ASLB 39 Employee Benefits

Accounting Standard for Local Bodies ASLB 39,
Employee Benefits
Contents
Paragraphs
OBJECTIVE 1
SCOPE 2-7
DEFINITIONS 8
SHORT-TERM EMPLOYEE BENEFITS 9-25
Recognition and Measurement 11-24
Disclosure 25
POST-EMPLOYMENT BENEFITS-DISTINCTION BETWEEN
DEFINED CONTRIBUTION PLANS AND DEFINED BENEFIT
PLANS 26-51
Multi-Employer Plans 32-39
Defined Benefit Plans where the Participating Entities
under Common Control 40-43
State Plans 44-47
Insured Benefits 48-51
POST-EMPLOYMENT BENEFITS-DEFINED CONTRIBUTION
PLANS 52-56
Recognition and Measurement 53-54
Disclosure 55-56
POST-EMPLOYMENT BENEFITS-DEFINED BENEFIT PLANS 57-154
Recognition and Measurement 58-67
Recognition and Measurement―Present Value of
Defined Benefit Obligations and Current Service Cost 68-100
Past Service Cost and Gains and Losses on Settlement 101-114
Recognition and Measurement-Plan Assets 115-121
Components of Defined Benefit Cost 122 -132
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Presentation 133-136
Disclosure 137-154
OTHER LONG-TERM EMPLOYEE BENEFITS 155-161
Recognition and Measurement 158-160
Disclosure 161
TERMINATION BENEFITS 162-174
Recognition 168-171
Measurement 172-173
Disclosure 174
APPENDIX A: APPLICATION GUIDANCE
APPENDIX 1 COMPARISON WITH IPSAS 39, ‘EMPLOYEE BENEFITS’
APPENDIX 2 COMPARISON WITH EXISTING AS 15, ‘EMPLOYEE
BENEFITS’

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Accounting Standard for Local Bodies ASLB 39,
Employee Benefits
(This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the context
of its objective and the ‘Preface to Accounting Standards for Local Bodies’1.)
The Accounting Standards for Local Bodies (ASLB) 39, „Employee Benefits‟,
issued by the Council of the Institute of the Chartered Accountants of India,
will be recommendatory in nature in the initial years for use by the local
bodies. This Standard will be mandatory for local bodies in a State from the
date specified in this regard by the State Government concerned 2.
The following is the text of the Accounting Standard for Local Bodies:

Objective
1. The objective of this Standard is to prescribe the accounting and
disclosure for employee benefits. The Standard requires an entity to
recognise:
(a) A liability when an employee has provided service in exchange for
employee benefits to be paid in the future; and
(b) An expense when the entity consumes the economic benefits or
service potential arising from service provided by an employee in
exchange for employee benefits.

Scope
2. This Standard should be applied by an employer in accounting for
all employee benefits, except share-based transactions.
3. This Standard does not deal with reporting by employee retirement

1 Attentionis specifically drawn to paragraph 4.2 of the ‘Preface to Accounting
Standards for Local Bodies’, according to which Accounting Standards are intended
to apply only to items which are material.
2 In respect of compliance with the Accounting Standards for Local Bodies, reference

may be made to the paragraph 7.1 of the ‘Preface to the Accounting Standards for Local
Bodies’.

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benefit plans. This Standard does not deal with benefits provided by
composite social security programs that are not consideration in
exchange for service rendered by employees or past employees of
entities.
4. The employee benefits to which this Standard applies include those
provided:
(a) Under formal plans or other formal agreements between an
entity and individual employees, groups of employees, or their
representatives;
(b) Under legislative requirements, or through industry
arrangements, whereby entities are required to contribute to
national, state, industry, or other multi-employer plans, or where
entities are required to contribute to the composite social
security program; or
(c) By those informal practices that give rise to a constructive
obligation. Informal practices give rise to a constructive
obligation where the entity has no realistic alternative but to pay
employee benefits. An example of a constructive obligation is
where a change in the entity's informal practices would cause
unacceptable damage to its relationship with employees.
5. Employee benefits include:
(a) Short-term employee benefits, such as following, if expected to
be settled wholly before twelve months after the end of the
reporting period in which the employees render the related
services:
(i) Wages, salaries, and social security contributions;
(ii) Paid annual leave and paid sick leave;
(iii) Surplus-sharing and bonuses; and
(iv) Non-monetary benefits (such as medical care, housing,
cars, and free or subsidised goods or services) for
current employees;
(b) Post-employment benefits such as the following:
(i) Retirement benefits (e.g., pensions and lump sum
payments on retirement); and

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(ii) Other post-employment benefits, such as post-
employment life insurance and post-employment medical
care;
(c) Other long-term employee benefits, such as the following:
(i) Long-term paid absences such as long-service leave or
sabbatical leave;
(ii) Jubilee or other long-service benefits; and
(iii) Long-term disability benefits; and
(d) Termination benefits.
6. Employee benefits include benefits provided either to employees or to
their dependants, and may be settled by payments (or the provision of
goods or services) made either directly to the employees, to their
spouses, children, or other dependants, or to others, such as
insurance companies.
7. An employee may provide services to an entity on a full-time, part-
time, permanent, casual, or temporary basis. For the purpose of this
Standard, employees include key management personnel as defined
in ASLB 20, „Related Party Disclosures’.
7A. This Standard applies to all entities described as local bodies in
the Preface to Accounting Standards for Local Bodies 3.

Definitions
8. The following terms are used in this Standard with the meanings
specified:
Definitions of Employee Benefits
Employee benefits are 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 are employee benefits (other than
termination benefits) that are due to be settled wholly before
twelve months after the end of the reporting period in which the
employees render the related service.

3 Refer paragraph 1.3 of the „Preface to the Accounting Standards for Local Bodies‟.

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Post-employment benefits are employee benefits (other than
termination benefits and short-term employee benefits) that are
payable after the completion of employment.
Other long-term employee benefits are all employee benefits
other than short-term employee benefits, post-employment
benefits and termination benefits.
Termination benefits are employee benefits provided in exchange
for the termination of an employee’s employment as a result of
either:
(a) An entity’s decision to terminate an employee’s
employment before the normal retirement date; or
(b) An employee’s decision to accept an offer of benefits in
exchange for the termination of employment.
Definitions Relating to Classification of Plans
Post-employment benefit plans are formal or informal
arrangements under which an entity provides post-employment
benefits for one or more employees.
Defined contribution plans are post-employment benefit plans
under which an entity pays fixed contributions into a separate
entity (a fund), and will have no legal or constructive obligation to
pay further contributions if the fund does not hold sufficient
assets to pay all employee benefits relating to employee service
in the current and prior periods.
Defined benefit plans are post-employment benefit plans other
than defined contribution plans.
Multi-employer plans are defined contribution plans (other than
state plans) or defined benefit plans (other than state plans) that:
(a) Pool the assets contributed by various entities that are not
under common control; and
(b) Use those assets to provide benefits to employees of more
than one entity, on the basis that contribution and benefit
levels are determined without regard to the identity of the
entity that employs the employees.

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State plans are plans established by legislation that operate as if
they are multi-employer plans for all entities in economic
categories laid down in legislation.
Definitions Relating to the Net Defined Benefit Liability (Asset)
The net defined benefit liability (asset) is the deficit or surplus,
adjusted for any effect of limiting a net defined benefit asset to
the asset ceiling.
The deficit or surplus is:
(a) The present value of a defined benefit obligation less
(b) The fair value of plan assets (if any).
The asset ceiling is the present value of any economic benefits
available in the form of refunds from the plan or reductions in
future contributions to the plan.
The present value of a defined benefit obligation is the present
value, without deducting any plan assets, of expected future
payments required to settle the obligation resulting from
employee service in the current and prior periods.
Plan assets comprise:
(a) Assets held by a long-term employee benefit fund; and
(b) Qualifying insurance policies.
Assets held by a long-term employee benefit fund are assets
(other than non-transferable financial instruments 4 issued by the
reporting entity) that:
(a) Are held by an entity (a fund) that is legally separate from
the reporting entity and exists solely to pay or fund
employee benefits; and
(b) Are available to be used only to pay or fund employee
benefits, are not available to the reporting entity's own

4 The guidance with regard to financial instruments may be obtained from other
corresponding pronouncements as per the hierarchy prescribed in paragraph 15
of the ASLB 3, ‘Accounting Policies, Changes in Accounting Estimates, and
Errors’.

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creditors (even in bankruptcy), and cannot be returned to
the reporting entity, unless either:
(i) The remaining assets of the fund are sufficient to
meet all the related employee benefit obligations of
the plan or the reporting entity; or
(ii) The assets are returned to the reporting entity to
reimburse it for employee benefits already paid.
A qualifying insurance policy is an insurance policy 5 issued by an
insurer that is not a related party (as defined in ASLB 20) of the
reporting entity, if the proceeds of the policy:
(a) Can be used only to pay or fund employee benefits under a
defined benefit plan; and
(b) Are not available to the reporting entity's own creditors
(even in bankruptcy) and cannot be paid to the reporting
entity, unless either :
(i) The proceeds represent surplus assets that are not
needed for the policy to meet all the related employee
benefit obligations; or
(ii) The proceeds are returned to the reporting entity to
reimburse it for employee benefits already paid.
Definitions Relating to Defined Benefit Cost
Service cost comprises:
(a) Current service cost, which is the increase in the present
value of the defined benefit obligation resulting from
employee service in the current period;
(b) Past service cost, which is the change in the present value
of the defined benefit obligation for employee service in
prior periods, resulting from a prior amendment (the
introduction or withdrawal of, or changes to, defined benefit

5 A qualifying insurance policy is not necessarily an insurance contract. The
guidance in this regard may be obtained from other corresponding
pronouncements as per the hierarchy prescribed in paragraph 15 of the ASLB 3,
‘Accounting Policies, Changes in Accounting Estimates, and Errors’.

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plan) or a curtailment (significant reduction by the entity in
the number of employees covered by a plan); and
(c) Any gain or loss on settlement.
Net interest on the net defined benefit liability (asset) is the
change during the period in the net defined benefit liability (asset)
that arises from the passage of time.
Remeasurements of the net defined benefit liability (asset)
comprise:
(a) Actuarial gains and losses;
(b) The return on plan assets, excluding amounts included in
net interest on the net defined benefit liability (asset); and
(c) Any change in the effect of the asset ceiling, excluding
amounts included in net interest on the net defined benefit
liability (asset).
Actuarial gains and losses are changes in the present value of the
defined benefit obligation resulting from:
(a) Experience adjustments (the effects of differences between
the previous actuarial assumptions and what has actually
occurred); and
(b) The effects of changes in actuarial assumptions.
The return on plan assets is interest, dividends or similar
distributions and other revenue derived from the plan assets,
together with realised and unrealised gains or losses on the plan
assets, less:
a) Any costs of managing the plan assets; and
b) Any tax payable by the plan itself, other than tax included in
the actuarial assumptions used to measure the present value of
the defined benefit obligation.
A settlement is a transaction that eliminates all further legal or
constructive obligations for part or all of the benefits provided
under a defined benefit plan, other than a payment of benefits to,
or on behalf of, employees that is set out in the terms of the plan
and included in the actuarial assumptions.

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Short-Term Employee Benefits
9. Short-term employee benefits include items such as the following, if
expected to be settled wholly before twelve months after the end of the
reporting period in which the employees render the related employee
service:
(a) Wages, salaries, and social security contributions;
(b) Paid annual leave and paid sick leave;
(c) Surplus-sharing and bonuses; and
(d) Non-monetary benefits (such as medical care, housing, cars,
and free or subsidised goods or services) for current
employees.
10. An entity need not reclassify a short-term employee benefit if the
entity‟s expectations of the timing of settlement change temporarily.
However, if the characteristics of the benefit change (such as a
change from a non-accumulating benefit to an accumulating benefit) or
if a change in expectations of the timing of settlement is not temporary,
then the entity considers whether the benefit still meets the definition
of short-term employee benefits.
Recognition and Measurement
All Short-Term Employee Benefits
11. When an employee has rendered service to an entity during an
accounting period, the entity should recognise the undiscounted
amount of short-term employee benefits expected to be paid in
exchange for that service:
(a) As a liability (accrued expense), after deducting any
amount already paid. If the amount already paid exceeds
the undiscounted amount of the benefits, an entity should
recognise that excess as an asset (prepaid expense) to the
extent that the prepayment will lead to, for example, a
reduction in future payments or a cash refund.
(b) As an expense, unless another Standard requires or
permits the inclusion of the benefits in the cost of an asset
(see, for example, ASLB 12, ‘Inventories’, and ASLB 17,
‘Property, Plant, and Equipment’).

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12. Paragraphs 13, 16, and 19 explain how an entity should apply
paragraph 11 to short-term employee benefits in the form of paid
absences and surplus-sharing and bonus plans.
Short-Term Paid Absences
13. An entity should recognise the expected cost of short-term
employee benefits in the form of paid absences under paragraph
11 as follows:
(a) In the case of accumulating compensated absences, when
the employees render service that increases their
entitlement to future compensated absences; and
(b) In the case of non-accumulating compensated absences,
when the absences occur.
14. An entity may compensate employees for absence for various
reasons, including holidays, sickness and short-term disability,
maternity or paternity, jury service, and military service. Entitlement to
compensated absences falls into two categories:
(a) Accumulating; and
(b) Non-accumulating.
15. Accumulating paid absences are those that are carried forward and
can be used in future periods if the current period's entitlement is not
used in full. Accumulating paid absences may be either vesting (in
other words, employees are entitled to a cash payment for unused
entitlement on leaving the entity) or non-vesting (when employees are
not entitled to a cash payment for unused entitlement on leaving). An
obligation arises as employees render service that increases their
entitlement to future paid absences. The obligation exists, and is
recognised, even if the paid absences are non-vesting, although the
possibility that employees may leave before they use an accumulated
non-vesting entitlement affects the measurement of that obligation.
16. An entity should measure the expected cost of accumulating
compensated absences as the additional amount that the entity
expects to pay as a result of the unused entitlement that has
accumulated at the reporting period.

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17. The method specified in the previous paragraph measures the
obligation at the amount of the additional payments that are expected
to arise solely from the fact that the benefit accumulates. In many
cases, an entity may not need to make detailed computations to
estimate that there is no material obligation for unused paid absences.
For example, a sick leave obligation is likely to be material only if there
is a formal or informal understanding that unused paid sick leave may
be taken as paid annual leave.
18. Non-accumulating paid absences do not carry forward; they lapse if
the current period's entitlement is not used in full and do not entitle
employees to a cash payment for unused entitlement on leaving the
entity. This is commonly the case for sick pay (to the extent that
unused past entitlement does not increase future entitlement),
maternity or paternity leave, and paid absences for jury service or
military service. An entity recognises no liability or expense until the
time of the absence, because employee service does not increase the
amount of the benefit.
Surplus-Sharing and Bonus Plans
19. An entity should recognise the expected cost of surplus-sharing
and bonus payments under paragraph 11 when, and only when:
(a) The entity has a present legal or constructive obligation to
make such payments as a result of past events; and
(b) A reliable estimate of the obligation can be made.
A present obligation exists when, and only when, the entity has
no realistic alternative but to make the payments.
20. In the local bodies, some entities have bonus plans that are related to
service delivery objectives or aspects of financial performance. Under
such plans, employees receive specified amounts, dependent on an
assessment of their contribution to the achievement of the objectives
of the entity or a segment of the entity. In some cases, such plans may
be for groups of employees, such as when performance is evaluated
for all or some employees in a particular segment, rather than on an
individual basis. Because of the objectives of local bodies, surplus-
sharing plans are far less common in the local body than for profit-
oriented entities. However, they are likely to be an aspect of employee

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remuneration in segments of local bodies that operate on a
commercial basis. Some local bodies may not operate surplus-sharing
schemes, but may evaluate performance against financially based
measures such as the generation of revenue streams and the
achievement of budgetary targets. Some bonus plans may entail
payments to all employees who rendered employment services in a
reporting period, even though they may have left the entity before the
reporting date. However, under other bonus plans, employees receive
payments only if they remain with the entity for a specified period, for
example, a requirement that employees render services for the whole
of the reporting period. Such plans create a constructive obligation as
employees render service that increases the amount to be paid if they
remain in service until the end of the specified period. The
measurement of such constructive obligations reflects the possibility
that some employees may leave without receiving surplus-sharing
payments. Paragraph 22 provides further conditions that are to be
satisfied before an entity can recognise the expected cost of
performance-related payments, bonus payments, and surplus-sharing
payments.
21. An entity may have no legal obligation to pay a bonus. Nevertheless,
in some cases, an entity has a practice of paying bonuses. In such
cases, the entity has a constructive obligation because the entity has
no realistic alternative but to pay the bonus. The measurement of the
constructive obligation reflects the possibility that some employees
may leave without receiving a bonus.
22. An entity can make a reliable estimate of its legal or constructive
obligation under a performance-related payment scheme, bonus plan,
or surplus-sharing scheme when, and only when:
(a) The formal terms of the plan contain a formula for determining
the amount of the benefit;
(b) The entity determines the amounts to be paid before the
financial statements are authorised for issue; or
(c) Past practice gives clear evidence of the amount of the entity's
constructive obligation.
23. An obligation under surplus-sharing plans and bonus plans results
from employee service and not from a transaction with the entity‟s

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owners. Therefore, an entity recognises the cost of surplus-sharing
and bonus plans not as a distribution of surplus but as an expense.
24. If surplus-sharing and bonus payments are not expected to be settled
wholly before twelve months after the end of the period in which the
employees render the related service, those payments are other long-
term employee benefits (see paragraphs 155-161).
Disclosure
25. Although this Standard does not require specific disclosures about
short-term employee benefits, other Standards may require
disclosures. For example, ASLB 20 requires disclosures of the
aggregate remuneration of key management personnel and ASLB 1,
„Presentation of Financial Statements’ requires the disclosure of
information about employee benefits expenses.

Post-employment Benefits-Distinction between
Defined Contribution Plans and Defined Benefit
Plans
26. Post-employment benefits include such as the following:
(a) Retirement benefits (e.g., pensions and lump sum payments on
retirement); and
(b) Other post-employment benefits, such as post-employment life
insurance, and post-employment medical care.
Arrangements whereby an entity provides post-employment benefits
are post-employment benefit plans. An entity applies this Standard to
all such arrangements, whether or not they involve the establishment
of a separate entity, such as a pension scheme, superannuation
scheme, or retirement benefit scheme, to receive contributions and to
pay benefits.
27. Post-employment benefit plans are classified as either defined
contribution plans or defined benefit plans, depending on the economic
substance of the plan, as derived from its principal terms and
conditions.
28. Under defined contribution plans the entity's legal or constructive
obligation is limited to the amount that it agrees to contribute to the

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fund. Thus, the amount of the postemployment benefits received by
the employee is determined by the amount of contributions paid by an
entity (and perhaps also the employee) to a post-employment benefit
plan or to an insurance company, together with investment returns
arising from the contributions. In consequence, actuarial risk (that
benefits will be less than expected) and investment risk (that assets
invested will be insufficient to meet expected benefits) fall, in
substance, on the employee.
29. Examples of cases where an entity's obligation is not limited to the
amount that it agrees to contribute to the fund are when the entity has
a legal or constructive obligation through:
(a) A plan benefit formula that is not linked solely to the amount of
contributions and requires the entity to provide further
contributions if assets are insufficient to meet the benefits in the
plan benefit formula;
(b) A guarantee, either indirectly through a plan or directly, of a
specified return on contributions; or
(c) Those informal practices that give rise to a constructive
obligation. For example, a constructive obligation may arise
where an entity has a history of increasing benefits for former
employees to keep pace with inflation, even where there is no
legal obligation to do so.
30. Under defined benefit plans:
(a) The entity's obligation is to provide the agreed benefits to
current and former employees; and
(b) Actuarial risk (that benefits will cost more than expected) and
investment risk fall, in substance, on the entity. If actuarial or
investment experience are worse than expected, the entity's
obligation may be increased.
31. Paragraphs 32-51 explain the distinction between defined contribution
plans and defined benefit plans in the context of multi-employer plans,
defined benefit plans that share risks between entities under common
control, state plans, and insured benefits.

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Multi-Employer Plans
32. An entity should classify a multi-employer plan as a defined
contribution plan or a defined benefit plan under the terms of the
plan (including any constructive obligation that goes beyond the
formal terms).
33. If an entity participates in a multi-employer defined benefit plan,
unless paragraph 34 applies, it should:
(a) Account for its proportionate share of the defined benefit
obligation, plan assets, and cost associated with the plan in
the same way as for any other defined benefit plan; and
(b) Disclose the information required by paragraph 137–150
(excluding paragraph 150(d)).
34. When sufficient information is not available to use defined benefit
accounting for a multi-employer defined benefit plan, an entity
should:
(a) Account for the plan in accordance with paragraphs 53 and
54 as if it were a defined contribution plan; and
(b) Disclose the information required by paragraph 150.
35. One example of a multi-employer defined benefit plan is one where:
(a) The plan is financed on a pay-as-you-go basis: contributions are
set at a level that is expected to be sufficient to pay the benefits
falling due in the same period; and future benefits earned during
the current period will be paid out of future contributions; and
(b) Employees' benefits are determined by the length of their
service and the participating entities have no realistic means of
withdrawing from the plan without paying a contribution for the
benefits earned by employees up to the date of withdrawal.
Such a plan creates actuarial risk for the entity: if the ultimate
cost of benefits already earned at the end of the reporting
period is more than expected, the entity will have to either
increase its contributions or persuade employees to accept a
reduction in benefits. Therefore, such a plan is a defined benefit
plan.

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36. Where sufficient information is available about a multi-employer
defined benefit plan, an entity accounts for its proportionate share of
the defined benefit obligation, plan assets, and post-employment
benefit cost associated with the plan in the same way as for any other
defined benefit plan. However, an entity may not be able to identify its
share of the underlying financial position and performance of the plan
with sufficient reliability for accounting purposes. This may occur if:
(a) The plan exposes the participating entities to actuarial risks
associated with the current and former employees of other
entities, with the result that there is no consistent and reliable
basis for allocating the obligation, plan assets, and cost to
individual entities participating in the plan; or
(b) The entity does not have access to sufficient information about
the plan that satisfies the requirements of this Standard.
In those cases, an entity accounts for the plan as if it were a defined
contribution plan, and discloses the additional information required by
paragraph 150.
37. There may be a contractual agreement between the multi-employer
plan and its participants that determines how the surplus in the plan
will be distributed to the participants (or the deficit funded). A
participant in a multi-employer plan with such an agreement that
accounts for the plan as a defined contribution plan in accordance with
paragraph 34 should recognise the asset or liability that arises from
the contractual agreement, and the resulting revenue or expense in
surplus or deficit.
38. Multi-employer plans are distinct from group administration plans. A
group administration plan is merely an aggregation of single employer
plans combined to allow participating employers to pool their assets
for investment purposes and reduce investment management and
administration costs, but the claims of different employers are
segregated for the sole benefit of their own employees. Group
administration plans pose no particular accounting problems because
information is readily available to treat them in the same way as any
other single employer plan and because such plans do not expose the
participating entities to actuarial risks associated with the current and
former employees of other entities. The definitions in this Standard
require an entity to classify a group administration plan as a defined

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contribution plan or a defined benefit plan in accordance with the
terms of the plan (including any constructive obligation that goes
beyond the formal terms).
39. In determining when to recognise, and how to measure, a liability
relating to the wind-up of a multi-employer defined benefit plan,
or the entity’s withdrawal from a multi-employer defined benefit
plan, an entity should apply ASLB 19, ‘Provisions, Contingent
Liabilities and Contingent Assets’.
Defined Benefit Plans where the Participating Entities
are under Common Control 6
40. Defined benefit plans that share risks between various entities under
common control, for example, controlling and controlled entities, are
not multi-employer plans.
41. An entity participating in such a plan obtains information about the
plan as a whole, measured in accordance with this Standard on the
basis of assumptions that apply to the plan as a whole. If there is a
contractual agreement, binding arrangement, or stated policy for
charging the net defined benefit cost for the plan as a whole measured
in accordance with this Standard to individual entities within the
economic entity, the entity should, in its separate or individual financial
statements, recognise the net defined benefit cost so charged. If there
is no such agreement, arrangement, or policy, the net defined benefit
cost should be recognised in the separate or individual financial
statements of the entity that is legally the sponsoring employer for the
plan. The other entities should, in their separate or individual financial
statements, recognise a cost equal to their contribution payable for the
period.
42. There are cases in the local body where a controlling entity and one or
more controlled entities participate in a defined benefit plan. Unless
there is a contractual agreement, binding arrangement, or stated
policy, as specified in paragraph 41, the controlled entity accounts on
a defined contribution basis and the controlling entity accounts on a
defined benefit basis in its consolidated financial statements. The

6 In current scenarios, this may not be relevant for local bodies in India. However, in

case any such situations arise in future, this may be relevant.

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controlled entity also discloses that it accounts on a defined
contribution basis in its separate financial statements. A controlled
entity that accounts on a defined contribution basis also provides
details of the controlling entity, and states that, in the controlling
entity's consolidated financial statements, accounting is on a defined
benefit basis. The controlled entity also makes the disclosures
required in paragraph 151.
43. Participation in such a plan is a related party transaction for each
individual entity. An entity should therefore, in its separate or
individual financial statements, disclose the information required
by paragraph 151.
State Plans
44. An entity should account for a state plan in the same way as for a
multi-employer plan (see paragraphs 32 and 39).
45. State plans are established by legislation to cover all entities (or all
entities in a particular category, for example, a specific industry) and
are operated by national, state, or local government or by another
body (for example, an agency created specifically for this purpose).
This Standard deals only with employee benefits of the entity, and
does not address accounting for any obligations under state plans
related to employees and past employees of entities that are not
controlled by the reporting entity. While governments may establish
state plans and provide benefits to employees of private sector entities
and/or self-employed individuals, obligations arising in respect of such
plans are not addressed in this Standard. Some plans established by
an entity provide both compulsory benefits, as a substitute for benefits
that would otherwise be covered under a state plan, and additional
voluntary benefits. Such plans are not state plans.
46. Many state plans are funded on a pay-as-you-go basis: contributions
are set at a level that is expected to be sufficient to pay the required
benefits falling due in the same period; future benefits earned during
the current period will be paid out of future contributions. Entities
covered by state plans account for those plans as either defined
contribution or defined benefit plans. The accounting treatment
depends upon whether the entity has a legal or constructive obligation
to pay future benefits. If an entity's only obligation is to pay the

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contributions as they fall due, and the entity has no obligation to pay
future benefits, it accounts for that state plan as a defined contribution
plan.
47. A state plan may be classified as a defined contribution plan by a
controlled entity. However, it is a rebuttable presumption that the state
plan will be characterized as a defined benefit plan by the controlling
entity. Where that presumption is rebutted the state plan is accounted
for as a defined contribution plan.
Insured Benefits
48. An entity may pay insurance premiums to fund a post-
employment benefit plan. The entity should treat such a plan as a
defined contribution plan unless the entity will have (either
directly or indirectly through the plan) a legal or constructive
obligation either:
(a) To pay the employee benefits directly when they fall due; or
(b) To pay further amounts if the insurer does not pay all future
employee benefits relating to employee service in the
current and prior periods.
If the entity retains such a legal or constructive obligation, the
entity should treat the plan as a defined benefit plan.
49. The benefits insured by an insurance policy need not have a direct or
automatic relationship with the entity's obligation for employee
benefits. Post-employment benefit plans involving insurance policies
are subject to the same distinction between accounting and funding as
other funded plans.
50. Where an entity funds a post-employment benefit obligation by
contributing to an insurance policy under which the entity (either
directly, indirectly through the plan, through the mechanism for setting
future premiums, or through a related party relationship with the
insurer) retains a legal or constructive obligation, the payment of the
premiums does not amount to a defined contribution arrangement. It
follows that the entity:
(a) Accounts for a qualifying insurance policy as a plan asset (see
paragraph 8); and

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(b) Recognises other insurance policies as reimbursement rights (if
the policies satisfy the criteria in paragraph 118).
51. Where an insurance policy is in the name of a specified plan
participant or a group of plan participants, and the entity does not have
any legal or constructive obligation to cover any loss on the policy, the
entity has no obligation to pay benefits to the employees, and the
insurer has sole responsibility for paying the benefits. The payment of
fixed premiums under such contracts is, in substance, the settlement
of the employee benefit obligation, rather than an investment to meet
the obligation. Consequently, the entity no longer has an asset or a
liability. Therefore, an entity treats such payments as contributions to a
defined contribution plan.

Post-employment Benefits-Defined Contribution
Plans
52. Accounting for defined contribution plans is straightforward because
the reporting entity's obligation for each period is determined by the
amounts to be contributed for that period. Consequently, no actuarial
assumptions are required to measure the obligation or the expense,
and there is no possibility of any actuarial gain or loss. Moreover, the
obligations are measured on an undiscounted basis, except where
they are not expected to be settled wholly before twelve months after
the end of the reporting period in which the employees render the
related service.
Recognition and Measurement
53. When an employee has rendered service to an entity during a
period, the entity should recognise the contribution payable to a
defined contribution plan in exchange for that service:
(a) As a liability (accrued expense), after deducting any
contribution already paid. If the contribution already paid
exceeds the contribution due for service before the end of
the reporting period, an entity should recognise that excess
as an asset (prepaid expense) to the extent that the
prepayment will lead to, for example, a reduction in future
payments or a cash refund; and

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(b) As an expense, unless another Standard requires or
permits the inclusion of the contribution in the cost of an
asset (see, for example, ASLB 12 and ASLB 17).
54. When contributions to a defined contribution plan are not
expected to be settled wholly before twelve months after the end
of the reporting period in which employees render the related
service, they should be discounted using the discount rate
specified in paragraph 85.
Disclosure
55. An entity should disclose the amount recognised as an expense
for defined contribution plans.
56. Where required by ASLB 20, an entity discloses information about
contributions to defined contribution plans for key management
personnel.

Post-employment Benefits-Defined Benefit Plans
57. Accounting for defined benefit plans is complex, because actuarial
assumptions are required to measure the obligation and the expense,
and there is a possibility of actuarial gains and losses. Moreover, the
obligations are measured on a discounted basis, because they may be
settled many years after the employees render the related service.
Recognition and Measurement
58. Defined benefit plans may be unfunded, or they may be wholly or
partly funded by contributions by an entity, and sometimes its
employees, into an entity or fund that is legally separate from the
reporting entity and from which the employee benefits are paid. The
payment of funded benefits when they fall due depends not only on the
financial position and the investment performance of the fund but also
on an entity's ability, and willingness, to make good any shortfall in the
fund's assets. Therefore, the entity is, in substance, underwriting the
actuarial and investment risks associated with the plan. Consequently,
the expense recognised for a defined benefit plan is not necessarily
the amount of the contribution due for the period.
59. Accounting by an entity for defined benefit plans involves the following
steps:

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(a) Determining the deficit or surplus. This involves:
(i) Using an actuarial technique, the projected unit credit
method, to make a reliable estimate of the ultimate cost
to the entity of the benefit that employees have earned in
return for their service in the current and prior periods
(see paragraphs 69–71). This requires an entity to
determine how much benefit is attributable to the current
and prior periods (see paragraphs 72-76), and to make
estimates (actuarial assumptions) about demographic
variables (such as employee turnover and mortality) and
financial variables (such as future increases in salaries
and medical costs) that will affect the cost of the benefit
(see paragraphs 77-100);
(ii) Discounting that benefit in order to determine the present
value of the defined benefit obligation and the current
service cost (see paragraphs 69–71 and 85–88);
(iii) Deducting the fair value of any plan assets (see
paragraphs 115-117) from the present value of the
defined benefit obligation;
(b) Determining the amount of the net defined benefit liability
(asset) as the amount of the deficit or surplus determined in (a),
adjusted for any effect of limiting a net defined benefit asset to
the asset ceiling (see paragraph 66).
(c) Determining amounts to be recognised in surplus or deficit:
(i) Current service cost (see paragraphs 72–76).
(ii) Any past service cost and gain or loss on settlement (see
paragraphs 101–114).
(iii) Net interest on the net defined benefit liability (asset)
(see paragraphs 125–128).
(d) Determining the remeasurements of the net defined benefit
liability (asset), to be recognised in net assets/equity,
comprising:
(i) Actuarial gains and losses (see paragraphs 130 and
131);

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(ii) Return on plan assets, excluding amounts included in net
interest on the net defined benefit liability (asset) (see
paragraph 132); and
(iii) Any change in the effect of the asset ceiling (see paragraph 66),
excluding amounts included in net interest on the net defined
benefit liability (asset).
Where an entity has more than one defined benefit plan, the entity
applies these procedures for each material plan separately.
60. An entity should determine the net defined benefit liability (asset)
with sufficient regularity that the amounts recognised in the
financial statements do not differ materially from the amounts
that would be determined at the end of the reporting period.
61. This Standard encourages, but does not require, an entity to involve a
qualified actuary in the measurement of all material post-employment
benefit obligations. For practical reasons, an entity may request a
qualified actuary to carry out a detailed valuation of the obligation
before the end of the reporting period. Nevertheless, the results of that
valuation are updated for any material transactions and other material
changes in circumstances (including changes in market prices and
interest rates) up to the end of the reporting period.
62. In some cases, estimates, averages, and computational short cuts
may provide a reliable approximation of the detailed computations
illustrated in this Standard.
Accounting for the Constructive Obligation
63. An entity should account not only for its legal obligation under
the formal terms of a defined benefit plan, but also for any
constructive obligation that arises from the entity's informal
practices. Informal practices give rise to a constructive obligation
where the entity has no realistic alternative but to pay employee
benefits. An example of a constructive obligation is where a
change in the entity's informal practices would cause
unacceptable damage to its relationship with employees.
64. The formal terms of a defined benefit plan may permit an entity to
terminate its obligation under the plan. Nevertheless, it is usually
difficult for an entity to terminate its obligation under a plan (without
payment) if employees are to be retained. Therefore, in the absence of

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evidence to the contrary, accounting for post-employment benefits
assumes that an entity that is currently promising such benefits will
continue to do so over the remaining working lives of employees.
Balance Sheet
65. An entity should recognise the net defined benefit liability (asset)
in the balance sheet.
66. When an entity has a surplus in a defined benefit plan, it should
measure the net defined benefit asset at the lower of:
(a) The surplus in the defined benefit plan; and
(b) The asset ceiling, determined using the discount rate
specified in paragraph 85.
67. A net defined benefit asset may arise where a defined benefit plan has
been overfunded or where actuarial gains have arisen. An entity
recognises a net defined benefit asset in such cases because:
(a) The entity controls a resource, which is the ability to use the
surplus to generate future benefits;
(b) That control is a result of past events (contributions paid by the
entity and service rendered by the employee); and
(c) Future economic benefits are available to the entity in the form
of a reduction in future contributions or a cash refund, either
directly to the entity or indirectly to another plan in deficit. The
asset ceiling is the present value of those future benefits.
Recognition and Measurement―Present Value of
Defined Benefit Obligations and Current Service Cost
68. The ultimate cost of a defined benefit plan may be influenced by many
variables, such as final salaries, employee turnover and mortality,
employee contributions and medical cost trends. The ultimate cost of
the plan is uncertain and this uncertainty is likely to persist over a long
period of time. In order to measure the present value of the post-
employment benefit obligations and the related current service cost, it
is necessary:
(a) To apply an actuarial valuation method (see paragraphs 69–71);

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(b) To attribute benefit to periods of service (see paragraphs 72–
76); and
(c) To make actuarial assumptions (see paragraphs 77–100).
Actuarial Valuation Method
69. An entity should use the projected unit credit method to
determine the present value of its defined benefit obligations and
the related current service cost and, where applicable, past
service cost.
70. The projected unit credit method (sometimes known as the accrued
benefit method prorated on service or as the benefit/years of service
method) sees each period of service as giving rise to an additional unit
of benefit entitlement (see paragraphs 72–76), and measures each
unit separately to build up the final obligation (see paragraphs 77 –
100).
71. An entity discounts the whole of a post-employment benefit obligation,
even if part of the obligation is expected to be settled before twelve
months after the reporting period.
Attributing Benefit to Periods of Service
72. In determining the present value of its defined benefit obligations
and the related current service cost and, where applicable, past
service cost, an entity should 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 should attribute
benefit on a straight-line basis from:
(a) 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
(b) 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.
73. The projected unit credit method requires an entity to attribute benefit
to the current period (in order to determine current service cost) and
the current and prior periods (in order to determine the present value

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of defined benefit obligations). An entity attributes benefit to periods in
which the obligation to provide post-employment benefits arises. That
obligation arises as employees render services in return for post-
employment benefits that an entity expects to pay in future reporting
periods. Actuarial techniques allow an entity to measure that obligation
with sufficient reliability to justify recognition of a liability.
74. Employee service gives rise to an obligation under a defined benefit
plan even if the benefits are conditional on future employment (in other
words they are not vested). Employee service before the vesting date
gives rise to a constructive obligation because, at the end of each
successive reporting period, the amount of future service that an
employee will have to render before becoming entitled to the benefit is
reduced. In measuring its defined benefit obligation, an entity
considers the probability that some employees may not satisfy any
vesting requirements. Similarly, although some post-employment
benefits, for example, post-employment medical benefits, become
payable only if a specified event occurs when an employee is no
longer employed, an obligation is created when the employee renders
service that will provide entitlement to the benefit if the specified event
occurs. The probability that the specified event will occur affects the
measurement of the obligation, but does not determine whether the
obligation exists.
75. The obligation increases until the date when further service by the
employee will lead to no material amount of further benefits.
Therefore, all benefit is attributed to periods ending on or before that
date. Benefit is attributed to individual accounting periods 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 attributes benefit on a straight-line basis until the date when
further service by the employee will lead to no material amount of
further benefits. That is because the employee‟s service throughout
the entire period will ultimately lead to benefit at that higher level.
76. Where the amount of a benefit is a constant proportion of final salary
for each year of service, future salary increases will affect the amount
required to settle the obligation that exists for service before the end of
the reporting period, but do not create an additional obligation.
Therefore:

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(a) For the purpose of paragraph 72(b), salary increases do not
lead to further benefits, even though the amount of the benefits
is dependent on final salary; and
(b) The amount of benefit attributed to each period is a constant
proportion of the salary to which the benefit is linked.
Actuarial Assumptions
77. Actuarial assumptions should be unbiased and mutually compatible.
78. Actuarial assumptions are an entity's best estimates of the variables
that will determine the ultimate cost of providing post-employment
benefits. Actuarial assumptions comprise:
(a) Demographic assumptions about the future characteristics of
current and former employees (and their dependants) who are
eligible for benefits. Demographic assumptions deal with
matters such as:
(i) Mortality (see paragraphs 83 and 84);
(ii) Rates of employee turnover, disability, and early
retirement;
(iii) The proportion of plan members with dependants who will
be eligible for benefits;
(iv) The proportion of plan members who will select each
form of payment option available under the plan terms;
and
(v) Claim rates under medical plans.
(b) Financial assumptions, dealing with items such as:
(i) The discount rate (see paragraphs 85-88);
(ii) Benefit levels, excluding any cost of the benefits to be
met by employees, and future salary (see paragraphs 89–
97);
(iii) In the case of medical benefits, future medical costs,
including, claim handling costs (i.e., the costs that will be
incurred in processing and resolving claims, including
legal and adjuster‟s fees) (see paragraphs 98–100); and

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(iv) Taxes payable by the plan on contributions relating to
service before the end of the reporting period or on
benefits resulting from that service.
79. Actuarial assumptions are unbiased if they are neither imprudent nor
excessively conservative.
80. Actuarial assumptions are mutually compatible if they reflect the
economic relationships between factors such as inflation, rates of
salary increase, and discount rates. For example, all assumptions that
depend on a particular inflation level (such as assumptions about
interest rates and salary and benefit increases) in any given future
period assume the same inflation level in that period.
81. An entity determines the discount rate and other financial assumptions
in nominal (stated) terms, unless estimates in real (inflation-adjusted)
terms are more reliable, for example, where the benefit is index-linked,
and there is a deep market in index-linked bonds of the same currency
and term.
82. Financial assumptions should be based on market expectations,
at the end of the reporting period, for the period over which the
obligations are to be settled.
Actuarial Assumptions: Mortality
83. An entity should determine its mortality assumptions by
reference to its best estimate of the mortality of plan members
both during and after employment.
84. In order to estimate the ultimate cost of the benefit an entity takes into
consideration expected changes in mortality, for example by modifying
standard mortality tables with estimates of mortality improvements.
Actuarial Assumptions-Discount Rate
85. The rate used to discount post-employment benefit obligations
(both funded and unfunded) should be determined by reference to
market yields at the end of the reporting period on government
bonds. The currency and term of government bonds should be
consistent with the currency and estimated term of the post-
employment benefit obligations.
86. One actuarial assumption that has a material effect is the discount

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rate. The discount rate reflects the time value of money but not the
actuarial or investment risk. Furthermore, the discount rate does not
reflect the entity-specific credit risk borne by the entity's creditors, nor
does it reflect the risk that future experience may differ from actuarial
assumptions.
87. The discount rate reflects the estimated timing of benefit payments. In
practice, an entity often achieves this by applying a single weighted
average discount rate that reflects the estimated timing and amount of
benefit payments, and the currency in which the benefits are to be
paid.
88. In some cases, there may be no government bonds with a sufficiently
long maturity to match the estimated maturity of all the benefit
payments. In such cases, an entity uses current market rates of the
appropriate term to discount shorter term payments, and estimates the
discount rate for longer maturities by extrapolating current market
rates along the yield curve. The total present value of a defined benefit
obligation is unlikely to be particularly sensitive to the discount rate
applied to the portion of benefits that is payable beyond the final
maturity of the available government bonds.
Actuarial Assumption - Salaries, Benefits and Medical Costs
89. An entity should measure its defined benefit obligations on a
basis that reflects:
(a) The benefits set out in the terms of the plan (or resulting
from any constructive obligation that goes beyond those
terms) at the end of the reporting period;
(b) Any estimated future salary increases that affect the
benefits payable;
(c) The effect of any limit on the employer’s share of the cost
of the future benefits;
(d) Contributions from employees or third parties that reduce
the ultimate cost to the entity of those benefits; and
(e) Estimated future changes in the level of any state benefits
that affect the benefits payable under a defined benefit
plan, if, and only if, either:

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(i) Those changes were enacted before the end of the
reporting period; or
(ii) Historical data, or other reliable evidence, indicates
that those state benefits will change in some
predictable manner, for example, in line with future
changes in general price levels or general salary
levels.
90. Actuarial assumptions reflect future benefit changes that are set out in
the formal terms of a plan (or a constructive obligation that goes
beyond those terms) at the end of the reporting period. This is the
case if, for example:
(a) The entity has a history of increasing benefits, for example, to
mitigate the effects of inflation, and there is no indication that
this practice will change in the future;
(b) The entity is obliged, by either the formal terms of a plan (or a
constructive obligation that goes beyond those terms) or
legislation, to use any surplus in the plan for the benefit of plan
participants (see paragraph 110(c)): or
(c) Benefits vary in response to a performance target or other
criteria. For example, the terms of the plan may state that it will
pay reduced benefits or require additional contributions from
employees if the plan assets are insufficient. The measurement
of the obligation reflects the best estimate of the effect of the
performance target or other criteria.
91. Actuarial assumptions do not reflect future benefit changes that are
not set out in the formal terms of the plan (or a constructive obligation)
at the end of the reporting period. Such changes will result in:
(a) Past service cost, to the extent that they change benefits for
service before the change; and
(b) Current service cost for periods after the change, to the extent
that they change benefits for service after the change.
92. Estimates of future salary increases take account of inflation, seniority,
promotion, and other relevant factors, such as supply and demand in
the employment market.

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93. Some defined benefit plans limit the contributions that an entity is
required to pay. The ultimate cost of the benefits takes account of the
effect of a limit on contributions. The effect of a limit on contributions is
determined over the shorter of:
(a) The estimated life of the entity; and
(b) The estimated life of the plan.
94. Some defined benefit plans require employees or third parties to
contribute to the cost of the plan. Contributions by employees reduce
the cost of the benefits to the entity. An entity considers whether t hird-
party contributions reduce the cost of the benefits to the entity, or are
a reimbursement right as described in paragraph 118. Contributions by
employees or third parties are either set out in the formal terms of the
plan (or arise from a constructive obligation that goes beyond those
terms), or are discretionary. Discretionary contributions by employees
or third parties reduce service cost upon payment of these
contributions to the plan.
95. Contributions from employees or third parties set out in the formal
terms of the plan either reduce service cost (if they are linked to
service), or affect remeasurements of the net defined benefit liability
(asset) (if they are not linked to service). An example of contributions
that are not linked to service is when the contributions are required to
reduce a deficit arising from losses on plan assets or from actuarial
losses. If contributions from employees or third parties are linked to
service, those contributions reduce the service cost as follows:
(a) If the amount of the contributions is dependent on the number of
years of service, an entity should attribute the contributions to
periods of service using the same attribution method required
by paragraph 72 for the gross benefit (i.e., either using the
plan‟s contribution formula or on a straight-line basis); or
(b) If the amount of the contributions is independent of the number
of years of service, the entity is permitted to recognise such
contributions as a reduction of the service cost in the period in
which the related service is rendered. Examples of contributions
that are independent of the number of years of service include
those that are a fixed percentage of the employee‟s salary, a
fixed amount throughout the service period or dependent on the
employee‟s age.

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Paragraph AG13 provides related application guidance.
96. For contributions from employees or third parties that are attributed to
periods of service in accordance with paragraph 95(a), changes in the
contributions result in:
(a) Current and past service cost (if those changes are not set out in the
formal terms of a plan and do not arise from a constructive obligation);
or
(b) Actuarial gains and losses (if those changes are set out in the formal
terms of a plan, or arise from a constructive obligation).
97. Some post-employment benefits are linked to variables, such as the
level of benefit entitlements from social security pensions or medical
care. The measurement of such benefits reflects the best estimate of
such variables, based on historical data and other reliable evidence.
98. Assumptions about medical costs should take account of
estimated future changes in the cost of medical services,
resulting from both inflation and specific changes in medical
costs.
99. Measurement of post-employment medical benefits requires
assumptions about the level and frequency of future claims and the
cost of meeting those claims. An entity estimates future medical costs
on the basis of historical data about the entity's own experience,
supplemented where necessary by historical data from other entities,
insurance companies, medical providers, or other sources. Estimates
of future medical costs consider the effect of technological advances,
changes in health care utilization or delivery patterns, and changes in
the health status of plan participants.
100. The level and frequency of claims is particularly sensitive to the age,
health status, and gender of employees (and their dependants), and
may be sensitive to other factors such as geographical location.
Therefore, historical data are adjusted to the extent that the
demographic mix of the population differs from that of the population
used as a basis for the data. They are also adjusted where there is
reliable evidence that historical trends will not continue.

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Past Service Cost and Gains and Losses on Settlement
101. Before determining past service cost, or a gain or loss on
settlement, an entity should 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.
102. An entity need not distinguish between past service cost resulting from
a plan amendment, past service cost resulting from a curtailment and
a gain or loss on settlement if these transactions occur together. In
some cases, a plan amendment occurs before a settlement, such as
when an entity changes the benefits under the plan and settles the
amended benefits later. In those cases an entity recognises past
service cost before any gain or loss on settlement.
103. A settlement occurs together with a plan amendment and curtailment if
a plan is terminated with the result that the obligation is settled and
the plan ceases to exist. However, the termination of a plan is not a
settlement if the plan is replaced by a new plan that offers benefits
that are, in substance, the same.
Past Service Cost
104. Past service cost is the change in the present value of the defined
benefit obligation resulting from a plan amendment or curtailment.
105. An entity should recognise past service cost as an expense at the
earlier of the following dates:
(a) When the plan amendment or curtailment occurs; and
(b) When the entity recognises related restructuring costs (see
ASLB 19) or termination benefits (see paragraph 168).
106. A plan amendment occurs when an entity introduces, or withdraws, a
defined benefit plan or changes the benefits payable under an existing
defined benefit plan.
107. A curtailment occurs when an entity significantly reduces the number
of employees covered by a plan. A curtailment may arise from an
isolated event, such as the closing of a plant, discontinuance of an
operation or termination or suspension of a plan.

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108. Past service cost may be either positive (when benefits are introduced
or changed so that the present value of the defined benefit obligation
increases) or negative (when benefits are withdrawn or changed so
that the present value of the defined benefit obligation decreases).
109. Where an entity reduces benefits payable under an existing defined
benefit plan and, at the same time, increases other benefits payable
under the plan for the same employees, the entity treats the change as
a single net change.
110. Past service cost excludes:
(a) The effect of differences between actual and previously
assumed salary increases on the obligation to pay benefits for
service in prior years (there is no past service cost because
actuarial assumptions allow for projected salaries);
(b) Underestimates and overestimates of discretionary pension
increases when an entity has a constructive obligation to grant
such increases (there is no past service cost because actuarial
assumptions allow for such increases);
(c) Estimates of benefit improvements that result from actuarial
gains or from the return on plan assets that have been
recognised in the financial statements if the entity is obliged, by
either the formal terms of a plan (or a constructive obligation
that goes beyond those terms) or legislation, to use any surplus
in the plan for the benefit of plan participants, even if the benefit
increase has not yet been formally awarded (there is no past
service cost because the resulting increase in the obligation is
an actuarial loss, see paragraph 90); and
(d) The increase in vested benefits (i.e., benefits that are not
conditional on future employment, see paragraph 74) when, in
the absence of new or improved benefits, employees complete
vesting requirements (there is no past service cost because the
entity recognised the estimated cost of benefits as current
service cost as the service was rendered).
Gains and Losses on Settlement
111. The gain or loss on a settlement is the difference between:

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(a) The present value of the defined benefit obligation being settled,
as determined on the date of settlement; and
(b) The settlement price, including any plan assets transferred and
any payments made directly by the entity in connection with the
settlement.
112. An entity should recognise a gain or loss on the settlement of a
defined benefit plan when the settlement occurs.
113. A settlement occurs when an entity enters into a transaction that
eliminates all further legal or constructive obligation for part or all of
the benefits provided under a defined benefit plan (other than a
payment of benefits to, or on behalf of, employees in accordance with
the terms of the plan and included in the actuarial assumptions). For
example, a one-off transfer of significant employer obligations under
the plan to an insurance company through the purchase of an
insurance policy is a settlement; a lump sum cash payment, under the
terms of the plan, to plan participants in exchange for their rights to
receive specified post-employment benefits is not.
114. In some cases, an entity acquires an insurance policy to fund some or
all of the employee benefits relating to employee service in the current
and prior periods. The acquisition of such a policy is not a settlement if
the entity retains a legal or constructive obligation (see paragraph 48)
to pay further amounts if the insurer does not pay the employee
benefits specified in the insurance policy. Paragraphs 118–121 deal
with the recognition and measurement of reimbursement rights under
insurance policies that are not plan assets.
Recognition and Measurement-Plan Assets
Fair Value of Plan Assets
115. The fair value of plan assets is deducted from the present value of the
defined benefit obligation in determining the deficit or surplus.
116. Plan assets exclude unpaid contributions due from the reporting entity
to the fund, as well as any non-transferable financial instruments
issued by the entity and held by the fund. Plan assets are reduced by
any liabilities of the fund that do not relate to employee benefits , for
example, payables and liabilities resulting from derivative financial
instruments.

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117. Where plan assets include qualifying insurance policies that exactly
match the amount and timing of some or all of the benefits payable
under the plan, the fair value of those insurance policies is deemed to
be the present value of the related obligations (subject to any
reduction required if the amounts receivable under the insurance
policies are not recoverable in full).
Reimbursements
118. When, and only when, it is virtually certain that another party will
reimburse some or all of the expenditure required to settle a
defined benefit obligation, an entity should:
(a) Recognise its right to reimbursement as a separate asset.
The entity should measure the asset at fair value.
(b) Disaggregate and recognise changes in the fair value of its
right to reimbursement in the same way as for changes in
the fair value of plan assets (see paragraphs 126 and 128).
The components of defined benefit cost recognised in
accordance with paragraph 122 may be recognised net of
amounts relating to changes in the carrying amount of the
right to reimbursement.
119. Sometimes, an entity is able to look to another party, such as an
insurer, to pay part or all of the expenditure required to settle a defined
benefit obligation. Qualifying insurance policies, as defined in
paragraph 8, are plan assets. An entity accounts for qualifying
insurance policies in the same way as for all other plan assets, and
paragraph 118 is not relevant (see paragraphs 48-51 and 117).
120. When an insurance policy held by an entity is not a qualifying
insurance policy, that insurance policy is not a plan asset. Paragraph
118 is relevant to such cases: the entity recognises its right to
reimbursement under the insurance policy as a separate asset, rather
than as a deduction in determining the defined benefit deficit or
surplus. Paragraph 142(b) requires the entity to disclose a brief
description of the link between the reimbursement right and the related
obligation.
121. If the right to reimbursement arises under an insurance policy or a
legally binding agreement that exactly matches the amount and timing

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of some or all of the benefits payable under a defined benefit plan, the
fair value of the reimbursement right is deemed to be the present
value of the related obligation (subject to any reduction required if the
reimbursement is not recoverable in full).
Components of Defined Benefit Cost
122. An entity should recognise the components of defined benefit
cost, except to the extent that another ASLB requires or permits
their inclusion in the cost of an asset, as follows:
(a) Service cost (see paragraphs 68–114) in surplus or deficit;
(b) Net interest on the net defined benefit liability (asset) (see
paragraphs 125–128) in surplus or deficit; and
(c) Remeasurements of the net defined benefit liability (asset)
(see paragraphs 129–132) in net assets/equity.
123. Other ASLBs require the inclusion of some employee benefit costs
within the cost of assets, such as inventories and property, plant and
equipment (see ASLB 12 and ASLB 17). Any post-employment benefit
costs included in the cost of such assets include the appropriate
proportion of the components listed in paragraph 122.
124. Remeasurements of the net defined benefit liability (asset)
recognised in net assets/equity should not be reclassified to
surplus or deficit in a subsequent period. However, the entity may
transfer those amounts recognised in net assets/equity within net
assets/equity.
Net Interest on the Net Defined Benefit Liability (Asset)
125. Net interest on the net defined benefit liability (asset) should be
determined by multiplying the net defined benefit liability (asset)
by the discount rate specified in paragraph 85, both as
determined at the start of the reporting period, taking account of
any changes in the net defined benefit liability (asset) during the
period as a result of contribution and benefit payments.
126. Net interest on the net defined benefit liability (asset) can be viewed
as comprising interest revenue on plan assets, interest cost on the
defined benefit obligation and interest on the effect of the asset ceiling
mentioned in paragraph 66.

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127. Interest revenue on plan assets is a component of the return on plan
assets, and is determined by multiplying the fair value of the plan
assets by the discount rate specified in paragraph 85, both as
determined at the start of the reporting period, taking account of any
changes in the plan assets held during the period as a result of
contributions and benefit payments. The difference between the
interest revenue on plan assets and the return on plan assets is
included in the remeasurement of the net defined benefit liability
(asset).
128. Interest on the effect of the asset ceiling is part of the total change in
the effect of the asset ceiling, and is determined by multiplying the
effect of the asset ceiling by the discount rate specified in paragraph
85, both as determined at the start of the reporting period. The
difference between that amount and the total change in the effect of
the asset ceiling is included in the remeasurement of the net defined
benefit liability (asset).
Remeasurements of the Net Defined Benefit Liability (Asset)
129. Remeasurements of the net defined benefit liability (asset) comprise:
(a) Actuarial gains and losses (see paragraphs 130 and 131);
(b) The return on plan assets (see paragraph 132), excluding
amounts included in net interest on the net defined benefit
liability (asset) (see paragraph 127); and
(c) Any change in the effect of the asset ceiling, excluding amounts
included in net interest on the net defined benefit liability (asset)
(see paragraph 128).
130. Actuarial gains and losses result from increases or decreases in the
present value of the defined benefit obligation because of changes in
actuarial assumptions and experience adjustments. Causes of
actuarial gains and losses include, for example:
(a) Unexpectedly high or low rates of employee turnover, early
retirement or mortality or of increases in salaries, benefits (if the
formal or constructive terms of a plan provide for inflationary
benefit increases) or medical costs;

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(b) The effect of changes to assumptions concerning benefit
payment options;
(c) The effect of changes in estimates of future employee turnover,
early retirement or mortality or of increases in salaries, benefits
(if the formal or constructive terms of a plan provide for
inflationary benefit increases) or medical costs; and
(d) The effect of changes in the discount rate.
131. Actuarial gains and losses do not include changes in the present value
of the defined benefit obligation because of the introduction,
amendment, curtailment or settlement of the defined benefit plan, or
changes to the benefits payable under the defined benefit plan. Such
changes result in past service cost or gains or losses on settlement.
132. In determining the return on plan assets, an entity deducts the costs of
managing the plan assets and any tax payable by the plan itself, other
than tax included in the actuarial assumptions used to measure the
defined benefit obligation (paragraph 78). Other administration costs
are not deducted from the return on plan assets.
Presentation
Offset
133. An entity should offset an asset relating to one plan against a
liability relating to another plan when, and only when, the entity:
(a) Has a legally enforceable right to use a surplus in one plan
to settle obligations under the other plan; and
(b) Intends either to settle the obligations on a net basis, or to
realise the surplus in one plan and settle its obligation
under the other plan simultaneously.
134. [Refer to Appendix 1]
Current/Non-Current Distinction
135. Some entities distinguish current assets and liabilities from non-current
assets and liabilities. This Standard does not specify whether an entity
should distinguish current and non-current portions of assets and
liabilities arising from post-employment benefits.

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Components of Defined Benefit Cost
136. Paragraph 122 requires an entity to recognise service cost and net
interest on the net defined benefit liability (asset) in surplus or deficit.
This Standard does not specify how an entity should present service
cost and net interest on the net defined benefit liability (asset). An
entity presents those components in accordance with ASLB 1.
Disclosure
137. An entity should disclose information that:
(a) Explains the characteristics of its defined benefit plans and
risks associated with them (see paragraph 141);
(b) Identifies and explains the amounts in its financial
statements arising from its defined benefit plans (see
paragraphs 142–146); and
(c) [Refer to Appendix 1]
138-140. [Refer to Appendix 1]
Characteristics of Defined Benefit Plans and Risks Associated with Them
141. An entity should disclose:
(a) Information about the characteristics of its defined benefit plans,
including:
(i) The nature of the benefits provided by the plan (e.g., final
salary defined benefit plan or contribution-based plan
with guarantee).
(ii) [Refer to Appendix 1]
(iii) [Refer to Appendix 1]
(b) [Refer to Appendix 1]
(c) A description of any plan amendments, curtailments and
settlements.
(d) The basis on which the discount rate has been determined.
(e) An analysis of the defined benefit obligation into amounts
arising from plans that are wholly unfunded and amounts arising
from plans that the wholly or partly funded.

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Explanation of Amounts in the Financial Statements
142. An entity should provide a reconciliation from the opening balance to
the closing balance for each of the following, if applicable:
(a) The net defined benefit liability (asset), showing separate
reconciliations for:
(i) Plan assets.
(ii) The present value of the defined benefit obligation.
(iii) The effect of the asset ceiling.
(b) Any reimbursement rights. An entity should also describe the
relationship between any reimbursement right and the related
obligation.
143. Each reconciliation listed in paragraph 142 should show each of the
following, if applicable:
(a) Current service cost.
(b) Interest revenue or expense.
(c) Remeasurements of the net defined benefit liability (asset),
showing separately:
(i) The return on plan assets, excluding amounts included in
interest in (b).
(ii) Actuarial gains and losses arising from changes in
demographic assumptions (see paragraph 78(a)).
(iii) Actuarial gains and losses arising from changes in
financial assumptions (see paragraph 78(b)).
(iv) Changes in the effect of limiting a net defined benefit
asset to the asset ceiling, excluding amounts included in
interest in (b).
(d) Past service cost and gains and losses arising from settlements.
As permitted by paragraph 102, past service cost and gains and
losses arising from settlements need not be distinguished if they
occur together.
(e) [Refer to Appendix 1]

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(f) Contributions to the plan, showing separately those by the
employer and by plan participants.
(g) Payments from the plan, showing separately the amount paid in
respect of any settlements.
(h) The effects of entity combinations and disposals, if applicable.
144. An entity should disaggregate the fair value of the plan assets into
classes that distinguish the nature and risks of those assets.
145. An entity should disclose the fair value of the entity‟s own transferable
financial instruments held as plan assets, and the fair value of plan
assets that are property occupied by, or other assets used by, the
entity.
146. An entity should disclose the significant actuarial assumptions used to
determine the present value of the defined benefit obligation (see
paragraph 78). Such disclosure should be in absolute terms (e.g., as
an absolute percentage, and not just as a margin between different
percentages and other variables). When an entity provides disclosures
in total for a grouping of plans, it should provide such disclosures in
the form of weighted averages or relatively narrow ranges.
147-149. [Refer to Appendix 1]
Multi-Employer Plans
150. If an entity participates in a multi-employer defined benefit plan, it
should disclose:
(a) A description of the funding arrangements, including the method
used to determine the entity‟s rate of contributions and any
minimum funding requirements.
(b) A description of the extent to which the entity can be liable to
the plan for other entities‟ obligations under the terms and
conditions of the multi-employer plan.
(c) A description of any agreed allocation of a deficit or surplus on:
(i) Wind-up of the plan; or
(ii) The entity‟s withdrawal from the plan.
(d) If the entity accounts for that plan as if it were a defined

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contribution plan in accordance with paragraph 34, it should
disclose the following, in addition to the information required by
(a)–(c) and instead of the information required by paragraphs
141–149:
(i) The fact that the plan is a defined benefit plan.
(ii) The reason why sufficient information is not available to enable
the entity to account for the plan as a defined benefit plan.
(iii) The expected contributions to the plan for the next reporting pe-
riod.
(iv) Information about any deficit or surplus in the plan that may af-
fect the amount of future contributions, including the basis used
to determine that deficit or surplus and the implications, if any,
for the entity.
(v) An indication of the level of participation of the entity in the plan
compared with other participating entities. Examples of
measures that might provide such an indication include the
entity‟s proportion of the total contributions to the plan or the
entity‟s proportion of the total number of active members, retired
members, and former members entitled to benefits, if that
information is available.
Defined Benefit Plans that Share Risks Between Entities under Common
Control
151. If an entity participates in a defined benefit plan that shares risks
between entities under common control, it should disclose:
(a) The contractual agreement or stated policy for charging the net
defined benefit cost or the fact that there is no such policy.
(b) The policy for determining the contribution to be paid by the
entity.
(c) If the entity accounts for an allocation of the net defined benefit
cost as noted in paragraph 41, all the information about the plan
as a whole required by paragraphs 137–149.
(d) If the entity accounts for the contribution payable for the period
as noted in paragraph 41, the information about the plan as a

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whole required by paragraphs 137–139, 141, 144–146 and
149(a) and (b).
152. The information required by paragraph 151(c) and (d) can be disclosed
by cross-reference to disclosures in another group entity‟s financial
statements if:
(a) That group entity‟s financial statements separately identify and
disclose the information required about the plan; and
(b) That group entity‟s financial statements are available to users of
the financial statements on the same terms as the financial
statements of the entity and at the same time as, or earlier than,
the financial statements of the entity.
Disclosure Requirements in Other ASLBs
153. Where required by ASLB 20, an entity discloses information about:
(a) Related party transactions with post-employment benefit plans;
and
(b) Post-employment benefits for key management personnel.
154. Where required by ASLB 19, an entity discloses information about
contingent liabilities arising from post-employment benefit obligations.

Other Long-Term Employee Benefits
155. Other long-term employee benefits include items such as the
following, if not expected to be settled wholly before twelve months
after the end of the reporting period in which the employees render the
related service:
(a) Long-term compensated absences such as long service or
sabbatical leave;
(b) Jubilee or other long service benefits;
(c) Long-term disability benefits;
(d) Bonuses and surplus sharing payable twelve months or more
after the end of the period in which the employees render the
related service;
(e) Deferred compensation paid twelve months or more after the
end of the period in which it is earned; and

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(f) Compensation payable by the entity until an individual enters
new employment
156. The measurement of other long-term employee benefits is not usually
subject to the same degree of uncertainty as the measurement of post-
employment benefits. For this reasons, this Standard requires a
simplified method of accounting for other long-term employee benefits.
Unlike the accounting required for post-employment benefits, this
method does not recognise remeasurements in net assets/equity.
157. This Standard includes a rebuttable presumption that long-term
disability payments are not usually subject to the same degree of
uncertainty as the measurement of post-employment benefits. Where
this presumption is rebutted, the entity considers whether some or all
long-term disability payments should be accounted for in accordance
with paragraphs 57-154.
Recognition and Measurement
158. In recognising and measuring the surplus or deficit in another
long-term employee benefit plan, an entity should apply
paragraphs 58–100 and 115–117. An entity should apply
paragraphs 118–121 in recognising and measuring any
reimbursement right.
159. For other long-term employee benefits, an entity should
recognise the net total of the following amounts in surplus or
deficit, except to the extent that another ASLB requires or permits
their inclusion in the cost of an asset:
(a) Service cost (see paragraphs 68 – 114);
(b) Net interest on the net defined benefit liability (asset) (see
paragraphs 125-128); and
(c) Remeasurements of the net defined benefit liability (asset)
(see paragraphs 129–132).
160. One form of other long-term employee benefit is long-term disability
benefit. If the level of benefit depends on the length of service, an
obligation arises when the service is rendered. Measurement of that
obligation reflects the probability that payment will be required, and the
length of time for which payment is expected to be made. If the level of

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benefit is the same for any disabled employee regardless of years of
service, the expected cost of those benefits is recognised when an
event occurs that causes a long-term disability.
Disclosure
161. Although this Standard does not require specific disclosures about
other long-term employee benefits, other ASLBs may require
disclosures. For example, ASLB 20 requires disclosures about
employee benefits for key management personnel. ASLB 1 requires
disclosure of employee benefits expense.

Termination Benefits
162. This Standard deals with termination benefits separately from other
employee benefits, because the event that gives rise to an obligation
is the termination of employment rather than employee service.
Termination benefits result from either an entity‟s decision to terminate
the employment or an employee‟s decision to accept an entity‟s offer
of benefits in exchange for termination of employment.
163. Termination benefits do not include employee benefits resulting from
termination of employment at the request of the employee without an
entity‟s offer, or as a result of mandatory retirement requirements,
because those benefits are post-employment benefits. Some entities
provide a lower level of benefit for termination of employment at the
request of the employee (in substance, a post-employment benefit)
than for termination of employment at the request of the entity. The
difference between the benefit provided for termination of employment
at the request of the employee and a higher benefit provided at the
request of the entity is a termination benefit.
164. The form of the employee benefit does not determine whether it is in
exchange provided for service or in exchange for termination of the
employee‟s employment. Termination benefits are typically lump sum
payments, but sometimes also include:
(a) Enhancement of post-employment benefits, either indirectly
through an employee benefit plan or directly.
(b) Salary until the end of a specified notice period if the employee
renders no further service that provides economic benefits to
the entity.

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165. Indicators that an employee benefit is provided in exchange for
services include the following:
(a) The benefit is conditional on future service being provided
(including benefits that increase if further service is provided).
(b) The benefit is provided in accordance with the terms of an
employee benefit plan.
166. Some termination benefits are provided in accordance with the terms
of an existing employee benefit plan. For example, they may be
specified by statute, employment contract or union agreement, or may
be implied as a result of the employer‟s past practice of providing
similar benefits. As another example, if an entity makes an offer of
benefits available for more than a short period, or there is more than a
short period between the offer and the expected date of actual
termination, the entity considers whether it has established a new
employee benefit plan and hence whether the benefits offered under
that plan are termination benefits or post-employment benefits.
Employee benefits provided in accordance with the terms of an
employee benefit plan are termination benefits if they both result from
an entity‟s decision to terminate an employee‟s employment and are
not conditional on future service being provided.
167. Some employee benefits are provided regardless of the reason for the
employee‟s departure. The payment of such benefits is certain (subject
to any vesting or minimum service requirements) but the timing of their
payment is uncertain. Although such benefits are described in some
jurisdictions as termination indemnities or termination gratuities, they
are post-employment benefits rather than termination benefits, and an
entity accounts for them as post-employment benefits.
Recognition
168. An entity should recognise a liability and expense for termination
benefits at the earlier of the following dates:
(a) When the entity can no longer withdraw the offer of those
benefits; and
(b) When the entity recognises costs for a restructuring that is
within the scope of ASLB 19 and involves the payment of
termination benefits.

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169. For termination benefits payable as a result of an employee‟s decision
to accept an offer of benefits in exchange for the termination of
employment, the time when an entity can no longer withdraw the offer
of termination benefits is the earlier of:
(a) When the employee accepts the offer; and
(b) When a restriction (e.g., a legal, regulatory or contractual
requirement or other restriction) on the entity‟s ability to
withdraw the offer takes effect. This would be when the offer is
made, if the restriction existed at the time of the offer.
170. For termination benefits payable as a result of an entity‟s decision to
terminate an employee‟s employment, the entity can no longer
withdraw the offer when the entity has communicated to the affected
employees a plan of termination meeting all of the following criteria:
(a) Actions required to complete the plan indicate that it is unlikely
that significant changes to the plan will be made.
(b) The plan identifies the number of employees whose
employment is to be terminated, their job classifications or
functions and their locations (but the plan need not identify each
individual employee) and the expected completion date.
(c) The plan establishes the termination benefits that employees
will receive in sufficient detail that employees can determine the
type and amount of benefits they will receive when their
employment is terminated.
171. When an entity recognises termination benefits, the entity may also
have to account for a plan amendment or a curtailment of other
employee benefits (see paragraph 105).
Measurement
172. An entity should measure termination benefits on initial
recognition, and should measure and recognise subsequent
changes, in accordance with the nature of the employee benefit,
provided that if the termination benefits are an enhancement to
post-employment benefits, the entity should apply the
requirements for post-employment benefits. Otherwise:

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(a) If the termination benefits are expected to be settled wholly
before twelve months after the end of the reporting period
in which the termination benefit is recognised, the entity
should apply the requirements for short-term employee
benefits.
(b) If the termination benefits are not expected to be settled
wholly before twelve months after the end of the reporting
period, the entity should apply the requirements for other
long-term employee benefits.
173. Because termination benefits are not provided in exchange for service,
paragraphs 72–76 relating to the attribution of the benefit to periods of
service are not relevant.
Disclosure
174. Although this Standard does not require specific disclosures about
termination benefits, other ASLBs may require disclosures. For
example, ASLB 20 requires disclosures about employee benefits for
key management personnel. ASLB 1 requires disclosure of employee
benefits expense.
175-178. [Refer to Appendix 1]

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Appendix A
Application Guidance
This Appendix is an integral part of ASLB 39.
Example Illustrating Paragraph 19: Accounting for Performance-Related
Bonus Plan
AG1. A performance-related bonus plan requires a government printing unit
to pay a specified proportion of its surplus for the year to employees
who meet predetermined performance targets and serve throughout
the year, i.e., are in post on both the first and last day of the reporting
period. If no employees leave during the year, the total bonus
payments for the year will be 3% of actual surplus. The entity
determines that staff turnover will reduce the payments to 2.5% of
actual surplus.
The entity recognises a liability and an expense of 2.5% of actual
surplus.
Example Illustrating Paragraph 37: Accounting for a Multi-Employer
Plan
AG2. Along with similar entities in State X, Local Government Unit A
participates in a multi-employer defined benefit plan. Because the plan
exposes the participating entities to actuarial risks associated with the
current and former employees of other local government units
participating in the plan, there is no consistent and reliable basis for
allocating the obligation, plan assets, and cost to individual local
government units participating in the plan. Local Government Unit A
therefore accounts for the plan as if it were a defined contribution plan.
A funding valuation, which is not drawn up on the basis of assumptions
compatible with the requirements of this Standard, shows a deficit of
₹ 480 million(a) in the plan. The plan has agreed, under a binding
arrangement, a schedule of contributions with the participating
employers in the plan that will eliminate the deficit over the next five
years. Local Government Unit A‟s total contributions under the
contract are ₹ 40 million.
The entity recognises a liability for the contributions adjusted for the
time value of money and an equal expense in surplus or deficit.

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(a) In this Standard monetary amounts are denominated in “Rupees
(Rs.)”.
Example Illustrating Paragraph 70: Projected Unit Credit Method
AG3. A lump sum benefit is payable on termination of service and equal to
1% of final salary for each year of service. The salary in year 1 is ₹
10,000 and is assumed to increase at 7% (compound) each year. The
discount rate used is 10% per annum. The following table shows how
the obligation builds up for an employee who is expected to leave at
the end of year five, assuming that there are no changes in actuarial
assumptions. For simplicity, this example ignores the additional
adjustment needed to reflect the probability that the employee may
leave the entity at an earlier or later date.

Year 1 2 3 4 5
Benefit attributed to:
– prior years 0 131 262 393 524
– current year (1% of final salary) 131 131 131 131 131
– current and prior years 131 262 393 524 655
Year 1 2 3 4 5
Opening obligation – 89 196 324 476
Interest at 10% – 9 20 33 48
Current service cost 89 98 108 119 131
Closing obligation 89 196 324 476 655
Note:
1. The opening obligation is the present value of benefit attributed
to prior years.
2. The current service cost is the present value of benefit
attributed to the current year.
3. The closing obligation is the present value of benefit attributed
to current and prior years.

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Examples Illustrating Paragraph 73: Attributing Benefit to Years of
Service
AG4. A defined benefit plan provides a lump sum benefit of ₹ 100 payable on
retirement for each year of service.
A benefit of ₹ 100 is attributed to each year. The current service cost is
the present value of ₹ 100. The present value of the defined benefit
obligation is the present value of ₹ 100, multiplied by the number of
years of service up to the end of the reporting period.
If the benefit is payable immediately when the employee leaves the
entity, the current service cost and the present value of the defined
benefit obligation reflect the date at which the employee is expected to
leave. Thus, because of the effect of discounting, they are less than
the amounts that would be determined if the employee left at the end
of the reporting period.
AG5. A plan provides a monthly pension of 0.2% of final salary for each year
of service. The pension is payable from the age of 65.
Benefit equal to the present value, at the expected retirement date, of
a monthly pension of 0.2% of the estimated final salary payable from
the expected retirement date until the expected date of death is
attributed to each year of service. The current service cost is the
present value of that benefit. The present value of the defined benefit
obligation is the present value of monthly pension payments of 0.2% of
final salary, multiplied by the number of years of service up to the end
of the reporting period. The current service cost and the present value
of the defined benefit obligation are discounted, because pension
payments begin at the age of 65.
Examples Illustrating Paragraph 74: Vesting and Non-Vesting Benefits
AG6. A plan pays a benefit of ₹ 100 for each year of service. The benefits
vest after 10 years of service.
A benefit of ₹ 100 is attributed to each year. In each of the first 10
years, the current service cost and the present value of the obligation
reflect the probability that the employee may not complete 10 years of
service.
AG7. A plan pays a benefit of ₹ 100 for each year of service, excluding
service before the age of 25. The benefits vest immediately.

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No benefit is attributed to service before the age of 25 because service
before that date does not lead to benefits (conditional or
unconditional). A benefit of ₹ 100 is attributed to each subsequent
year.
Examples Illustrating Paragraph 75: Attributing Benefits to Accounting
Periods
AG8. A plan pays a lump sum benefit of ₹ 1,000 that vests after 10 years of
service. The plan provides no further benefit for subsequent service.
A benefit of ₹ 100 (₹ 1,000 divided by 10) is attributed to each of the
first 10 years. The current service cost in each of the first 10 years
reflects the probability that the employee may not complete 10 years
of service. No benefit is attributed to subsequent years.
AG9. A plan pays a lump sum retirement benefit of ₹ 2,000 to all employees
who are still employed at the age of 55 after 20 years of service, or
who are still employed at the age of 65, regardless of their length of
service.
For employees who join before the age of 35, service first leads to
benefits under the plan at the age of 35 (an employee could leave at
the age of 30 and return at the age of 33, with no effect on the amount
or timing of benefits). Those benefits are conditional on further service.
Also, service beyond the age of 55 will lead to no material amount of
further benefits. For these employees, the entity attributes benefit of ₹
100 (₹ 2,000 divided by 20) to each year from the age of 35 to the age
of 55.
For employees who join between the ages of 35 and 45, service
beyond twenty years will lead to no material amount of further benefits.
For these employees, the entity attributes benefit of 100 (₹ 2,000
divided by 20) to each of the first 20 years.
For an employee who joins at the age of 55, service beyond 10 years
will lead to no material amount of further benefits. For this employee,
the entity attributes benefit of ₹ 200 (₹ 2,000 divided by 10) to each of
the first 10 years.
For all employees, the current service cost and the present value of
the obligation reflect the probability that the employee may not
complete the necessary period of service.

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AG10. A post-employment medical plan reimburses 40% of an employee‟s
post-employment medical costs if the employee leaves after more than
10 and less than 20 years of service, and 50% of those costs if the
employee leaves after 20 or more years of service.
Under the plan’s benefit formula, the entity attributes 4% of the present
value of the expected medical costs (40% divided by 10) to each of the
first ten years and 1% (10% divided by 10) to each of the second 10
years. The current service cost in each year reflects the probability
that the employee may not complete the necessary period of service to
earn part or all of the benefits. For employees expected to leave within
10 years, no benefit is attributed.
AG11. A post-employment medical plan reimburses 10% of an employee‟s
post-employment medical costs if the employee leaves after more than
10 and less than 20 years of service, and 50% of those costs if the
employee leaves after 20 or more years of service.
Service in later years will lead to a materially higher level of benefit
than in earlier years. Therefore, for employees expected to leave after
20 or more years, the entity attributes benefit on a straight-line basis
under paragraph 73. Service beyond 20 years will lead to no material
amount of further benefits. Therefore, the benefit attributed to each of
the first 20 years is 2.5% of the present value of the expected medical
costs (50% divided by 20).
For employees expected to leave between 10 and 20 years, the
benefit attributed to each of the first 10 years is 1% of the present
value of the expected medical costs. For these employees, no benefit
is attributed to service between the end of the 10th year and the
estimated date of leaving.
For employees expected to leave within 10 years, no benefit is
attributed.
Example Illustrating Paragraph 76: Attributing Benefits to Accounting
Periods
AG12. Employees are entitled to a benefit of 3% of final salary for each year
of service before the age of 55.
Benefit of 3% of estimated final salary is attributed to each year up to
the age of 55. This is the date when further service by the employee

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will lead to no material amount of further benefits under the plan. No
benefit is attributed to service after that age.
Example Illustrating Paragraphs 94 and 95: Contributions from
employees or third parties
AG13. The accounting requirements for contributions from employees or third
parties are illustrated in the diagram below.

Contributions from employees or third parties

Set out in the formal terms of the plan (or Discretionary
arise from a constructive obligation that
goes beyond those terms)

Linked to service Not linked to service
(for example, reduce
a deficit)

Dependent on Independent of
the number of the number of
years of service years of service

(1)

Reduce service Reduce service Affect Reduce
cost by being cost in the remeasurem service cost
attributed to period in which ents upon
periods of service the related (paragraph payment to
(paragraph 95(a)) service is 95) the plan
rendered (paragraph
(paragraph 94)
95(b))

(1) This dotted arrow means that an entity is permitted to choose either
accounting

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Example Illustrating Paragraphs 162-173: Termination Benefits
AG14. Background
As a result of a recent acquisition, an entity plans to close a factory in
10 months and, at that time, terminate the employment of all of the
remaining employees at the factory. Because the entity needs the
expertise of the employees at the factory to complete some contracts,
it announces a plan of termination as follows.
Each employee who stays and renders service until the closure of the
factory will receive on the termination date a cash payment of ₹
30,000. Employees leaving before closure of the factory will receive ₹
10,000.
There are 120 employees at the factory. At the time of announcing the
plan, the entity expects 20 of them to leave before closure. Therefore,
the total expected cash outflows under the plan are ₹ 3,200,000 (i.e.,
20 × ₹ 10,000 + 100 × ₹ 30,000). As required by paragraph 163, the
entity accounts for benefits provided for termination of employment as
termination benefits and accounts for benefits provided for services as
short-term employee benefits.
Termination benefits
The benefit provided for termination of employment is ₹ 10,000. This is
the amount that an entity would have to pay for terminating the
employment regardless of whether the employees stay and render
service until closure of the factory or they leave before closure. Even
though the employees can leave before closure, the termination of all
employees‟ employment is a result of the entity‟s decision to close the
factory and terminate their employment (i.e., all employees will leave
employment when the factory closes). Therefore, the entity recognises
a liability of ₹ 1,200,000 (i.e., 120 × ₹ 10,000) for the termination
benefits provided in accordance with the employee benefit plan at the
earlier of when the plan of termination is announced and when the
entity recognises the restructuring costs associated with the closure of
the factory.
Benefits provided for service
The incremental benefits that employees will receive if they provide
services for the full ten-month period are for services provided over

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that period. The entity accounts for them as short-term employee
benefits because the entity expects to settle them before twelve
months after the end of the reporting period. In this example,
discounting is not required, so an expense of ₹ 200,000 (i.e., ₹
2,000,000 ÷ 10) is recognised in each month during the service period
of 10 months, with a corresponding increase in the carrying amount of
the liability.

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Appendix 1
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 39
and the corresponding International Public Sector Accounting Standard
(IPSAS) 39, ‘Employee Benefits’.

Comparison with IPSAS 39, ‘Employee Benefits’
1. Different terminologies have been used in the ASLB 39 as compared
to corresponding IPSAS 39, e.g., the terms „balance sheet‟, „entities‟
and „surplus-sharing & bonuses‟ have been used in place of „statement
of financial position‟, „public sector entities‟ and „profit-sharing and
bonuses‟.
2. The following paragraphs of IPSAS 39 have been deleted. However,
the same paragraph numbers have been retained in order to maintain
consistency with the corresponding IPSAS 39:
(i) Paragraph 134 pertaining to offsetting criteria of asset of plan
against a liability relating to another plan provided similar to
those of financial instruments has been deleted as ASLB
corresponding to IPSAS on „Financial Instruments‟ is not
proposed to be issued in near future.
(ii) Paragraph 143(e) of IPSAS 39 pertaining to disclosure of effect
of changes in foreign exchange rates has been deleted as it is
not relevant for Local Bodies in Indian context.
(iii) In order to simplify the disclosure requirements in respect of
Defined Benefit Plan, a few disclosure requirements have been
removed in ASLB 39. In this regard, paragraph number 137(c),
138-140, 141(a)(ii-iii), 141(b), 147-149, have been deleted.
(iv) Paragraph 175 pertaining to transitional provisions has been
deleted as a separate ASLB 33, „First-time Adoption of ASLBs‟
has been issued that contains all transitional provisions at one
place.
(v) Paragraphs 176-177 pertaining to effective date have been
deleted as ASLB 39 would become mandatory for Local Bodies
in a State from the date specified by the State Government
concerned.

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3. Disclosure requirements in Paragraph 143(c) and 144 have been
modified in order to simplify the disclosure requirements. One
disclosure requirements in Paragraph 144(e) has been incorporated.
4. Paragraph 7A inserted with regard to applicability of ASLBs in line with
other issued ASLBs.
5. With regard to concept of entities under common control, a footnote
has been incorporated for clarification.
6. Paragraph 81 has been modified to remove example pertaining to
hyperinflationary economy as this concept does not seem relevant in
Indian context.
7. As per ASLB 39, the rate used to discount post-employment benefit
obligations should always be determined by reference to market yields
at the end of reporting period on government bond. The requirement in
IPSAS 39 is that entities apply a rate that reflects the time value of
money.
8. With regard to financial instruments and qualifying insurance policy,
the reference of paragraph 15 of ASLB 3, „Accounting Policies,
Changes in Accounting Estimates and Errors‟ has been provided in
ASLB 39 in the footnote for guidance. (paragraph 8)
9. Consequential changes resulting from the above departures have
been made in ASLB 39.

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Appendix 2
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 39
and the existing Accounting Standard (AS) 15, „Employee Benefits’.

Comparison with Existing AS 15, ‘Employee Benefits’
1. In ASLB 39, employee benefits arising from constructive obligations
are also covered whereas existing AS 15 does not deal with the same.
(Paragraph 4(c) of ASLB 39)
2. As per existing AS 15, the term „employee‟ includes whole-time
directors and other management personnel whereas under ASLB 39
the term „employee‟ includes key management personnel. (Paragraph
7 of ASLB 39)
3. ASLB 39 uses different terminology, in certain instances, from existing
AS 15, e.g., the terms „controlling entity‟, „controlled entity‟ and
„surplus-sharing & bonuses‟ have been used in ASLB 39 in place of
„parent‟, „subsidiaries‟ and „profit-sharing and bonuses‟.
4. ASLB 39 deals with situations where there is a contractual agreement
between a multi-employer plan and its participants that determine how
the surplus in the plan will be distributed to the participants (or the
deficit funded). (Paragraph 37 of ASLB 39) Existing AS 15 does not
deal with it.
5. As per ASLB 39, participation in a defined benefit plan sharing risks
between various entities under common control is a related party
transaction for each controlled entity and some disclosures are
required in the separate or individual financial statements of an entity
whereas existing AS 15 does not contain similar provisions.
(Paragraph 42-43 of ASLB 39)
6. ASLB 39 encourages, but does not require, an entity to involve a
qualified actuary in the measurement of all material post-employment
benefit obligations whereas AS 15 though does not require
involvement of a qualified actuary, does not specifically encourage the
same. (Paragraph 61 of ASLB 39)
7. Actuarial valuation is based on certain assumptions. Changes in these

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assumptions give rise to actuarial gains and losses, for example,
changes in estimates of salary or medical cost. ASLB 39 requires the
recognition of actuarial gains and losses in net asset/equity. However,
existing AS 15 requires recognition of the same immediately in the
profit and loss.
8. Under ASLB 39, more guidance has been given for timing of
recognition of termination benefits. Recognition criteria for termination
benefits prescribed under ASLB 39, is different from the criteria
prescribed in existing AS 15.
9. ASLB 39 includes a rebuttable presumption that long-term disability
payments are not usually subject to the same degree of uncertainty as
the measurement of post-employment benefits. Where this
presumption is rebutted, the entity considers whether some or all long-
term disability payments should be accounted for in the same way as
for post-employment benefits. Existing AS 15 does not include such
rebuttable presumption.

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