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CA Final · Financial Reporting · Ind AS 19 Employee Benefits

Kaveri Pharma Ltd has a defined benefit gratuity plan for employees in India, with the obligation denominated in Indian rupees. The finance head proposes discounting the obligation using the yield on AA-rated corporate bonds because the corporate bond market is deep. Which statement is consistent with Ind AS 19?

The proposal is not consistent with Ind AS 19. For rupee obligations, the discount rate for post-employment benefits is based on market yields on government bonds, unlike IAS 19, which permits government bonds only where no deep high-quality corporate bond market exists.

  1. ACorporate bond yields must be used whenever the corporate bond market is deep, as under IAS 19
  2. BThe rate is determined by reference to market yields on government bonds, so the proposal is not in line with Ind AS 19 for rupee obligationsCorrect
  3. CEither rate may be used, as the choice is an accounting policy
  4. DThe rate must equal the entity's incremental borrowing rate

Explanation

Ind AS 19 requires the discount rate for post-employment benefit obligations to be determined by reference to market yields on government bonds. This differs from IAS 19, which allows government bonds only where there is no deep corporate bond market. Depth of the corporate market is therefore irrelevant for rupee obligations.

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