Skip to content

CMA Intermediate · Corporate Accounting and Auditing

Employee Benefits (Ind AS 19) for CMA Intermediate

Ind AS 19 tells you how a company accounts for everything it gives employees in return for service. You first classify the benefit as short-term, post-employment, other long-term or termination. Then you apply the measurement rule for that class. For defined benefit plans, find the net liability or asset, then split the cost between profit or loss and OCI.

What this chapter covers

This chapter covers Ind AS 19 Employee Benefits. It sets out how a company recognises and measures the cost of benefits given to employees. The standard defines employee benefits as all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment.

The standard groups benefits into four classes: short-term benefits, post-employment benefits, other long-term benefits and termination benefits. Each class has its own accounting rule. Most of the chapter's difficulty sits in post-employment benefits, where you must separate defined contribution plans from defined benefit plans. Defined contribution accounting is simple. Defined benefit accounting needs present values, plan assets and remeasurements.

The chapter connects to the rest of Paper 10 through company accounts. Employee costs appear in the statement of profit and loss, and the net defined benefit liability or asset appears on the balance sheet under Schedule III of the Companies Act, 2013. Remeasurements go to other comprehensive income, so you also need your Ind AS presentation knowledge. It also links to Paper 11 and Paper 12 through the idea of present value.

Employee Benefits gives you both theory and numerical questions. The MCQs test classification and definitions, which you can score on quickly if your basics are clear. The written questions often ask for a defined benefit working and journal entries, where each correct step earns marks. The chapter is also compact. Six topics, one logical flow and a small set of repeatable formats mean good effort here pays back well. Weak classification, however, will cost you in both sections.

Employee Benefits (Ind AS 19): topics in the order to study them

  1. 1Ind AS 19 Scope, Definitions and Types of BenefitsEverything depends on classifying a benefit into the four classes, so learn the definitions first.
  2. 2Short-term Employee Benefits and Compensated AbsencesThis is the simplest class and builds the habit of testing the twelve-month settlement condition.
  3. 3Post-employment Benefits: Defined Contribution vs Defined BenefitYou must decide which plan type applies before any measurement, and this decision drives the rest of the chapter.
  4. 4Defined Benefit Plans: Measurement and Actuarial ValuationLearn the obligation, plan assets and net liability or asset before you try the entries.
  5. 5Remeasurements, OCI and Journal Entries for Defined Benefit PlansThis applies the measurement to produce the cost split and the journal entries examiners ask for.
  6. 6Other Long-term Benefits and Termination BenefitsThese are best studied last because they borrow rules from the earlier classes and differ mainly in how remeasurements are treated.

How to prepare Employee Benefits (Ind AS 19)

Work from classification to measurement to entries. Do not start with numerical problems until your definitions are secure.

  1. Write the four classes of benefit in your own words, with one example of each. Include the twelve-month test for short-term benefits.
  2. Make a two-column comparison of defined contribution and defined benefit plans. Note who bears actuarial risk and investment risk. In a defined contribution plan these fall in substance on the employee. In a defined benefit plan they fall in substance on the entity.
  3. Learn the defined benefit building blocks: the present value of the obligation, the fair value of plan assets, and the deficit or surplus as obligation less plan assets. Add the asset ceiling for surplus cases.
  4. Practise one standard layout for the defined benefit working: opening balances, service cost, interest, contributions, benefits paid, remeasurement, closing balances. Reconcile both the obligation and the plan assets.
  5. Write the journal entries from your layout. Show the profit or loss items and the OCI items separately.
  6. Compare other long-term benefits with post-employment benefits. The simplified method for other long-term benefits does not recognise remeasurements in OCI. Then note how termination benefits follow the nature of the benefit.
  7. Finish with past MCQs and mock written answers under time. Check each answer for classification first and arithmetic second.

Common mistakes in Employee Benefits (Ind AS 19)

  • Classifying a plan by its name instead of its terms.

    Fix: Classify by economic substance. Ask whether the entity must pay more if the fund is short of assets. If yes, it is defined benefit.

  • Treating a benefit as short-term without testing the settlement period.

    Fix: Apply the twelve-month test. Benefits not expected to be settled wholly within that period are other long-term benefits.

  • Taking the net liability as the obligation alone.

    Fix: Always compute obligation less fair value of plan assets, then consider the asset ceiling if there is a surplus.

  • Putting remeasurements of other long-term benefits into OCI.

    Fix: Remember that the simplified method for other long-term benefits does not recognise remeasurements in OCI. Keep the two rules separate.

  • Applying actuarial gain or loss to a defined contribution plan.

    Fix: For defined contribution plans, the expense is the contribution for the period. No actuarial assumptions are needed.

  • Presenting a defined benefit working without a reconciliation.

    Fix: Show opening, movements and closing for both obligation and plan assets, so the examiner can award step marks even if one figure is wrong.

Last-day revision: Employee Benefits (Ind AS 19)

  • Employee benefits are all forms of consideration given in exchange for employee service or for termination of employment.
  • The four classes are short-term, post-employment, other long-term and termination benefits.
  • Short-term benefits are expected to be settled wholly before twelve months after the end of the reporting period in which the service is rendered.
  • Post-employment benefits are payable after the completion of employment and exclude termination and short-term benefits.
  • Defined contribution plan: the obligation is limited to the agreed contribution, and actuarial and investment risk fall in substance on the employee.
  • Defined benefit plan: any post-employment plan that is not defined contribution, with risks falling in substance on the entity.
  • Defined contribution accounting needs no actuarial assumptions and has no actuarial gain or loss.
  • Defined contribution obligations are undiscounted unless not expected to be settled wholly within twelve months after the reporting period.
  • Net defined benefit liability (asset) is the deficit or surplus, adjusted for any asset ceiling effect.
  • Deficit or surplus = present value of the defined benefit obligation less fair value of plan assets.
  • Other long-term benefits use a simplified method that does not recognise remeasurements in OCI.
  • Termination benefits follow short-term rules if settled within twelve months, otherwise other long-term rules, unless they enhance post-employment benefits.

Employee Benefits (Ind AS 19) practice questions

Employee Benefits (Ind AS 19) in other exams

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

Employee Benefits (Ind AS 19): frequently asked questions

What is the difference between defined contribution and defined benefit plans in Ind AS 19?

In a defined contribution plan, the entity pays fixed contributions into a fund and has no further legal or constructive obligation if the fund is short. A defined benefit plan is any other post-employment plan. There, the entity bears actuarial and investment risk in substance.

Are remeasurements always recognised in OCI?

No. For defined benefit plans they go to OCI. For other long-term employee benefits, the standard uses a simplified method that does not recognise remeasurements in OCI.

How are termination benefits measured?

They are measured according to the nature of the benefit. If they enhance post-employment benefits, post-employment rules apply. Otherwise, short-term rules apply when settlement is expected wholly within twelve months after the reporting period, and other long-term rules apply when it is not.

Does this chapter need actuarial maths?

Not in depth. You work with given present values, interest rates and contributions, and you build the reconciliation and entries. Focus on layout and logic rather than on deriving actuarial figures.