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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Rajdhani Steels Ltd. announces a voluntary retirement scheme in the current year. Compensation payable to employees who accepted is Rs 24,00,000, payable in lump sum next year. Which treatment is correct under AS 15 for termination benefits?

Termination benefits such as voluntary retirement compensation are recognised as a liability and expense once the company is demonstrably committed and cannot withdraw the offer. Here the employees accepted, so the full Rs 24,00,000 is recognised in the current year, not spread or deferred to payment.

  1. ARecognise Rs 24,00,000 as a liability and expense when the entity can no longer withdraw the offer; discounting is needed only if payable after twelve monthsCorrect
  2. BSpread the Rs 24,00,000 over the remaining service life of the employees
  3. CDisclose it as a contingent liability until paid
  4. DRecognise the expense only in the year of actual payment

Explanation

Under AS 15, termination benefits are recognised as a liability and expense when the entity has a demonstrable commitment and can no longer withdraw the offer. Employees have accepted, so the commitment exists and the full Rs 24,00,000 is recognised now. Spreading it is the treatment for post-employment service benefits, not termination benefits. Discounting applies only if payable beyond twelve months after the balance sheet date.

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