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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 80,00,000 and the fair value of plan assets was Rs 60,00,000. The discount rate is 10% and the expected return on plan assets is 12%. Current service cost is Rs 9,00,000. Contributions of Rs 5,00,000 and benefits of Rs 4,00,000 were both made at the end of the year. Actuarial loss on the obligation is Rs 2,00,000 and actuarial gain on plan assets is nil. Ignoring past service cost, what is the total expense recognised in the Statement of Profit and Loss, assuming actuarial gains and losses are recognised immediately?

The expense is Rs 11,80,000. It is current service cost of Rs 9,00,000 plus interest cost of Rs 8,00,000, less expected return of Rs 7,20,000, plus the actuarial loss of Rs 2,00,000 recognised immediately. Year-end contributions and benefit payments do not change the expense.

  1. ARs 9,80,000
  2. BRs 11,80,000Correct
  3. CRs 9,20,000
  4. DRs 7,80,000

Explanation

Interest cost = 10% x 80,00,000 = 8,00,000. Expected return = 12% x 60,00,000 = 7,20,000. Expense = current service 9,00,000 + interest 8,00,000 - expected return 7,20,000 + actuarial loss 2,00,000 = 11,80,000. Rs 9,80,000 omits the actuarial loss. Contributions and benefits paid at year end do not affect expense.

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