expected return on plan assets, not the actual return. The difference between actual and expected return is an actuarial gain or loss, recognised immediately.
Past service cost is recognised as an expense on a straight-line basis over the average period until the benefits become vested. Cost for benefits that are already vested is recognised immediately.
Termination benefits are recognised when the entity is demonstrably committed to ending employment or to offering the benefits.

AS 15 Employee Benefits practice questions

AS 15 Employee Benefits in other exams

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

AS 15 Employee Benefits: frequently asked questions

Is AS 15 mostly theory or numericals in CA Intermediate?

It is a mix. Classification, definitions and disclosures are tested as theory or MCQs, while defined benefit plans are tested as numericals. Prepare both.

What is the main difference between defined contribution and defined benefit plans?

In a defined contribution plan, the employer's obligation is limited to the agreed contribution. In a defined benefit plan, the employer must provide the promised benefits and bears the risk of shortfall.

Which topic in AS 15 should I practise most?

Defined benefit plans. Practise the obligation and plan asset reconciliations until you can set them out without hesitation, then add past service cost, curtailments and settlements.

Do I need to memorise actuarial formulas?

No. You are normally given actuarial values such as the present value of the obligation. You need to know how to use these figures in the reconciliations and what to show in the statement of profit and loss.