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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Tara Auto Ltd. has a defined benefit plan. Opening: obligation Rs 20,00,000; plan assets Rs 18,00,000. Discount rate 10%; expected return on plan assets 12%. Current service cost Rs 3,00,000. Benefits paid Rs 2,00,000 (end of year) and contributions Rs 2,50,000 (end of year). Actuarial loss on obligation for the year is Rs 70,000, and actuarial gain on plan assets is Rs 20,000. Assume all actuarial gains and losses are recognised immediately in the Statement of Profit and Loss, and no past service cost arises. What is the total expense charged to profit and loss for the year?

The total expense is Rs 3,34,000. It is current service cost Rs 3,00,000 plus interest cost Rs 2,00,000, less expected return Rs 2,16,000, plus net actuarial loss of Rs 50,000 (Rs 70,000 loss on obligation less Rs 20,000 gain on assets), all recognised immediately.

  1. ARs 3,34,000Correct
  2. BRs 3,44,000
  3. CRs 2,94,000
  4. DRs 3,04,000

Explanation

Interest cost = 10% x 20,00,000 = 2,00,000. Expected return = 12% x 18,00,000 = 2,16,000. Expense = current service 3,00,000 + interest 2,00,000 - expected return 2,16,000 + net actuarial loss (70,000 - 20,000 = 50,000) = 3,34,000. Omitting the plan-asset gain gives 3,54,000, and ignoring actuarial items gives 2,84,000, neither correct.

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