Retirement Benefits (Revised 2005)
AS – 15
Contents
Ø Applicability & Nature
Ø Meaning of Employees Benefits & Types of Benefits
Ø Accounting Treatments
Applicability & Nature
Applicable : 01-04-2006
Nature : Mandatory for Level – 1
Note: In addition to Level 1, if any enterprise is having more than 50 employees then such enterprise will also be covered under the applications of AS – 15.
Meaning of Employees Benefits
Employees benefit shall include all the expenses which are incurred by the enterprise for the benefits of employees or for relatives of employees. As per AS – 15, two types of benefits should be covered for accounting purpose.
Types of Benefits
Short Term Benefits
Short term benefits are the payments which are expected to be settled in the same period of service or within twelve months after balance sheet date. The following types of amount can be included under the heading of short term benefits.
(a) Wages & Salaries
(b) Profit Sharing / Bonus
(c) Leave Encashment
(d) Non – Monetary Benefits (Car, Housing, Medical etc)
Accounting of Short Term Benefits
(a) Wages & salaries: Amount of wages & salaries should be written off in P&L a/c equal to amount of service used by enterprise during the period. Difference between actual payment & value of service should be considered as prepaid expenses or outstanding expenses.
(b) Profit sharing / Bonus: If any bonus or profit is payable by the enterprise to its worker as per the agreement then payable amount should be provided in P&L a/c of same year.
If any payment is based on the condition of continuation of service during the particular period then provision for payment should not be required for those workers or employees that are not in continuation in service.
(c) Leave Encashment: If any employee is allowed leaves with pay then accumulation and non accumulation will be considered.
Accumulation Leaves: It may be possible that employee has not used the entire benefit which is provided by the company during the period. In such case the unused benefit should be carried forward and to be added to the allowed benefit of next year. Value of unused benefit should be provided by creating a provision & amount of used benefit should be written off in P&L a/c.
Non Accumulation Leaves: If any leave encashment is in the nature of non accumulation then value of unused benefit should not be carried forward to the next year & no provision is required for such unused benefit. Amount of used benefit should be considered as an expense of the same accounting period.
(d) Non – Monetary Benefits: Value of non monetary benefits which are provided by company to its employees or worker should be written off in the same accounting period of the benefit provided.
Long Term Benefits
Multi Employer Plans
Multi Employer plans are formed by two or more employers for the benefits of their employees. If any contribution is made by any employer during the period under the specified plans then amount of contribution should be written off in the same period.
Insurance Plans
If any employer has invested in the insurance plans for the retirement of employees then amount of premium paid should be considered as a normal expense and to be written off in the same period.
State Plans
If any plan is to be created as per Govt guidelines whether State Govt or Local Govt then amount of contribution should be written off in the same accounting period.
(2) If any scrap value is realized from the sale of simple unit then cost of trial run should be capitalized only after adjustment of scrap value.
(3) If any Govt grant is to be recognized as per AS – 12 in relation to fixed assets, then amount of grant should be adjusted in the calculation of original cost.
(b) Consolidated Price: If any enterprise has purchased group of assets by payment in single price then such consolidated price should be divided between the assets as per valuer certificate. If any fee is paid to such valuer for such dividation of price then capitalization of fees should be made as per valuer certificate.
(c) Joint Ownership: If any fixed asset is purchased by two or more enterprise in joint ownership then cost of fixed assets should be recorded in the books of parties with respect to amount of ownership. Depreciation should be calculated as per the recorded value.
(d) Self Construction: If any asset is self constructed by the enterprise then all the exp should be included in the cost of fixed asset which are directly related to construction of fixed asset.
(e) Purchase by exchange of assets: Same provision as AS – 13,
(f) Purchase by share: If any payment for purchase of fixed asset is made by issue of shares then recognition of fixed asset should be carried at its fair value. Market price of share issue should be ignored.
Difference between fair value of fixed asset & face value of shares should be considered as discount or premium on issue of shares.
Disposal of Fixed Asset
(i) If any depreciable asset is disposed off then profit/loss on disposal should be transfer to P/L account.
(ii) Profit/Loss on sale of non-depreciable assets should be transfer to capital reserve.
(iii) If any revaluation reserve is outstanding in the balance sheet & asset is disposed off then at the time of disposal amount of revaluation reserve should be also reversed.
Disclosure
(i) Gross block value & net block value should be disclosed separately in balance sheet.
(ii) If any profit/loss has been arisen during the period on the disposal of fixed asset then amount should be disclosed separately.
6. Cash Flow statement of discontinuing operation should be prepared additionally to normal cash flow statement of the remaining business.
Ÿ��� ��� XxxxPurchase by Shares
Cost of Intangible Assets Fair value or Fair Value of
I.A. taken share issued Whichever is clearly evident
Notes:
(1) If shares of the company are listed on stock exchange then market price can be used directly for the shares issued.
(2) If shares of the company are not listed then fair value of intangible asset acquired can be used.
(3) If fair value of intangible taken & share issued both are available then fair value of taken assets should be preferred.
Exchange by Assets
If any intangible asset is exchanged by asset then fair value of given asset should be recognized as cost of intangible. In the absence of such fair value, book value should be recorded of given asset.
Note: Provisions of AS – 26 are not similar under specified heading as in AS – 13 & AS – 10. As per AS – 26, fair value of given asset or book value of given asset can be used for recognition and no settlement in cash will be considered.
As per AS – 10 & 13, settlement in cash can take place at the time of exchange of asset because fair value of asset taken as well as fair value of asset given are considerable.
Taken in Amalgamation
If any intangible is taken over under the scheme of amalgamation then the following points may be applied.
(i) First Recognition
 |
Fair Value available Fair value not availableShould be recognized separately Should not be recognized separately
By fair value (subject to conditions and should be included in Goodwill
specified below)
(ii) Fair value of intangible asset can be recognized by active market or latest transaction price.
(iii) If active market is available then full amount of intangible asset should be recognized.
(iv) If latest transaction price is used for recognition then cost can be recognized to the extent by which capital reserve is not created. (The above provision can be applicable only for amalgamation in the nature of purchase)
Purchased by Govt Grant
If any intangible asset is purchased by Govt grant then cost of intangible asset can be recorded by net approach or gross approach specified in AS – 12.
Balance Sheet (Disclosure) [Net Approach]
Intangible Asset xxxx
Less: Grant xxxx xxxx
Balance Sheet (Disclosure) [Gross Approach]
Deferred Grant xxxx Intangible Asset xxxx
(Full amount)
Internally Generated Intangible Asset
If any intangible asset is generated internally by the enterprise, then it is generated under two different phases.
1) Research Phase: Research phase is the planed investigation carried by enterprise to create new application of business activities. Research activities may include invention of new products, production techniques, technical system or any other finding for cost saving or future benefits to enterprise. (All the expenses during research phase should be written off in P&L a/c immediately because it is not certain during research phase that any result will be obtained or not from research.)
2) Development Phase: Development phase is the verified application of research activities and all the expenses during the development phase should be capitalized in the cost of intangible asset. Before capitalizing the expenditure during development phase the following conditions should be satisfied.
- Technical should be available with the enterprise.
- The
- After completion of intangible the enterprise should be able to use or sell intangible.
- Future economic benefit should be measured by suitable assumption.
- Financial Resources should be proper to complete the asset.
- There will be proper system to record the cost during development phase.
(i) Cash/Bank/Grant Receivable Dr
To Govt Grant
(ii) Grant A/c Dr
To Deferred Grant A/c (It is transferred to reserve &surplus)
(iii) Deferred Grant A/c Dr
To P&L A/c
Refund of Grant:
Deferred Grant A/c (O/s Bal) Dr
P&L A/c (which is already used) Dr
To Cash/Bank/Grant Receivable
Note: At the time of refund of grant total benefit should be reversed in the current period in total irrespective the effect of these transaction on current year profits.
Disclosure:
(i) Accounting policy should be disclosed separately in relation to classification of nature of grant.
(ii) If any refund has been made during the period then amount of refund should be also disclosed.
Difference between AS/IAS/US GAAP:
If any grant is related to promoter’s contributions then accounting of such grant should be made as capital profits as per as-12. The same grant should be recognized as revenue profits as per other statements. Revenue profits should be recognized on deferred basis as per management intention.
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