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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Neelkanth Pharma Ltd. pays a defined contribution to a recognised provident fund at 12% of basic salary. Basic salary for the year ended 31 March was Rs 80,00,000. The company had paid Rs 8,40,000 during the year and the remaining amount for March is unpaid at year end. Under AS 15, what is the expense for the year and the accrued liability at year end?

Expense is Rs 9,60,000 and the accrued liability is Rs 1,20,000. Under a defined contribution plan, the expense is the contribution due for the period, 12% of Rs 80,00,000, and the portion not yet paid, Rs 9,60,000 less Rs 8,40,000, is shown as a liability.

  1. AExpense Rs 9,60,000; liability Rs 1,20,000Correct
  2. BExpense Rs 8,40,000; liability Rs 0
  3. CExpense Rs 9,60,000; liability Rs 9,60,000
  4. DExpense Rs 1,20,000; liability Rs 1,20,000

Explanation

Contribution payable for the year = 12% x 80,00,000 = Rs 9,60,000, which is the expense. Amount paid is Rs 8,40,000, so the unpaid Rs 1,20,000 is a liability (accrued expense). Recognising only cash paid ignores the accrual.

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