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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Mehta Pharma Ltd. operates a defined benefit gratuity plan. Opening PVO is Rs 20,00,000 and opening plan assets are Rs 18,00,000. Discount rate is 10% and expected return on plan assets is 12%. Current service cost is Rs 3,00,000. During the year no contributions were made and no benefits were paid. Actuarial gain or loss is nil. What is the total expense to be recognised in the statement of profit and loss for the year?

The total expense is Rs 2,84,000. Under AS 15 the expense comprises current service cost plus interest cost less expected return on plan assets. That is 3,00,000 plus 2,00,000 less 2,16,000, with no actuarial gain or loss, giving Rs 2,84,000.

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

Explanation

Expense = current service cost + interest cost - expected return on assets. Interest cost = 10% x 20,00,000 = 2,00,000. Expected return = 12% x 18,00,000 = 2,16,000. Expense = 3,00,000 + 2,00,000 - 2,16,000 = Rs 2,84,000. Rs 3,16,000 wrongly adds the return instead of deducting it.

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