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

Kaveri Engineering Ltd has a defined benefit plan with opening obligation of ₹800 lakh and opening plan assets of ₹600 lakh. The discount rate is 9% and there were no contributions or benefit payments during the year. How is net interest on the net defined benefit liability treated for the year?

Net interest is ₹18 lakh, being 9% of the opening net liability of ₹200 lakh (800 less 600). It is charged to profit or loss, not OCI. Using interest on the obligation alone (₹72 lakh) or on assets alone (₹54 lakh) is wrong.

  1. A₹18 lakh expense in profit or lossCorrect
  2. B₹72 lakh expense in profit or loss
  3. C₹18 lakh recognised in OCI
  4. D₹54 lakh expense in profit or loss

Explanation

Net interest is the discount rate applied to the opening net defined benefit liability: 9% x (800 - 600) = ₹18 lakh. It is recognised in profit or loss as part of the defined benefit cost, unlike remeasurements which go to OCI. ₹72 lakh is interest on the obligation alone and ₹54 lakh is interest on the assets alone.

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