(Summary) Ind AS 19
Is to prescribe the accounting and disclosure for employee benefits.
This Standard shall be applied by an employer in accounting for all employee benefits, except those to which Ind AS 102, Share-based Payment, applies.
It does not deal with reporting by employee benefit plans.
Employee Benefits include:
- Short term employee benefits
- Post-employment benefits
- Other long term employee benefits
- Termination Benefits
- Employee benefits
- Short – term employee benefits
- Post – employment benefits
- Other long – term employee benefits
- Termination benefits
- Actuarial gains and losses
Employee benefits: All forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment.
Short-term employee benefits if expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render services.
- Recognition and measurement:
When an employee has rendered service to an entity during an accounting period, the entity shall recognise the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service-
- As a liability after deducting any amount already paid.
- As an expense.
- Profit-sharing and bonus plans
An entity shall recognise the expected cost of profit-sharing and bonus payments when and only when:
- The entity has a present legal or constructive obligation to make such payments as a result of past events
- A reliable estimate of the obligation can be made.
- Defined Contribution plans
- Defined Benefit plans
- The entity pays fixed contributions into a fund but has no legal or constructive obligation to make further payments if the fund does not have sufficient assets to pay all of the employees’ entitlements to post-employment benefits. The entity’s obligation is therefore effectively limited to the amount it agrees to contribute to the fund and effectively place actuarial and investment risk on the employee.
- For defined contribution plans, the amount recognised in the period is the contribution payable in exchange for service rendered by employees during the period.
- Contributions to a defined contribution plan which are not expected to be wholly settled within 12 months after the end of the annual reporting period in which the employee renders the related service to be discounted.
These are post-employment benefit plans other than a defined contribution plans. These plans create an obligation on the entity to provide agreed benefits to current and past employees and effectively places actuarial and investment risk on the entity.
An entity shall recognise the net defined benefit liability (asset) in the BS.
When an entity has a surplus in a defined benefit plan, it shall measure the net defined benefit asset at the lower of:
- The surplus in the defined benefit plan;
- The asset ceiling
- To measure the present value of the post-employment benefit obligations and the related current service cost, it is necessary:
- To apply an actuarial valuation method
- To attribute benefit to periods of service
- To make actuarial assumptions
- Deficit/Surplus=Present Value of the defined benefit obligation-FV of plan assets.
- Use projected unit credit method (or accrued benefit method pro-rated on service or as benefit / years of service method) → To determine PV of its Defined benefit obligations and related current / past service cost.
- In determining the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost, an entity shall attribute benefit to periods of service under the plan’s benefit formula.
- However, if an employee’s service in later years will lead to a materially higher level of benefit than in earlier years, an entity shall attribute benefit on a straight-line basis from:
- The date when service by the employee first leads to benefits under the plan (whether or not the benefits are conditional on further service) until
- The date when further service by the employee will lead to no material amount of further benefits under the plan, other than from further salary increases.
- It should be unbiased and mutually compatible.
- It is an entity’s best estimates of the variables that will determine the ultimate cost of providing post-employment benefits.
- Financial assumptions shall be based on market expectations.
Are determined by reference to its best estimate of the mortality of plan members both during and after employment.
The rate used to discount post-employment benefit obligations (both funded and unfunded) shall be determined by reference to market yields at the end of the reporting period on government bonds.
Salaries, benefits and medical costs:
- Assumptions about expected salaries and benefits reflect the terms of the plan, future salary increases, any limits on the employer’s share of cost, contributions from employees or third parties, and estimated future changes in state benefits that impact benefits payable.
- Medical cost assumptions incorporate future changes resulting from inflation and specific changes in medical costs.
Past service costs:
Before determining past service cost, or a gain or loss on settlement, an entity shall remeasure the net defined benefit liability (asset) using the current fair value of plan assets and current actuarial assumptions (including current market interest rates and other current market prices) reflecting the benefits offered under the plan before the plan amendment, curtailment or settlement.
Past service cost is recognised as an expense at the earlier of the date when a plan amendment or curtailment occurs and the date when an entity recognises any termination benefits, or related restructuring costs under Ind AS 37.
Gains or losses on the settlement of a defined benefit plan are recognised when the settlement occurs.
Recognition of defined benefit costs:
The components of defined benefit cost is recognised as follows:
|Service cost attributable to the current and past periods||
Profit or loss
|Net interest on the net defined benefit liability or asset, determined using the discount rate at the beginning of the period||
Profit or loss
|Remeasurements of the net defined benefit liability or asset, comprising:
· actuarial gains and losses
· return on plan assets
some changes in the effect of the asset ceiling
Ind AS 19 also provides guidance in relation to:
- When an entity should recognise a reimbursement of expenditure to settle a defined benefit obligation
- When it is appropriate to offset an asset relating to one plan against a liability relating to another plan
- Accounting for multi-employer plans by individual employers
- Defined benefit plans sharing risks between entities under common control
- Entities participating in state plans.
- Insurance premiums paid to fund post-employment benefit plans.
- An explanation of the characteristics of an entity’s defined benefit plans, and the associated risks
- Identification and explanation of the amounts arising in the financial statements from defined benefit plans
- A description of how defined benefit plans may affect the amount, timing and uncertainty of the entity’s future cash flows.
Additional disclosures are required in relation to multi-employer plans.
- The recognition and measurement of a surplus or deficit in an other long-term employee benefit plan is consistent with the requirements outlined above.
- Service cost, net interest and remeasurements are all recognised in profit or loss (unless recognised in the cost of an asset under another Ind AS).