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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Kaveri Engineering Ltd. has a defined benefit plan. On 1 April, the present value of the obligation was Rs 50,00,000 and the fair value of plan assets was Rs 40,00,000. The discount rate is 10% p.a. and the expected return on plan assets is 12% p.a. Current service cost for the year is Rs 6,00,000. Benefits paid and contributions during the year were nil, and no actuarial gains or losses arose. What is the net expense (before any actuarial items) recognised in the statement of profit and loss for the year?

The net expense is Rs 6,20,000. It equals current service cost of Rs 6,00,000 plus interest cost of Rs 5,00,000 on the obligation, less the expected return of Rs 4,80,000 on plan assets. With no actuarial gains or losses, nothing else is added.

  1. ARs 6,20,000Correct
  2. BRs 5,80,000
  3. CRs 8,20,000
  4. DRs 6,00,000

Explanation

Interest cost = 10% x 50,00,000 = Rs 5,00,000. Expected return on assets = 12% x 40,00,000 = Rs 4,80,000. Expense = 6,00,000 + 5,00,000 - 4,80,000 = Rs 6,20,000. Rs 5,80,000 wrongly adds the return instead of deducting it incorrectly mixed in the netting.

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