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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Narmada Ltd. contributes to a recognised provident fund, a defined contribution plan, with contributions of 12% of basic salary. Basic salary for the year is Rs 50,00,000. Contributions paid during the year were Rs 5,00,000, and the rest remain unpaid at the year end. The fund must also guarantee a statutory interest rate, and the exempt PF trust has a shortfall of Rs 40,000 that the company is obliged to meet. What amount should be charged to profit and loss for the year?

The charge is Rs 6,40,000. Contributions are expensed on accrual, so the full 12% of Rs 50,00,000, being Rs 6,00,000, is charged irrespective of payment. The company's obligation to make good the Rs 40,000 shortfall in guaranteed interest must also be provided for.

  1. ARs 6,00,000
  2. BRs 6,40,000Correct
  3. CRs 5,00,000
  4. DRs 5,40,000

Explanation

Contribution due for the year = 12% x 50,00,000 = Rs 6,00,000, expensed on accrual regardless of payment, with Rs 1,00,000 shown as outstanding liability. The employer's obligation to meet the interest shortfall of Rs 40,000 is a defined benefit element and is also provided. Total = Rs 6,40,000. Rs 5,00,000 considers only the cash paid.

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