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CMA Intermediate · Corporate Accounting and Auditing · Employee Benefits (Ind AS 19)

In a defined contribution plan of Kaveri Steels Ltd, the entity's obligation is limited to Rs 12 lakh annual contribution. Compared with a defined benefit plan, which statement about risk under Ind AS 19 is correct?

In a defined contribution plan the actuarial and investment risks fall in substance on the employee because benefits depend on contributions and returns. In a defined benefit plan the entity must deliver the agreed benefits, so those risks fall on the entity.

  1. AIn both plans actuarial and investment risk fall in substance on the entity
  2. BIn a defined contribution plan the actuarial and investment risks fall in substance on the employee, while in a defined benefit plan they fall on the entityCorrect
  3. CIn a defined contribution plan the entity bears the investment risk, while in a defined benefit plan the employee bears it
  4. DIn both plans the employee bears actuarial risk, but the entity bears investment risk

Explanation

Under defined contribution plans, benefits depend on contributions and investment returns, so actuarial and investment risk fall in substance on the employee. Under defined benefit plans, the entity must provide agreed benefits, so these risks fall on the entity.

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