AS 15 Accounting Entries

Hi Amshumali,

AS 15 (Revised) deals with Accounting for Retirement Benefits, mainly for defined benefit plans. The core accounting revolves around recognizing the Present Value of Defined Benefit Obligation (PVDBO), Plan Assets, and the Net Liability or Asset.

Here’s a simplified list of typical journal entries based on AS 15:

1. Recognizing Current Service Cost

This is the expense for the current year’s employee service.

• Journal:

2. Recognizing Interest Cost on Defined Benefit Obligation

Interest cost is the increase in the obligation due to the passage of time.

• Journal:

3. Expected Return on Plan Assets

Plan assets generate expected returns which reduce the expense.

• Journal:

4. Contribution to Plan Assets

When the company contributes cash to the fund managing the plan assets.

• Journal:

5. Benefits Paid to Employees

When benefits are paid out to retirees.

• Journal:

6. Actuarial Gains/Losses

Actuarial gains/losses arise due to changes in assumptions or actual experience differing from estimates. These are recognized directly in OCI (Other Comprehensive Income) and adjusted in the balance sheet.

• Journal:

If actuarial loss:

If actuarial gain:

7. Adjusting Net Liability/Asset

If Plan Assets exceed obligation, recognize as net asset (maximum limited to asset ceiling).

• Journal to record net asset:

Summary of key points:

• The Provision for Gratuity (or Pension) Liability account represents the net defined benefit liability.

• The Plan Assets are recorded separately.

• Employee Benefit Expense in P&L includes current service cost, interest cost less expected return on plan assets.

• Actuarial gains/losses go to OCI.

• Benefits paid reduce the liability and plan assets.

If switching from one method to another (e.g., from cash basis to accrual or vice versa), the adjustments happen through the Provision for Gratuity Liability and the related expense accounts, but these are more complex and depend on prior accounting treatment.