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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Sundaram Textiles Ltd. pays its employees a monthly contribution of 10% of basic salary to a recognised provident fund managed by a trust, and the company has no obligation beyond the contribution. Basic salary paid during the year was Rs 60,00,000, and Rs 4,50,000 of contributions remained unpaid at the year end. How should the company account for this under AS 15?

The plan is a defined contribution plan, so the company recognises the contribution of 10% of Rs 60,00,000, that is Rs 6,00,000, as an expense for the year on accrual basis. The unpaid Rs 4,50,000 is shown as an outstanding liability. No actuarial valuation is required.

  1. ARecognise an expense of Rs 6,00,000 in the statement of profit and loss, with Rs 4,50,000 shown as a liabilityCorrect
  2. BRecognise an expense of Rs 1,50,000 only, being the amount actually paid
  3. CRecognise an expense of Rs 6,00,000 only when the entire amount is paid in the next year
  4. DRecognise an actuarial liability using the projected unit credit method

Explanation

This is a defined contribution plan because the company's obligation is limited to the fixed contribution. Expense = 10% x 60,00,000 = Rs 6,00,000, recognised on accrual. Unpaid Rs 4,50,000 is shown as a liability. Paid portion is 6,00,000 - 4,50,000 = 1,50,000, so option B wrongly uses the cash basis.

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