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

Sunrise Textiles Ltd runs a retirement scheme in which it pays fixed contributions to a fund. The scheme rules also require Sunrise to guarantee a specified return on those contributions. How should the scheme be classified under Ind AS 19?

The scheme is a defined benefit plan. Ind AS 19 treats a guarantee of a specified return on contributions as a case where the entity's obligation goes beyond the agreed contribution, so investment risk stays with the entity, whatever the form of the fund or the fixed contributions.

  1. ADefined contribution plan, because the employer pays fixed contributions
  2. BDefined contribution plan, because a separate fund exists
  3. CDefined benefit plan, because the entity's obligation is not limited to the contributions agreedCorrect
  4. DShort-term employee benefit, because contributions are paid annually

Explanation

Ind AS 19 gives a guarantee of a specified return on contributions, directly or indirectly, as an example where the entity's obligation is not limited to its agreed contribution. Hence the entity bears investment risk and the plan is a defined benefit plan. The existence of a separate fund or fixed contributions does not change the economic substance.

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