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CMA Intermediate · Financial Accounting · Introduction to Accounting Standards (GAAP, AS and Convergence to Ind AS)

A Level III non-company entity in Pune employs an average of 40 persons during the year. For its defined benefit gratuity plan under the Employee Benefits standard, which treatment is permitted by the Compendium's applicability exemptions?

A Level III non-company entity with fewer than 50 average employees is exempt from the detailed defined benefit paragraphs. It may compute its accrued gratuity liability by some other rational method, for example assuming benefits are payable to all employees at year end.

  1. AIt may calculate the accrued liability by a rational method, e.g. assuming benefits payable to all employees at year endCorrect
  2. BIt must use the Projected Unit Credit Method with a government bond discount rate
  3. CIt need not provide for any liability
  4. DIt must disclose actuarial assumptions under paragraph 120(l)

Explanation

Level II and Level III non-company entities with fewer than 50 average employees are exempt from paragraphs 50 to 116 and 117 to 123 for defined benefit plans. They may use another rational method, such as assuming benefits are payable to all employees at year end. The Projected Unit Credit requirement applies to the other category of entities. The liability still has to be provided for.

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