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Union of India - Section
Section 116 in The Companies (Accounting Standards) Rules, 2006
116. Where a curtailment relates to only some of the employees covered by a plan, or where only part of an obligation is settled, the gain or loss includes a proportionate share of the previously unrecognised past service cost. The proportionate share is determined on the basis of the present value of the obligations before and after the curtailment or settlement, unless another basis is more rational in the circumstances.
| Example Illustrating Paragraph 116 | |||
| An enterprise discontinues a business segment and employeesof the discontinued segment will earn no further benefits. Thisis a curtailment without a settlement. Using current actuarialassumptions (including current market interest rates and othercurrent market prices) immediately before the curtailment, theenterprise has a defined benefit obligation with a net presentvalue of Rs. 1,000 and plan assets with a fair value of Rs. 820and unrecognised past service cost of Rs. 50. The curtailmentreduces the net present value of the obligation by Rs. 100 toRs. 900. | |||
| Of the previously unrecognised past service cost, 10% (Rs.l00/Rs.1000) relates to the part of the obligation that waseliminated through the curtailment. Therefore, the effect of thecurtailment is as follows: | |||
| (Amount in Rs.) | |||
| Before Curtailment | Curtailment gain | After curtailment | |
| Net present value of obligation | 1,000 | (100) | 900 |
| Fair value of plan assets | (820) | _ | (820) |
| 180 | (100) | 80 | |
| Unrecognised past service cost | (50) | 5 | (45) |
| Net liability recognised in balance sheet | 130 | (95) | 35 |