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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Himalaya Ltd. introduced an amendment to its defined benefit gratuity plan on 1 April 2025, increasing benefits for past service. The increase in present value of the obligation is Rs 24,00,000. Of this, benefits worth 25% are already vested, and the remaining benefits become vested on average after 4 years from the amendment date. Past service cost is amortised on a straight-line basis. What is the past service cost charged to profit and loss for the year ended 31 March 2026, and the unamortised amount at that date?

The charge is Rs 10,50,000 with Rs 13,50,000 unamortised. Vested past service cost of Rs 6,00,000 is expensed immediately, while the unvested Rs 18,00,000 is amortised straight-line over 4 years at Rs 4,50,000 a year, leaving Rs 13,50,000 unamortised.

  1. ACharge Rs 6,00,000; unamortised Rs 18,00,000
  2. BCharge Rs 10,50,000; unamortised Rs 13,50,000Correct
  3. CCharge Rs 10,00,000; unamortised Rs 14,00,000
  4. DCharge Rs 4,50,000; unamortised Rs 19,50,000

Explanation

Vested portion = 25% x 24,00,000 = Rs 6,00,000, recognised immediately. Unvested = Rs 18,00,000 amortised over 4 years = Rs 4,50,000 per year. Total charge = 6,00,000 + 4,50,000 = Rs 10,50,000. Unamortised = 18,00,000 - 4,50,000 = Rs 13,50,000. Option with Rs 6,00,000 charge wrongly spreads whole amount over 4 years.

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