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CMA Intermediate · Corporate Accounting and Auditing · Employee Benefits (Ind AS 19)

Sundaram Textiles Ltd runs a post-employment pension scheme. If actual mortality and investment returns turn out worse than assumed, the entity must make up the shortfall so that the agreed pensions are paid. How should the plan be classified under Ind AS 19?

The plan is a defined benefit plan. The entity must provide the agreed benefits, and actuarial and investment risks fall in substance on it, so worse-than-expected experience increases its obligation. Regular contributions do not make it a defined contribution plan.

  1. ADefined contribution plan, because the entity pays regular contributions
  2. BDefined contribution plan, because the employee bears actuarial risk
  3. CDefined benefit plan, because actuarial and investment risk fall in substance on the entityCorrect
  4. DDefined benefit plan, because the obligation is limited to the contributions agreed

Explanation

Under defined benefit plans the entity must provide agreed benefits, and actuarial and investment risk fall in substance on the entity; if experience is worse, its obligation may increase. Classification depends on economic substance, not on whether contributions are paid regularly.

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