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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Meenakshi Pharma Ltd. has a defined benefit plan. On 1 April, the present value of obligation was Rs 40,00,000 and the fair value of plan assets was Rs 32,00,000. The discount rate is 10% and the expected return on plan assets is 12%. Current service cost for the year is Rs 5,00,000. Benefits paid of Rs 4,00,000 were paid from plan assets on 31 March and no contributions were made. Ignoring actuarial gains/losses, what is the net expense to be charged to the statement of profit and loss for the year?

The expense is current service cost plus interest cost minus expected return on plan assets. That is 5,00,000 plus 4,00,000 minus 3,84,000, giving Rs 5,16,000. Benefits paid at year end do not affect the interest or return computations for the year.

  1. ARs 5,16,000Correct
  2. BRs 5,00,000
  3. CRs 5,84,000
  4. DRs 9,00,000

Explanation

Interest cost = 10% x 40,00,000 = 4,00,000. Expected return on assets = 12% x 32,00,000 = 3,84,000. Net expense = current service cost 5,00,000 + interest cost 4,00,000 - expected return 3,84,000 = Rs 5,16,000. Benefits paid on the last day do not change the year's interest or return. Option C wrongly adds the return.

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