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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Kaveri Industries Ltd. has a defined benefit plan. On 1 April 2025, 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. The discount rate is 10% and the expected return on plan assets is 12%. During the year, current service cost was Rs 6,00,000, benefits paid were Rs 4,00,000 (paid out of plan assets at year end), and contributions of Rs 5,00,000 were made at year end. Ignore other items. What is the interest cost and expected return on plan assets to be considered in the year's calculation (assuming payments and contributions occur at year end)?

Interest cost is Rs 5,00,000 and expected return is Rs 4,80,000. Since service cost, benefit payments and contributions occur at year end, interest is computed only on the opening obligation at 10% and return only on opening plan assets at 12%.

  1. AInterest cost Rs 5,00,000; expected return Rs 4,80,000Correct
  2. BInterest cost Rs 6,00,000; expected return Rs 4,80,000
  3. CInterest cost Rs 5,00,000; expected return Rs 5,40,000
  4. DInterest cost Rs 4,50,000; expected return Rs 4,80,000

Explanation

Interest cost = 10% x Rs 50,00,000 = Rs 5,00,000 because current service cost, benefits and contributions arise at year end. Expected return = 12% x Rs 40,00,000 = Rs 4,80,000. Option with Rs 6,00,000 wrongly adds current service cost to the base for interest.

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