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CA Final · Financial Reporting · Ind AS 19 Employee Benefits

Godavari Infra Ltd, an Indian company with rupee-denominated gratuity obligations, has a deep market in high quality corporate bonds and also holds government bond yield data at the reporting date. The finance manager argues that, as under IAS 19, corporate bond yields should be used for discounting. A second analyst notes that the Indian standard differs. Which statement correctly reflects Ind AS 19 for this obligation?

Godavari should discount using market yields on government bonds. Ind AS 19 requires this for post-employment benefit obligations in Indian rupees, whereas IAS 19 would use high quality corporate bond yields where a deep market exists. The carve-out of corporate bonds therefore does not apply to rupee obligations under Ind AS 19.

  1. AUse market yields on high quality corporate bonds, since a deep corporate bond market exists
  2. BUse the entity's own weighted average cost of capital as the discount rate
  3. CUse market yields on government bonds, as Ind AS 19 requires for rupee obligations irrespective of corporate bond depthCorrect
  4. DUse the rate implicit in plan assets' actual return during the year

Explanation

Ind AS 19 departs from IAS 19: the rate to discount post-employment benefit obligation is determined by reference to market yields on government bonds. IAS 19 permits government bonds only where there is no deep market in high quality corporate bonds. Option A reflects IAS 19, which is the key trap.

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