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CA Final · Financial Reporting · Ind AS 19 Employee Benefits

Vihaan Pharma Ltd, an Indian company, is valuing its gratuity obligation, a defined benefit plan, in rupees. The actuary proposes to use the yield on AA-rated corporate bonds, as the corporate bond market in India is reasonably active. Under Ind AS 19 as notified in India, what is the correct basis for the discount rate for a rupee-denominated post-employment benefit obligation?

The discount rate is determined by reference to market yields on government bonds. Ind AS 19 departs from IAS 19, which prefers high quality corporate bonds where the market is deep. For rupee-denominated post-employment obligations under Ind AS 19, government bond yields are the required reference.

  1. AMarket yields on high quality corporate bonds, because the Indian corporate bond market is deep enough
  2. BThe entity's own weighted average cost of capital
  3. CThe expected rate of return on plan assets
  4. DMarket yields on government bondsCorrect

Explanation

Ind AS 19 differs from IAS 19 on this point. For rupee obligations the rate is determined by reference to market yields on government bonds. IAS 19 allows government bonds only where there is no deep market in high quality corporate bonds, so the corporate bond option is the IAS 19 approach and is wrong here.

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