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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Ganga Steels Ltd. had a defined benefit plan with unrecognised past service cost. On 1 April, it amended the plan, increasing the DBO by Rs 12,00,000 for past service. Of this, benefits worth Rs 4,00,000 vested immediately; the rest will vest over the next 4 years (average remaining period until vesting), equally. How much past service cost is charged to profit and loss in the year of amendment (the year ending 31 March)?

The charge is Rs 6,00,000: the vested Rs 4,00,000 is expensed immediately and the unvested Rs 8,00,000 is amortised over four years at Rs 2,00,000 a year.

  1. ARs 4,00,000
  2. BRs 5,00,000Correct
  3. CRs 2,00,000
  4. DRs 7,00,000

Explanation

Vested portion Rs 4,00,000 is recognised immediately. The non-vested Rs 8,00,000 is amortised straight-line over 4 years = Rs 2,00,000 per year. Year charge = 4,00,000 + 2,00,000 = Rs 6,00,000. Recomputed result is Rs 6,00,000, which is not among the options listed as correct.

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