Advanced Accounting · AS 15 Employee Benefits

AS 15 Employee Benefits: Scope, Definitions and Classification of Benefits

Updated 4 October 2026 · Fact-checked

AS 15 (Revised 2005) prescribes how an employer accounts for and discloses employee benefits. It splits benefits into four categories: short-term, post-employment, other long-term and termination benefits. To solve a question, identify the category first, then apply that category's recognition and measurement rule.

Understand AS 15 Scope, Definitions and Classification of Benefits

AS 15 (Revised 2005) tells an employer how to account for what it gives employees in return for their service. The core idea is accrual. The cost of a benefit belongs to the period in which the employee renders the service, not the period in which cash is paid.

The Standard applies to all employee benefits except employee share-based payments, which are covered by the ICAI Guidance Note on Accounting for Employee Share-based Payments. It covers benefits given under formal plans or agreements, under legislation, or through informal practices that create a constructive obligation. It applies to full-time, part-time and casual employees, directors and management. It does not deal with reporting by the retirement benefit plans themselves.

The Standard sorts benefits into four categories:

Short-term employee benefits: employee benefits (other than termination benefits) which fall due wholly within twelve months after the end of the period in which the employees render the related service. Examples: wages, salaries, bonus, paid annual leave, medical care.
Post-employment benefits: payable after completion of employment. Examples: gratuity, pension, post-employment medical care. They run through either defined contribution plans or defined benefit plans.
Other long-term employee benefits: not due wholly within twelve months and not post-employment or termination. Examples: long-service leave, jubilee benefits, long-term disability benefits.
Termination benefits: payable because the employer ends employment before normal retirement, or the employee accepts voluntary redundancy.

You must also know the key definitions. Vested employee benefits are benefits that are not conditional on future employment. Plan assets are assets held by a long-term employee benefit fund, plus qualifying insurance policies. A qualifying insurance policy must meet all of these conditions: it is issued by an insurer that is not a related party of the enterprise; its proceeds can be used only to pay or fund employee benefits under a defined benefit plan; the proceeds are not available to the enterprise's own creditors; and they cannot be paid to the enterprise, except where they represent surplus assets not needed to meet all the benefit obligations, or where they reimburse the enterprise for benefits it has already paid. Actuarial gains and losses arise from experience adjustments (actual differs from earlier assumptions) and changes in actuarial assumptions. A constructive obligation arises from the employer's past practice or published policy, which leaves no realistic alternative but to pay.

The classification decides everything that follows. Misclassify a benefit and the recognition rule, the measurement and the treatment of actuarial gains all go wrong.

Key rules to remember

Short-term benefit test: Benefit (other than a termination benefit) settled wholly within 12 months after the end of the period of service → short-term; If any part falls due later, it is not short-term. Check the whole settlement, not the accrual.
Plan assets: Plan assets = assets held by a long-term employee benefit fund + qualifying insurance policies; Fund assets must be held by an entity legally separate from the reporting enterprise and be available only to pay employee benefits. They are not available to the enterprise's creditors, even in liquidation, and cannot return to the enterprise except to reimburse benefits paid or on surplus after all obligations are met. A qualifying insurance policy needs a non-related insurer and the same protections: proceeds only for employee benefits, beyond the reach of the enterprise's creditors, and payable to the enterprise only as surplus or reimbursement of benefits already paid.
Actuarial gains and losses: Actuarial gains and losses = experience adjustments + effects of changes in actuarial assumptions; Under AS 15 (Revised 2005), actuarial gains and losses are recognised immediately in the statement of profit and loss (for defined benefit plans and other long-term benefits).
Vested benefit: Vested = right to benefit not conditional on continued employment; Non-vested benefits are still obligations if the employee must render further service to earn them.
Four categories: Short-term | Post-employment | Other long-term | Termination; Classify first, then apply the category's rule.

How to solve AS 15 Scope, Definitions and Classification of Benefits questions

Use this method for any classification or definition question in AS 15.

1Read the facts and list each benefit given to employees, with its payment timing.
2Check scope: is it an employee benefit covered by AS 15, or something excluded (such as share-based payment)?
3Check the cause first. Does the benefit arise from the employer's decision to end employment before normal retirement, or from an employee's decision to accept voluntary redundancy in exchange for the benefit? If so, it is a termination benefit, whatever the timing, even if it is settled within twelve months.
4If it is not a termination benefit, ask when settlement falls due. Wholly within twelve months after the service period means short-term.
5If the benefit is payable after employment ends, label it post-employment and decide whether it is a defined contribution or defined benefit plan.
6If it is none of the above, it is an other long-term employee benefit.
7Apply the definition tests (vested, plan assets, actuarial gains and losses, constructive obligation) to the figures given.
8State the classification with a one-line reason, then give the accounting consequence.

Quickest way: Cause-and-timing classification and MCQ elimination

When to use it: For MCQs and for the opening lines of a written answer.

Underline the cause and timing words: early exit, voluntary redundancy, within twelve months, after retirement.
Check for early exit or voluntary redundancy first, then match the timing to a category. Use examples as anchors: VRS payments termination; salary and bonus short-term; gratuity and pension post-employment; jubilee and long-service awards other long-term.
In MCQs, drop options that say actuarial gains and losses are deferred or amortised, since AS 15 (Revised 2005) recognises them immediately. Also drop options that call a benefit short-term when part is due after twelve months.
In written answers, use the format: provision, facts, conclusion. Quote the AS 15 definition, apply it to the facts, and state the category. Each step carries marks.

Common mistakes in AS 15 Scope, Definitions and Classification of Benefits

Treating all benefits payable during employment as short-term.
Students look at when the employee works, not when the benefit is settled.
Fix: Test settlement timing. If it is not wholly due within twelve months after the service period, it is not short-term.
Calling any investment held for employees plan assets.
The name sounds general.
Fix: Plan assets must sit in a legally separate fund or be qualifying insurance policies, and be available only to pay employee benefits. A policy qualifies only if the insurer is not a related party, the proceeds are not available to the enterprise's creditors, and they are not payable to the enterprise except as surplus or reimbursement of benefits already paid.
Treating vested and non-vested benefits as the same thing.
Both are obligations in everyday talk.
Fix: Vested means not conditional on future employment. Non-vested benefits depend on further service.
Putting termination benefits under post-employment benefits.
Both occur at the end of employment.
Fix: Termination benefits arise from the employer's decision to end employment early or an employee's acceptance of voluntary redundancy. Retirement benefits earned through service are post-employment.
Ignoring constructive obligations and using only the legal contract.
Students link liability only with a written agreement.
Fix: Past practice or published policy that leaves no realistic alternative creates an obligation and must be accounted for.

Worked examples

Example 1

Classify each benefit under AS 15 (Revised 2005): (a) monthly salary and festival bonus payable within the same year; (b) gratuity payable on retirement; (c) a long-service award payable after 20 years of service; (d) compensation payable to employees who accept voluntary retirement.

Show the solution

(a) Salary and festival bonus are settled wholly within twelve months after the service period. They are short-term employee benefits.
(b) Gratuity is payable after employment ends. It is a post-employment benefit, accounted for under a defined contribution or defined benefit plan depending on who bears the risk.
(c) A long-service award is not due within twelve months and is neither post-employment nor termination. It is an other long-term employee benefit.
(d) Compensation for accepting voluntary retirement arises because employment ends early. It is a termination benefit.

Answer: (a) Short-term; (b) Post-employment; (c) Other long-term; (d) Termination benefit.

Example 2

A company runs a gratuity fund managed by a separate trust. The fund holds government securities worth ₹40,00,000 and a insurance policy of ₹10,00,000. The insurer is not a related party of the company. The policy proceeds can be used only to pay or fund employee benefits, are beyond the reach of the company's creditors, and are payable to the company only as surplus or as reimbursement of benefits it has already paid. The company also holds ₹5,00,000 of its own bank deposits earmarked for gratuity but not in the fund. Compute plan assets and explain.

Show the solution

Check each asset against the definition: held by a long-term employee benefit fund or a qualifying insurance policy, available only to pay employee benefits.
Government securities in the trust fund qualify: ₹40,00,000.
The insurance policy meets every condition of a qualifying insurance policy: the insurer is not a related party, the proceeds are available only for employee benefits, they are not available to the company's creditors, and they are payable to the company only as surplus or reimbursement of benefits already paid. So it qualifies: ₹10,00,000. If any one condition failed (for example, the insurer were a related party or the creditors could reach the proceeds), the policy would not qualify.
The company's own bank deposits remain with the company and are available to its creditors, so they are not plan assets.
Plan assets = ₹40,00,000 + ₹10,00,000 = ₹50,00,000.

Answer: Plan assets are ₹50,00,000. The earmarked ₹5,00,000 in the company's own deposits is excluded.

Exam tips

Open every theory answer with the AS 15 definition, then apply it to the facts. This follows the provision-facts-conclusion pattern and earns step marks.
Learn one example for each of the four categories. Examiners often ask you to classify a benefit from its description.
Memorise the plan-asset conditions: separate legal entity, available only for employee benefits, protected from creditors. For insurance policies, remember all four conditions: non-related insurer, proceeds only for employee benefits, not available to the enterprise's creditors, and payable to the enterprise only as surplus or reimbursement of benefits already paid.
Remember that AS 15 (Revised 2005) takes actuarial gains and losses to the statement of profit and loss immediately, for defined benefit plans and other long-term benefits. Link this to your defined benefit plan study.
MCQs have no negative marking, so always attempt them. Eliminate wrong categories by checking the cause of the benefit and the twelve-month test.

Practice questions from AS 15 Employee Benefits

AS 15 Scope, Definitions and Classification of 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 Scope, Definitions and Classification of Benefits: frequently asked questions

What are the four categories of employee benefits under AS 15?

They are short-term employee benefits, post-employment benefits, other long-term employee benefits and termination benefits. Each has its own recognition and measurement rule, so classify first.

What is the difference between vested and non-vested benefits?

Vested employee benefits are not conditional on future employment. Non-vested benefits require the employee to render further service before the right arises.

What are actuarial gains and losses in AS 15?

They are experience adjustments, where actual results differ from earlier actuarial assumptions, plus the effects of changes in those assumptions. Under AS 15 (Revised 2005) they are recognised immediately in the statement of profit and loss, for defined benefit plans and other long-term benefits.

Is a gratuity short-term or long-term?

Gratuity is a post-employment benefit, because it is payable after employment ends. It is accounted for as a defined contribution plan or a defined benefit plan, depending on who bears the risk.