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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Orchid Pharma Ltd's defined benefit plan has a PVO of Rs 50,00,000 and plan assets at fair value of Rs 42,00,000 at the balance sheet date. Unrecognised past service cost relating to non-vested benefits is Rs 1,50,000. Under AS 15, what amount should be recognised as the defined benefit liability in the balance sheet?

The liability is Rs 6,50,000. It is the PVO of Rs 50,00,000 less plan assets of Rs 42,00,000, giving Rs 8,00,000, further reduced by the unrecognised past service cost of Rs 1,50,000, because that cost has not yet been recognised in the balance sheet.

  1. ARs 8,00,000
  2. BRs 9,50,000Correct
  3. CRs 6,50,000
  4. DRs 1,50,000

Explanation

The liability = PVO - fair value of plan assets - unrecognised past service cost = 50,00,000 - 42,00,000 - ... Under AS 15 the unrecognised past service cost is deducted from the net obligation to get the liability: 8,00,000 - 1,50,000 = 6,50,000. So the correct value is Rs 6,50,000, not 9,50,000. Adding it would be a sign error.

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