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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Ganga Steels Ltd. announced a voluntary retirement scheme in March 2027, accepted by employees before 31 March 2027. Total compensation payable is Rs 90,00,000, payable in cash equally on 31 March 2028 and 31 March 2029. The company expects to be able to discount at a rate that gives present value of Rs 78,00,000. As per AS 15 (as taught at Foundation/Intermediate level), what is the appropriate treatment of the termination benefit at 31 March 2027?

The company should recognise a liability and expense of Rs 78,00,000 at 31 March 2027. Termination benefits are recognised when the entity is demonstrably committed, which has occurred through acceptance of the scheme. Since payment falls due beyond 12 months, the amount is discounted to present value rather than shown at the Rs 90,00,000 total.

  1. ARecognise nothing until paid
  2. BRecognise Rs 78,00,000 as liability and expense, as benefits fall due after 12 months and are discountedCorrect
  3. CRecognise Rs 90,00,000 undiscounted as expense
  4. DRecognise Rs 45,00,000 as the first instalment only

Explanation

Termination benefits are recognised as a liability and expense when the enterprise is demonstrably committed, here on acceptance of the scheme. Where they fall due more than 12 months after the reporting date, they are discounted using the market yield rate. Hence the present value Rs 78,00,000 is recognised, not the undiscounted total.

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