Advanced Accounting · AS 15 Employee Benefits

Other Long-term Benefits, Termination Benefits and Disclosures under AS 15

Updated 4 October 2026 · Fact-checked

Under AS 15 (Revised 2005), other long-term benefits (like long service awards) are recognised at the present value of the obligation less the fair value of plan assets out of which it is settled directly. The expense includes actuarial gains and losses and past service cost, all recognised immediately. Termination benefits are recognised when the enterprise is demonstrably committed to terminate employment or offer voluntary redundancy.

Understand Other Long-term Benefits, Termination Benefits and Disclosures

AS 15 splits employee benefits into four groups: short-term, post-employment, other long-term, and termination benefits. This page covers the last two, plus the disclosure rules.

Other long-term employee benefits are benefits that fall due more than twelve months after the end of the period in which the service is rendered, and are not post-employment or termination benefits. Typical examples are long-service awards, sabbatical leave, jubilee benefits, long-term disability benefits, and compensated absences that are not expected to be availed within twelve months. Profit-sharing and bonuses payable twelve months or more after the period-end also fall here.

The measurement is like a defined benefit plan, but simpler. You recognise a liability equal to the present value of the defined benefit obligation at the balance sheet date, minus the fair value of plan assets (if any) out of which the obligations are settled directly. The key difference: you do not use the corridor approach or deferral. Actuarial gains and losses and past service cost are recognised immediately in the statement of profit and loss.

Termination benefits are paid because the enterprise ends an employee's employment before normal retirement, or because the employee accepts voluntary redundancy (such as a voluntary retirement scheme, VRS). The event that creates the obligation is the termination, not the service rendered. So the benefit is not spread over service years.

An enterprise recognises termination benefits as a liability and an expense only when it is demonstrably committed to either (a) terminate the employment of an employee or group of employees before normal retirement date, or (b) provide termination benefits as a result of an offer made to encourage voluntary redundancy. Commitment is demonstrated only when the enterprise has a detailed formal plan and there is no realistic possibility of withdrawal. The detailed formal plan must identify at least:

the location, function and approximate number of employees whose services are to be terminated;
the termination benefits for each job classification or function; and
the time at which the plan will be implemented.

If benefits fall due more than twelve months after the balance sheet date, discount them to present value.

Under AS 15 (Revised 2005), termination benefits, including VRS, are recognised immediately as a liability and expense when the enterprise is demonstrably committed. Paragraph 160 of the Standard gave a transitional option that applied only to VRS expenditure incurred up to 31 March 2010. That expenditure could be deferred over its pay-back period, but not beyond 31 March 2015. The option is now historical. For current questions, charge VRS in full when the commitment arises.

Key rules to remember

Liability for other long-term benefits: Liability = Present value of defined benefit obligation − Fair value of plan assets (if any); Applies at the balance sheet date. Deduct only the fair value of plan assets out of which the obligations are to be settled directly. No corridor and no deferral.
Expense for other long-term benefits: Expense = Current service cost + Interest cost − Expected return on plan assets and on any reimbursement right recognised as an asset + Actuarial gains/losses (net) + Past service cost + Effect of curtailments/settlements; These are the items AS 15 lists for the expense. All of them go to the statement of profit and loss in the same period, and actuarial gains and past service cost are not deferred. Actuarial gains reduce the expense. The expected return term applies only where plan assets or reimbursement rights exist; if there are none, leave it out.
Termination benefit recognition test: Recognise when: detailed formal plan exists (identifying location, function and approximate number of employees, benefits per job classification or function, and time of implementation) AND no realistic possibility of withdrawal; For voluntary redundancy, once the commitment test is met, measure the liability on the number of employees expected to accept the offer.
Discounting rule for termination benefits: Benefits due more than 12 months after balance sheet date → discount using the discount rate for defined benefit obligations; The discount rate is based on market yields on government bonds at the balance sheet date.
Closing PV of an obligation payable in n years: PV = Amount ÷ (1 + r)ⁿ; Use when a question asks you to discount a termination payment or a long-service award.

How to solve Other Long-term Benefits, Termination Benefits and Disclosures questions

Use the same sequence for any question on other long-term benefits, termination benefits or disclosures.

1Classify the benefit: short-term, post-employment, other long-term, or termination. The class decides the accounting.
2For long-service or similar awards, find the present value of the obligation at the balance sheet date and deduct plan assets, if any.
3Build the expense: current service cost, interest cost, less expected return on plan assets (only if plan assets exist), plus or minus actuarial gains and losses, plus past service cost. Take every item to profit and loss.
4For termination or VRS, check whether the enterprise is demonstrably committed. If yes, recognise the full liability and expense at once, not over service years.
5Check the due date. If payable more than twelve months after the balance sheet date, discount it. Otherwise use the undiscounted amount.
6Pass the journal entry: Employee benefit expense Dr. to Provision or Liability Cr. Then show the cash payment separately.
7Add the disclosures the question asks for, such as the nature of the benefit, the amount recognised and the key actuarial assumptions.

Quickest way: Classify, then recognise in full or discount

When to use it: Use this when a practical question gives you several benefit amounts and you have limited time.

Underline the trigger words: 'long service award', 'VRS', 'termination', 'redundancy'.
If VRS or termination: write the full amount as an expense in the year the commitment arises.
If the payment is due beyond 12 months from the balance sheet date: divide by (1 + r)ⁿ.
If it is a long-term award: write the net liability and take actuarial gains and losses straight to profit and loss.
In MCQs, remember that other long-term benefits never use the corridor, and that under current AS 15 requirements termination benefits are not spread over service years.
In written answers, state the rule, apply it with figures, and give the journal entry. Each of these earns step marks.

Common mistakes in Other Long-term Benefits, Termination Benefits and Disclosures

Applying the corridor approach to other long-term benefits
Students mix the rules for defined benefit post-employment plans with those for other long-term benefits.
Fix: Remember that other long-term benefits recognise actuarial gains and losses and past service cost immediately. There is no deferral.
Spreading VRS or termination cost over future years
Students think it is like an asset with future benefit.
Fix: Under current AS 15 requirements, termination benefits are recognised when the enterprise is demonstrably committed. Charge the full expense in that period.
Not discounting benefits due after twelve months
Students overlook the due date in the question.
Fix: Always check when the payment falls due from the balance sheet date. Beyond twelve months, take present value.
Treating a long-term benefit as short-term
Students ignore the twelve month test.
Fix: Use the test: due within twelve months after the period in which service is rendered is short-term. Otherwise it is long-term.
Forgetting to deduct plan assets
Students focus only on the obligation.
Fix: Net liability = present value of obligation minus fair value of plan assets. Deduct only if assets are available to settle the obligation.
Omitting disclosures in a theory-cum-practical answer
Students stop after the calculation.
Fix: Close with a line on what is disclosed, such as the nature of the benefit and the amount charged, even if the question says only 'state treatment'.

Worked examples

Example 1

On 1 February 2027, X Ltd makes an offer of a voluntary retirement scheme to its employees. The company has approved a detailed formal plan, communicated its terms to the employees, and cannot withdraw it. 40 employees accept by 31 March 2027, and the company's best estimate of the number who will accept is also 40. Each is entitled to ₹6,00,000, payable on 30 June 2027. The company's year ends on 31 March 2027. Show the accounting treatment and the journal entry.

Show the solution

The scheme is a termination benefit, so AS 15 applies.
The company is demonstrably committed from 1 February 2027, because the offer has been made under a detailed formal plan that cannot be withdrawn. The commitment arises from the offer and the plan, not from individual acceptances, and it exists before the year end.
The liability is measured at the best estimate of the number of employees expected to accept the offer. Here that estimate is 40, because 40 employees have accepted by the balance sheet date.
Total amount = 40 × ₹6,00,000 = ₹2,40,00,000.
Payment is due on 30 June 2027, within twelve months of the balance sheet date, so no discounting is needed.
Recognise the full amount as a liability and expense in the year ended 31 March 2027, not spread over future years.

Answer: Charge ₹2,40,00,000 to profit and loss for the year ended 31 March 2027. Journal entry: Employee benefit expense (VRS compensation) Dr. ₹2,40,00,000 to Provision for VRS (liability) Cr. ₹2,40,00,000.

Example 2

Y Ltd gives employees a long service award on completing 10 years of service. Using actuarial valuation, the present value of the obligation is ₹18,00,000 at the start of the year and ₹22,00,000 at the end of the year. Benefits paid during the year are ₹2,00,000. There are no plan assets. The only movements in the obligation during the year are the expense for the year (current service cost, interest cost and actuarial gains and losses) and the benefits paid. Calculate the total expense to be charged to profit and loss for the year.

Show the solution

Long service awards are other long-term employee benefits, so the net obligation is recognised in full with no deferral.
Closing obligation = Opening obligation + Expense − Benefits paid, since these are the only movements.
₹22,00,000 = ₹18,00,000 + Expense − ₹2,00,000.
Expense = ₹22,00,000 − ₹18,00,000 + ₹2,00,000 = ₹6,00,000.
This expense includes any actuarial gains and losses, because they are recognised immediately in profit and loss.

Answer: Total expense charged to profit and loss is ₹6,00,000. The closing liability is ₹22,00,000.

Exam tips

In practical questions, first write the classification of the benefit in one line. Examiners give marks for it.
Always check the due date against the balance sheet date to decide whether to discount.
Learn the one-line contrast: other long-term benefits recognise actuarial gains and losses immediately, while defined benefit post-employment plans may use the corridor if the enterprise follows it.
For MCQs, watch for options saying termination benefits are spread over service years. Under current AS 15 requirements, that option is wrong.
In theory questions, list the disclosures in short bullets: nature of the benefit, amount recognised, key assumptions, and any related party or key management personnel amounts where relevant.

Practice questions from AS 15 Employee Benefits

Other Long-term Benefits, Termination Benefits and Disclosures in other exams

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

Other Long-term Benefits, Termination Benefits and Disclosures: frequently asked questions

What are other long-term employee benefits under AS 15?

They are benefits, other than post-employment and termination benefits, that are not due wholly within twelve months after the end of the period in which employees render the service. Examples are long-service awards, sabbatical leave and long-term disability benefits.

When is a termination benefit recognised under AS 15?

You recognise it when the enterprise is demonstrably committed to terminate employment before normal retirement or to offer voluntary redundancy. That needs a detailed formal plan with no realistic possibility of withdrawal. The plan must identify the location, function and approximate number of employees, the benefits per job classification, and the time of implementation.

How is VRS expenditure accounted for under AS 15?

VRS payments are termination benefits. You recognise the liability and expense when the commitment arises, and discount only if payment falls due more than twelve months after the balance sheet date.

Do other long-term benefits use the corridor approach?

No. Actuarial gains and losses and past service cost are recognised immediately in the statement of profit and loss. That is the main difference from defined benefit post-employment plans.