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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Narmada Steels Ltd. contributes to a recognised provident fund for its employees under a defined contribution plan. Contribution for the year is 12% of basic salary of Rs 50,00,000, of which Rs 5,00,000 remains unpaid at the balance sheet date. As per AS 15, what should the company do?

The company should charge the full contribution of Rs 6,00,000 to profit and loss and show the unpaid Rs 5,00,000 as a liability. Under a defined contribution plan the expense is the contribution payable for the period, and no actuarial assumptions are required.

  1. ACharge Rs 6,00,000 to profit and loss and show Rs 5,00,000 as a liabilityCorrect
  2. BCharge Rs 1,00,000 to profit and loss, being the amount paid
  3. CCharge Rs 6,00,000 to profit and loss and make an actuarial valuation
  4. DCharge Rs 6,00,000 as an asset until paid

Explanation

In a defined contribution plan, the expense equals the contribution payable for the period: 12% x Rs 50,00,000 = Rs 6,00,000. The unpaid Rs 5,00,000 is shown as a liability (accrued expense). No actuarial valuation is needed, and the amount is an expense, not an asset.

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