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Union of India - Section

Section 146 in The Companies (Accounting Standards) Rules, 2006

146. This Standard requires immediate expending of expenditure on termination benefits (including expenditure incurred on voluntary retirement scheme (VRS)). However, where an enterprise incurs expenditure on termination benefits on or before 31st March, 2009, the enterprise may choose to follow the accounting policy of deferring such expenditure for amortisation over its pay-back period. However, the expenditure so deferred cannot be carried forward to accounting periods commencing on or after 1st April, 2010.

Illustration IIllustrationThis illustration is illustrative only and does not form part of the Standard. The purpose of this illustration is to illustrate the application of the Standard to assist in clarifying its meaning. Extracts from statements of profit and loss and balance sheets are provided to show the effects of the transactions described below. These extracts do not necessarily conform with all the disclosure and presentation requirements of other Accounting Standards.Background InformationThe following information is given about a funded defined benefit plan. To keep interest computations simple, all transactions are assumed to occur at the year end. The present value of the obligation and the fair value of the plan assets were both Rs. 1,000 at 1 April, 20x4.
    (Amount in Rs.)
  20X4-x5 20X5-x6 20x6-x7
Discount rate at start of year 10.0% 9.0% 8.0%
Expected rate of return on plan assets at start of year 12.0% 11.1% 10.3%
Current service cost 130 140 150
Benefits paid 150 180 190
Contributions paid 90 100 110
Present value of obligation at 31 March 1,141 1,197 1,295
Fair value of plan assets at 31 March 1,092 1,109 1,093
Expected average remaining working lives of employees (years) 10 10 10
In 20X5-X6, the plan was amended to provide additional benefits with effect from 1 April 20X5. The present value as at 1 April 20X5 of additional benefits for employee service before 1 April 20X5 was Rs. 50 for vested benefits and Rs. 30 for non-vested benefits. As at 1 April 20X5, the enterprise estimated that the average period until the non-vested benefits would become vested was three years; the past service cost arising from additional non-vested benefits is therefore recognised on a straight-line basis over three years. The past service cost arising from additional vested benefits is recognised immediately (paragraph 94 of the Standard).Changes in the Present Value of the Obligation and in the Fair Value of the Plan AssetsThe first step is to summarise the changes in the present value of the obligation and in the fair value of the plan assets and use this to determine the amount of the actuarial gains or losses for the period. These are as follows:
(Amount in Rs.)
  20X4-X5 20X5-X6 20X6-X7
Present value of obligation, 1 April 1,000 1,141 1,197
Interest cost 100 103 96
Current service cost 130 140 150
Past service cost -(non vested benefits) - 30 -
Past service cost -(vested benefits) - 50 -
Benefits paid (150) (180) (190)
Actuarial (gain) loss on obligation (balancing figure) 61 (87) 42
Present value of obligation 31 March 1,141 1,197 1,295
Fair value of plan assets, 1 April 1,000 1,092 1,109
Expected return on plan assets 120 121 114
Contributions 90 100 110
Benefits paid (150) (180) (190)
Actuarial gain (loss) on plan assets (balancing figure) 32 (24) (50)
Fair value of plan assets, 31 March 1,092 1,109 1,093
Total actuarial gain (loss) to be recognised immediately asper the Standard (29) 63 (92)
Amounts Recognised in the Balance Sheet and Statements of Profit and Loss, and Related AnalysesThe final step is to determine the amounts to be recognised in the balance sheet and statement of profit and loss, and the related analyses to be disclosed in accordance with paragraph 120 (f), (g) and (j) of the Standard (the analyses required to be disclosed in accordance with paragraph 120(c) and (e) are given in the section of this Illustration 'Changes in the Present Value of the Obligation and in the Fair Value of the Plan Assets'). These are as follows:
  (Amount in Rs.)
  20x4-X5 20x5-X6 20X6-X7
Present value of the obligation 1,141 1,197 1,295
Fair value of plan assets (1,092) (1,109) (1,093)
  49 88 202
Unrecognised past service cost -non vested benefits - (20) (10)
Liability recognised in balance sheet 49 68 192
Current service cost 130 140 150
Interest cost 100 103 96
Expected return on plan assets (120) (121) (114)
Net actuarial (gain) loss recognised in year 29 (63) 92
Past service cost - non-vested benefits - 10 10
Past service cost - vested benefits - 50 -
Expense recoeuised in the statement or profit and loss 139 119 234
Actual return on plan assets:      
Expected return on plan assets 120 121 114
Actuarial gain (loss) on plan assets 32 (24) (50)
Actual return on plan assets 152 97 64
Note: see example illustrating paragraphs 103-105 for presentation of reimbursements,Illustration IIIllustrative DisclosuresThis illustration is illustrative only and does not form part of the Standard. The purpose of this illustration is to illustrate the application of the Standard to assist in clarifying its meaning. Extracts from notes to the financial statements show how the required disclosures may be aggregated in the case of a large multi-national group that provides a variety of employee benefits. These extracts do not necessarily provide all the information required under the disclosure and presentation requirements of AS 15 and other Accounting Standards. In particular, they do not illustrate the disclosure of:
(a)accounting policies for employee benefits (see AS 1 Disclosure of Accounting Policies). Paragraph 120(a) of the Standard requires this disclosure to include the enterprise's accounting policy for recognising actuarial gains and losses.
(b)a general description of the type of plan [paragraph 120(b)].
(c)a narrative description of the basis used to determine the overall expected rate of return on assets [paragraph 120(j)].
(d)employee benefits granted to directors and key management personnel (see 45 18 Related Party Disclosures).
Employee Benefit ObligationsThe amounts (in Rs.) recognised in the balance sheet are as follows:
  Defined benefit pension plans Post-employment medical benefits
20X5-X6 20X4-X5 20X5-X6 20X4-X5
Present value of funded obligations 20,300 17,400 – –
Fair value of plan assets 18,420 17,280 – –
  1,880 120 – –
Present value of unfunded obligations 2000 1000 7,337 6,405
Unrecognised past service cost (450) (650) – –
Net liability 3,430 470 7,337 6,405
Amounts in the balance sheet:
Liabilities 3,430 560 7,337 6,405
Assets – (90) – –
Net liability 3,430 470 7,337 6,405
The pension plan assets include equity shares issued by [name of reporting enterprise] with a fair value of Rs. 317 (20X4-X5: Rs. 281). Plan assets also include property occupied by [name of reporting enterprise] with a fair value of Rs. 200 (20X4-X5: Rs. 185).The amount (in Rs.) recognised in the statement of profit and loss are as follows:
  Defined benefit pension plans Post-employment medical benefits
  20X5-X6 20X4-X5 20X5-X6 20X4-X5
Current service cost 850 750 479 411
Interest on obligation 950 1,000 803 705
Expected return on plan assets (900) (650) – –
Net actuarial losses (gains) recognised in year 2650 (650) 250 400
Past service cost 200 200 – –
Losses (gains) on curtailments and settlements 175 (390) – –
Total, included in 'employ benefit expense' 3,925 260 1,532 1,516
Actual return on plan assets 600 2,250 – –
Changes in the present value of the defined benefit obligation representing reconciliation of the opening and closing balances thereof are as follows :
  Defined benefitpension plans Post employees medical benefits
| 20X5-X6 20X4-X5 20X5-X6 20X4-X6
Opening defined benefit obligation 18,400 11,600 6,405 5,439
Service cost 850 750 479 411
Interest cost 950 1,000 803 705
Acturial losses (gains) 2,350 950 250 400
Losses (gains) on curtailments (500) -    
Liablitites extinguished on settlements - (350)    
Liabilities assumed in an amalgamation in the nature ofpurchase - 5,000    
Exchange differences on foreign plans   900 (150)  
Benefits paid (650) (400) (600) (550)
Closing defined benefit obligation 22,300 18,400 7,337 6,405
Changes in the fair value of plan assets representing reconciliation of the opening and closing balances thereof are as follows:
  Defined pension benefit plans
  20X5-X6 20X4-X5
Opening fair value of plan assets 17,280 9,200
Expected return 900 650
Actuarial gains and (losses) (300) 1,600
Assets distributed on settlements (400) -
Contributions by employer 700 350
Assets acquired in an amalgamationin the nature of purchase - 6,000
Exchange differences on foreignplans 890 (120)
Benefits paid (650) 400
  18,420 17,280
The Group expects to contributeRs. 900 to its defined benefit pension plans in 20X6-X7.
The major categories of planassets as a percentage of total plan assets are as follows:
  Defined benefit pension plans Post-employment medical benefits
  20X5-X6 20X4-X5 20X5-X6 20X4-X5
Government of India Securities 80% 82% 78% 81%
High quality corporate bonds 11% 10% 12% 12%
Equity shares of listed companies 4% 3% 10% 7%
Property 5% 5% - -
Principal actuarial assumptions at the balance sheet date(expressed as weighted averages):
      20X5-X6 20X4-X5
Discount rate at 31 March 5.0% 65%
Expected return on plan assets at 31 March 5.4% 7.0%
Proportion of employees opting for early retirement 30% 30%
Annual increase in healthcare costs 8% 8%
Future changes in maximum state health care benefits 3% 2%
The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.Assumed healthcare cost trend rates have a significant effect on the amounts recognised in the statement of profit and loss. At present, healthcare costs, as indicated in the principal actuarial assumption given above, are expected to increase at 8% p.a. A one percentage point change in assumed healthcare cost trend rates would have the following effects on the aggregate of the service cost and interest cost and defined benefit obligation:
  One percentage percentage point increase One point decrease
Effect on the aggregate of the service cost and interest cost 190 (150)
Effect on defined benefit obligation 1,000 (900)
Amounts for the current and previous four periods are asfollows:
Defined benefit pension plans 20X5-X6 20X4-X5 20X3-X4 20X2-X3 20X1-X2
Defined benefit obligation (22,300) (18,400) (11,600) (10,582) (9,144)
Plan assets 18,420 17,280 9,200 8,502 10,000
Surplus/ (deficit) (3,880) (1,120) (2,400) (2,080) 856
Experience adjustments on plan liabilities (1,111) (768) (69) 543 (642)
Experience adjustments on plan assets (300) 1,600 (1,078) (2,890) 2,777
Post-employment medical benefits 20X5-X6 20X4-X5 20X3-X4 20X2-X3 20X1-X2
Defined benefit obligation 7,337 6,405 5,439 4,923 4,221
Experience adjustments on plan liabilities (232) 829 490 (174) (103)
The Group Also Participates In An Industry-Wide Defined Benefit Plan Which Provides Pensions Linked To Final Salaries And Is Funded In A Manner Such That Contributions Are Set At A Level That Is Expected To Be Sufficient To Pay The Benefits Falling Due In The Same Period. It Is Not Practicable To Determine The Present Value Of The Group's Obligation Or The Related Current Service Cost As The Plan Computes Its Obligations On A Basis That Differs Materially From The Basis Used In [Name Of Reporting Enterprise's] Financial Statements, [Describe Basis] On That Basis, The Plan's Financial Statements To 30 September 20x3 Show An Unfunded Liability Of Rs. 27,525. The Unfunded Liability Will Result In Future Payments By Participating Employers. The Plan Has Approximately 75,000 Members, Of Whom Approximately 5,000 Are Current Or Former Employees Of [Name Of Reporting Enterprise] Or Their Dependants. The Expense Recognised In The Statement Of Profit And Loss, Which Is Equal To Contributions Due For The Year, And Is Not Included In The Above Amounts, Was Rs. 230 (20x4-X5: Rs, 215). The Group's Future Contributions May Be Increased Substantially If Other Enterprises Withdraw From The Plan.