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Union of India - Section
Section 95 in The Companies (Accounting Standards) Rules, 2006
95. Past service cost arises when an enterprise introduces a defined benefit plan or changes the benefits payable under an existing defined benefit plan. Such changes are in return for employee service over the period until the benefits concerned are vested. Therefore, past service cost is recognised over that period, regardless of the fact that the cost, refers to employee service in previous periods. Past service cost is measured as the change in the liability resulting from the amendment (see paragraph 65).
| Example Illustrating paragraph 95 | |
| An enterprise operates a pension plan that provides a pensionof 2% of final salary for each year of service. The benefitsbecome vested after five years of service. On 1 January 20X5 theenterprise improves the pension to 2.5% of final salary for eachyear of service starting form 1 January 20X1. At the date of theimprovement, the present value of the additional benefits forservice from 1 January 20X1 to 1 January 20X5 is as follows: | |
| Employees with more than five years' service at 1/1/X5 | Rs. 150 |
| Employees with less than five years' service at 1/1/X5(average period until vesting: three years) | Rs. 120 |
| Rs.270 | |
| The enterprise recognises Rs. 150 immediately because thosebenefits are already, vested. The enterprise recognises Rs. 120on a straight-line basis over three years from 1st January 20x5. |