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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Vindhya Foods Ltd announced a restructuring and, under a formal plan, will pay termination benefits of Rs 20,00,000 to employees leaving after 18 months from the balance sheet date. The company is demonstrably committed and cannot withdraw the offer. The discount rate is 10%. Which statement is correct under AS 15?

The company should recognise a liability and expense now, measured at discounted present value. AS 15 requires recognition of termination benefits once there is a demonstrable commitment, and discounting where payment is due beyond twelve months.

  1. ARecognise a liability and expense, discounted to present value, as the benefits fall due more than 12 months after the balance sheet dateCorrect
  2. BRecognise the full Rs 20,00,000 undiscounted when the employees actually leave
  3. CDisclose as a contingent liability only
  4. DRecognise it over the future service period of the employees

Explanation

Termination benefits are recognised as a liability and expense when the enterprise is demonstrably committed to terminate employment under a detailed formal plan without realistic possibility of withdrawal. Where benefits fall due more than 12 months after the balance sheet date, they are discounted using the discount rate. Spreading over future service is wrong because no future service is provided in exchange.

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