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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Kaveri Engineering Ltd has a defined benefit plan. At the start of the year, the present value of the obligation (PVO) was Rs 50,00,000 and the fair value of plan assets was Rs 40,00,000. Discount rate is 10% and expected return on plan assets is 12%. Current service cost is Rs 6,00,000. No contributions or benefits were paid during the year. Ignoring actuarial gains and losses, what is the net expense to be charged to the Statement of Profit and Loss?

The net expense is Rs 6,20,000. It is current service cost of Rs 6,00,000 plus interest cost of Rs 5,00,000 less expected return on plan assets of Rs 4,80,000, with no actuarial gains or losses considered.

  1. ARs 6,20,000Correct
  2. BRs 5,80,000
  3. CRs 7,20,000
  4. DRs 11,00,000

Explanation

Current service cost = Rs 6,00,000. Interest cost = 10% x 50,00,000 = Rs 5,00,000. Expected return = 12% x 40,00,000 = Rs 4,80,000. Net = 6,00,000 + 5,00,000 - 4,80,000 = Rs 6,20,000. Rs 5,80,000 results from adding the return instead of deducting it incorrectly mixed with interest, i.e. wrong sign handling.

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