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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Gopal Engineering Ltd. has a defined benefit gratuity plan. Details for the year: present value of obligation at start Rs. 10,00,000; fair value of plan assets at start Rs. 8,00,000; discount rate 10%; expected return on plan assets 12%; current service cost Rs. 1,50,000; benefits paid Rs. 1,00,000 (paid out of plan assets, at year end); contributions to the plan Rs. 50,000 (at year end). Ignore actuarial gains and losses. What is the net expense (interest cost + current service cost - expected return) charged to profit and loss?

The net expense is Rs. 1,54,000. Current service cost of Rs. 1,50,000 plus interest cost of Rs. 1,00,000 on the opening obligation is reduced by the expected return of Rs. 96,000 on opening plan assets. Year-end payments and contributions do not change these computations.

  1. ARs. 1,54,000Correct
  2. BRs. 1,50,000
  3. CRs. 2,10,000
  4. DRs. 1,04,000

Explanation

Interest cost = 10% x 10,00,000 = 1,00,000. Expected return = 12% x 8,00,000 = 96,000. Net expense = 1,50,000 + 1,00,000 - 96,000 = Rs. 1,54,000. Benefits paid and contributions are at year end, so they do not affect the interest or return. Option D omits current service cost wrongly in a different way (1,00,000+1,50,000... not matching) and option C ignores the return.

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