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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Mahalakshmi Foods Ltd. amended its gratuity plan on 1 April 2025, increasing benefits for past service. The present value of the additional benefits is Rs 12,00,000, of which Rs 4,00,000 relates to employees whose benefits are already vested and Rs 8,00,000 relates to employees whose benefits vest on average over 4 more years. What amount of past service cost is charged to profit and loss for the year ended 31 March 2026?

The charge is Rs 6,00,000. Past service cost for vested benefits (Rs 4,00,000) is expensed immediately, while the non-vested Rs 8,00,000 is amortised straight-line over the four-year average vesting period, giving Rs 2,00,000 for the year.

  1. ARs 4,00,000
  2. BRs 6,00,000Correct
  3. CRs 12,00,000
  4. DRs 3,00,000

Explanation

Past service cost to the extent benefits are already vested is recognised immediately: Rs 4,00,000. The non-vested part is amortised straight-line over the average period until vesting: 8,00,000/4 = Rs 2,00,000 per year. Total for the year = 4,00,000 + 2,00,000 = Rs 6,00,000. Rs 12,00,000 wrongly expenses everything immediately.

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