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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Nilgiri Foods Ltd. operates a defined contribution plan under which it contributes 10% of basic salary to an approved provident fund. Total basic salary for the year ended 31 March 2027 was Rs 80,00,000. The company paid Rs 6,50,000 during the year and the rest remained unpaid at year end. Which statement is correct as per AS 15?

The company should charge Rs 8,00,000 to profit and loss and show Rs 1,50,000 as an accrued liability. In a defined contribution plan the expense is the contribution payable for the period's service, being 10% of Rs 80,00,000, and unpaid contributions at year end are recognised as a liability.

  1. AExpense Rs 6,50,000 and no liability, as only the paid amount is charged
  2. BExpense Rs 8,00,000 with accrued liability of Rs 1,50,000Correct
  3. CExpense Rs 8,00,000 with a liability of Rs 8,00,000
  4. DExpense Rs 1,50,000 only, being the unpaid amount

Explanation

For a defined contribution plan, the expense equals the contribution due for the service rendered in the period: 10% x Rs 80,00,000 = Rs 8,00,000. Since Rs 6,50,000 was paid, the balance Rs 1,50,000 is shown as an accrued liability. Charging only cash paid ignores accrual.

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