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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Kaveri Engineering Ltd. operates a defined benefit gratuity plan. On 1 April, the present value of the defined benefit obligation (DBO) was Rs 50,00,000 and the fair value of plan assets was Rs 40,00,000. During the year: current service cost Rs 6,00,000; interest cost on DBO at 10%; expected return on plan assets 9%; contributions to the fund Rs 3,00,000 paid at year end; benefits paid Rs 2,00,000 at year end from the fund. Ignore other items. What is the total expense recognised in the statement of profit and loss for the year (as per AS 15, with no actuarial gains or losses)?

The expense is Rs 7,40,000, being current service cost of Rs 6,00,000 plus interest cost of Rs 5,00,000, less expected return on plan assets of Rs 3,60,000. Contributions and benefits paid at year end do not affect the expense.

  1. ARs 6,40,000Correct
  2. BRs 6,00,000
  3. CRs 7,40,000
  4. DRs 6,60,000

Explanation

Interest cost = 10% x 50,00,000 = Rs 5,00,000. Expected return = 9% x 40,00,000 = Rs 3,60,000. Expense = 6,00,000 + 5,00,000 - 3,60,000 = Rs 7,40,000. Hmm, recomputed: 6,00,000 + 1,40,000 = Rs 7,40,000.

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