PPT: Accounting Standards (15) | Advanced Accounting for CA Intermediate PDF Download

 Page 1


• Deals with all employee benefits other than employee 
share based payments and includes:
• Formal plans or agreements of companies with employees;
• Legislative or industry requirements;
• Informal practices that give rise to an obligation;
• Whether paid to the employees, family, nominees or any 
trusts, insurance companies or association on their behalf.
• The standard classified benefits into four categories:
• Short term employee benefits;
• Post employment benefits;
• Other long term employee benefits;
• Termination benefits.
Page 2


• Deals with all employee benefits other than employee 
share based payments and includes:
• Formal plans or agreements of companies with employees;
• Legislative or industry requirements;
• Informal practices that give rise to an obligation;
• Whether paid to the employees, family, nominees or any 
trusts, insurance companies or association on their behalf.
• The standard classified benefits into four categories:
• Short term employee benefits;
• Post employment benefits;
• Other long term employee benefits;
• Termination benefits.
• Employee benefit plans are classified as below:
Defined contribution plans
Those post-employment benefit plans where the enterprises pay
fixed contributions to a fund or separate entity and will have no
further obligation if the fund does not hold sufficient assets to pay
off all employee benefits
Defined benefit plans
Those post-employment benefit plans where the enterprises
provide agreed benefits to the employees irrespective of the fund
status
The standard prescribes actuarial valuation for defined
benefit plans and other long term employee benefits
Page 3


• Deals with all employee benefits other than employee 
share based payments and includes:
• Formal plans or agreements of companies with employees;
• Legislative or industry requirements;
• Informal practices that give rise to an obligation;
• Whether paid to the employees, family, nominees or any 
trusts, insurance companies or association on their behalf.
• The standard classified benefits into four categories:
• Short term employee benefits;
• Post employment benefits;
• Other long term employee benefits;
• Termination benefits.
• Employee benefit plans are classified as below:
Defined contribution plans
Those post-employment benefit plans where the enterprises pay
fixed contributions to a fund or separate entity and will have no
further obligation if the fund does not hold sufficient assets to pay
off all employee benefits
Defined benefit plans
Those post-employment benefit plans where the enterprises
provide agreed benefits to the employees irrespective of the fund
status
The standard prescribes actuarial valuation for defined
benefit plans and other long term employee benefits
Accounting for Defined Benefit Plans involves :
• use of actuarial techniques to determine the amount employees
earn in return of their service for the current and prior periods,
expectations about demographic variables, financial variables
affecting costs;
• Using Projected Unit Credit Method (PUC) to determine the
present value of defined benefit obligation and current service
cost;
• Determining the fair value of plan assets;
• Determining the amounts of actuarial gains and losses;
• In case of change of plan, the resulting past service cost;
• In case of curtailment/settlement, determining the resultant
gain/loss
Page 4


• Deals with all employee benefits other than employee 
share based payments and includes:
• Formal plans or agreements of companies with employees;
• Legislative or industry requirements;
• Informal practices that give rise to an obligation;
• Whether paid to the employees, family, nominees or any 
trusts, insurance companies or association on their behalf.
• The standard classified benefits into four categories:
• Short term employee benefits;
• Post employment benefits;
• Other long term employee benefits;
• Termination benefits.
• Employee benefit plans are classified as below:
Defined contribution plans
Those post-employment benefit plans where the enterprises pay
fixed contributions to a fund or separate entity and will have no
further obligation if the fund does not hold sufficient assets to pay
off all employee benefits
Defined benefit plans
Those post-employment benefit plans where the enterprises
provide agreed benefits to the employees irrespective of the fund
status
The standard prescribes actuarial valuation for defined
benefit plans and other long term employee benefits
Accounting for Defined Benefit Plans involves :
• use of actuarial techniques to determine the amount employees
earn in return of their service for the current and prior periods,
expectations about demographic variables, financial variables
affecting costs;
• Using Projected Unit Credit Method (PUC) to determine the
present value of defined benefit obligation and current service
cost;
• Determining the fair value of plan assets;
• Determining the amounts of actuarial gains and losses;
• In case of change of plan, the resulting past service cost;
• In case of curtailment/settlement, determining the resultant
gain/loss
The auditors’ expect the use of Projected Unit Credit (PUC)
method for the determination of liability being prescribed
under AS 15.
Projected Unit Credit (PUC) Method
The PUC Method considers each period of service as giving
rise to an additional unit of benefit entitlement and
measures each unit separately to build up the final
obligation. The obligation arises as employees render
services in return for post-employment benefits which an
enterprise expects to pay in future reporting periods. These
are then discounted to their present value. An enterprise
discounts the whole of a post-employment benefit
obligation, even if part of the obligation falls due within
twelve months of the balance sheet date
Page 5


• Deals with all employee benefits other than employee 
share based payments and includes:
• Formal plans or agreements of companies with employees;
• Legislative or industry requirements;
• Informal practices that give rise to an obligation;
• Whether paid to the employees, family, nominees or any 
trusts, insurance companies or association on their behalf.
• The standard classified benefits into four categories:
• Short term employee benefits;
• Post employment benefits;
• Other long term employee benefits;
• Termination benefits.
• Employee benefit plans are classified as below:
Defined contribution plans
Those post-employment benefit plans where the enterprises pay
fixed contributions to a fund or separate entity and will have no
further obligation if the fund does not hold sufficient assets to pay
off all employee benefits
Defined benefit plans
Those post-employment benefit plans where the enterprises
provide agreed benefits to the employees irrespective of the fund
status
The standard prescribes actuarial valuation for defined
benefit plans and other long term employee benefits
Accounting for Defined Benefit Plans involves :
• use of actuarial techniques to determine the amount employees
earn in return of their service for the current and prior periods,
expectations about demographic variables, financial variables
affecting costs;
• Using Projected Unit Credit Method (PUC) to determine the
present value of defined benefit obligation and current service
cost;
• Determining the fair value of plan assets;
• Determining the amounts of actuarial gains and losses;
• In case of change of plan, the resulting past service cost;
• In case of curtailment/settlement, determining the resultant
gain/loss
The auditors’ expect the use of Projected Unit Credit (PUC)
method for the determination of liability being prescribed
under AS 15.
Projected Unit Credit (PUC) Method
The PUC Method considers each period of service as giving
rise to an additional unit of benefit entitlement and
measures each unit separately to build up the final
obligation. The obligation arises as employees render
services in return for post-employment benefits which an
enterprise expects to pay in future reporting periods. These
are then discounted to their present value. An enterprise
discounts the whole of a post-employment benefit
obligation, even if part of the obligation falls due within
twelve months of the balance sheet date
• Assumptions should be unbaised and mutually compatible.
• Financial assumptions such as discount rate, future salary
and benefit levels, future medical costs, expected rate of
return on plan assets, etc should be based on market
expectations
• Demographic assumptions like mortality rate, rate of
employee turnover, disability, early retirement, proportion
of plan members with eligible dependents, claim rates
under medical plans, etc should be reliable
• Discount rate should be determined with reference to
market yields at the Balance Sheet date on Government
Bonds and its currency and term should be consistent with
that of the plan
• Assumptions about medical costs should take account of
estimated future changes in the cost of medical services,
resulting from both inflation and specific changes in
medical costs.