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CA Final · Financial Reporting · Ind AS 19 Employee Benefits

Rudra Steels Ltd has a gratuity plan with a defined benefit obligation of Rs 500 lakh at the start of the year and plan assets at fair value of Rs 400 lakh. The discount rate based on government bond yields is 8%. During the year, current service cost was Rs 60 lakh, and no contributions or benefit payments were made. At year end, the obligation is Rs 612 lakh after an actuarial loss, and plan assets are Rs 440 lakh including a return of Rs 40 lakh on assets, of which interest income at the discount rate is part. Which statement is correct?

Net interest expense is Rs 8 lakh, being 8% of the net deficit of Rs 100 lakh, and the net remeasurement loss in OCI is Rs 4 lakh. The actuarial loss of Rs 12 lakh is partly offset by the return on plan assets exceeding interest income by Rs 8 lakh.

  1. ANet interest expense is Rs 8 lakh, and the remeasurement loss in OCI is Rs 12 lakh
  2. BNet interest expense is Rs 8 lakh, and the remeasurement loss in OCI is Rs 4 lakhCorrect
  3. CNet interest expense is Rs 40 lakh, and the remeasurement loss in OCI is Rs 12 lakh
  4. DNet interest expense is Rs 8 lakh, and the remeasurement loss in OCI is Rs 8 lakh

Explanation

Net interest = 8% x (500 - 400) = Rs 8 lakh. Obligation: 500 + 60 + interest 40 + actuarial loss = 612, so the actuarial loss is 12. Plan assets: 400 + interest income 32 + return excess over interest 8 = 440, so the asset gain is 8. Net remeasurement in OCI = 12 loss - 8 gain = Rs 4 lakh loss. Choosing 12 ignores the gain on plan assets above interest income.

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