Accounting Standard -15”Employees Benefits”
Accounting Standard-15 issued by Chartered Accountants of India is mandatory in nature and has partial exemptions for level –II/III and Small and Medium companies.
The objective of this Standard is to prescribe the accounting and disclosure for employee benefits. The Standard requires an enterprise 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 enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits.
Employees benefit means benefits in cash or in kind in consideration of services, paid/payable to employees. Employees can be full time/part time/skilled/unskilled/ permanent/temporary. It includes labour also.
Employee benefits can be of 4 types:
1. Short term employee benefits
2. Long term employee benefits
3. Post-employment benefits
4. Termination benefits
Now let us discuss one by one each of them further:
Short Term Employee Benefits:
Short term employee benefits are considered paid or payable within 12 months from the end of accounting period against service performed. These are monthly salary and benefits paid. Payable generally includes
Salary payable, bonus payable, profit sharing fund payable, short term compensated absence payable.
If paid then pass it through bank account or for amount payable make payable account and cancel the provision next year.
In case of Short term Compensated absence, provision should be made for expected compensation payable.
Leave against leave: Provision for benefit which is expected to be availed should be provided.
Cash against leave or cash/leave against leave: Provision should be made for 100% benefit accused to employee. These are called vested benefits.
Long Term Employee Benefits:
These benefits to employees, for work performed in current year are payable beyond 12 months from the end of Current year up to retirement or beyond that. These benefits are of two types:
Defined Contribution Plans (DCP) and Defined Benefit Plans (DBO).
Defined Contribution Plan (DCP): Under these plans, company and employees are required to make some contribution for accumulation of Benefits. These funds are kept in specified Investments or Govt. Bonds. Whenever employee retires, then investment are realised and employee are paid off. Investments are not maintained by company but by external agencies. Employee Benefit Expense is amount of contribution of Employer. Risk & Returns are borne by Employee. Examples are Contributory PF, Contributory Pension.
Defined Benefits Plans (DBO): Under DBO Plans, contribution is not required, funds are accumulated by employer. Following steps are applied
a. Calculate expected benefits to be paid.
b. Calculate allocated Benefits.
c. Calculate current service cost based on present values.
d. Build up obligation presenting CSC and Interest Cost. If any assumption is altered, then change in PVDBO is called Actuary Gain or Actuary Loss.
These are compensation payments made to employee for termination of Services. These can be termed as voluntary retirement compensation or retrenchment compensation. AS-15 allowed termination benefits to be carried forward as asset till 31/03/2009 but from 01/04/2010, all assets created on termination benefits should be zero. Hence amortisation was to be done upto 31/03/2010.
Currently these are treated as expense and written off as soon as incurred.
It is for level II, level III enterprises and SMC.
In respect of Short term compensated absence, they are exempt from its treatment.
In respect of DBO, if they having average employees during the year less than 50, treatment are based on estimated liability. No requirement of actuary report or using Projected Unit Credit Method. In case employee are more than 50, then exemption is not allowed.