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CMA Intermediate · Corporate Accounting and Auditing · Employee Benefits (Ind AS 19)

At year end, Himalaya Pharma Ltd's actuary reports a net remeasurement gain of ₹25 lakh on its defined benefit plan, arising from favourable actuarial assumptions and higher asset returns. Which journal entry correctly records it?

Debit the net defined benefit liability and credit other comprehensive income (remeasurements) for ₹25 lakh. The gain lowers the liability and is recognised in OCI, not profit or loss, and no cash is involved.

  1. ADr Net defined benefit liability ₹25 lakh; Cr Other comprehensive income (remeasurements) ₹25 lakhCorrect
  2. BDr Net defined benefit liability ₹25 lakh; Cr Employee benefit expense (profit or loss) ₹25 lakh
  3. CDr Other comprehensive income (remeasurements) ₹25 lakh; Cr Net defined benefit liability ₹25 lakh
  4. DDr Bank ₹25 lakh; Cr Other comprehensive income (remeasurements) ₹25 lakh

Explanation

A remeasurement gain reduces the net defined benefit liability, so that account is debited. The credit goes to OCI, not profit or loss. Debiting OCI would record a loss and increase the liability. No cash is received, so the bank entry is wrong.

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