XYZ Ltd. operates a defined retirement benefits plan on behalf of current and former employees. XYZ Ltd. receives advice from actuaries regarding…
CA Final · Financial Reporting · PYQS · September 2025
XYZ Ltd. operates a defined retirement benefits plan on behalf of current and former employees. XYZ Ltd. receives advice from actuaries regarding contribution levels and overall liabilities of the plan to pay benefits. On 1 st April, 2024, the actuaries advised that the present value of the defined benefit obligation was 90 lakhs. On the same day, the fair value of the assets of the defined benefit plan was 78 lakhs. On 1 st April, 2024, the annual market yield on high quality corporate bonds* was 6%. During the year ended 31 st March, 2025, XYZ Ltd. made contributions of 10,50,000 into the plan and the plan paid out benefits of 6,30,000 to retired members. Assume that both these payments were made on 31 st March, 2025. The actuaries advised that the current service cost for the year ended 31 st March, 2025 was - 9,30,000. On 28 th February, 2025, the rules of the plan were amended with retrospective effect. These amendments meant that the present value of defined benefit obligation was increased by - 2,25,000 from that date. During the year ended 31 st March, 2025, XYZ Ltd. was in negotiation with employees' representatives regarding redundancies. The negotiations were completed shortly before the year and the redundancy packages were agreed. The impact of these redundancies was to reduce the present value of the defined benefit obligation by - 12,00,000. Before 31 st March, 2025, XYZ Ltd. made payments of 11,25,000 to the employees affected by the redundancies in compensation for the curtailment of their benefits. These payments were made out of the assets of the retirement benefits plan. On 31 st March, 2025, the actuaries advised that the present value of the defined benefit obligation was - 1,02,00,000. On the same day, the fair value of the assets of the defined benefit plan were - 84,00,000. You are required to suggest the accounting treatment of the above under the provisions of relevant Ind AS. Please note that the finance cost is to be computed on the opening balance.
Suggested Answer and Working Notes:
On 31 st March 2025, XYZ Ltd. will report a net pension liability in the Balance sheet. The amount of the liability will be - 18,00,000 (₹ 1,02,00,000 -84,00,000). For the year ended 31 st March 2025, XYZ Ltd. will report the current service cost as an operating cost in the statement of profit and loss. The amount reported will be - 9,30,000. The same treatment applies to the past service cost of 2,25,000. For the year ended 31 st March 2025, XYZ Ltd. will report a finance cost in profit or loss based on the net pension liability at the start of the year of 12,00,000 (₹ 90,00,000 - 78,00,000). The amount of the finance cost will be - 72,000 (₹ 12,00,000 × 6%). The redundancy programme represents the partial settlement of the curtailment of a defined benefit obligation. The gain on settlement of 75,000 (₹ 12,00,000 - 11,25,000) will be reported in the statement of profit and loss. Other movements in the net pension liability will be reported as remeasurement gains or losses in other comprehensive income. For the year ended 31 st March 2025, the remeasurement loss will be - 4,98,000 (Refer W. N.). Working Note: Remeasurement of gain or loss Particulars ₹ Liability at the start of the year (₹ 90,00,000 - 78,00,000) 12,00,000 Current service cost 9,30,000 Past service cost 2,25,000 Net finance cost 72,000 Gain on settlement (75,000) Contributions to plan (10,50,000) Remeasurement loss (balancing figure) 4,98,000 Liability at the end of the year (₹ 1,02,00,000 - 84,00,000) 18,00,000 In the Statement of Profit and loss, the following will be recognised: Particulars ₹ Current service cost 9,30,000 Finance Cost (Net interest) on net defined liability [(₹ 90,00,000 - 78,00,000) x 6%] 72,000 Past Service Cost 2,25,000 Gain on Settlement (75,000) Defined benefit re-measurements recognised in Other Comprehensive Income: ₹ Loss on defined benefit obligation (4,98,000) In the Balance sheet, the following will be recognised: ₹ Defined benefit liability (₹ 1,02,00,000 - 84,00,000) 18,00,000 Note: Alternatively, one may work out remeasurement gain/loss by making statement or ledger account of defined benefit obligation and plan assets as follows: Statement to Calculate Actuarial Gain or Loss on Defined Benefit Liability and Plan Assets Plan Assets Defined Benefit obligation Particulars ₹ Fair Value/Present Value as on 1 st April, 2024 78,00,000 90,00,000 Interest @ 6% 4,68,000 5,40,000 Current Service Cost 9,30,000 Past Service Cost 2,25,000 Redundancy benefit (11,25,000) (12,00,000) Contribution received 10,50,000 Contribution paid (6,30,000) (6,30,000) Return on Plan Assets (Balancing Figure) 8,37,000 Actuarial loss (Balancing Figure) 13,35,000 Closing Balance as on 31 st March, 2025 84,00,000 1,02,00,000
Topics: Ind AS 19, Ind AS 1
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