AS 15 and Employee Benefits

This article details AS 15 and how it applies to enterprises, benefits for employees, short-term benefits, benefits on termination and treatment for accounting.

AS 15 is the accounting standard covering Employee Benefits. The standard takes care of all types of benefits for employers excluding inventory compensation.

How AS 15 applies

The standard, passed April 2006, applies to all Level – 1 businesses and enterprises. If an enterprise has over 50 employees, there is more leeway for accounting standard 15. Level 1 – businesses are ones in which the turnover for the preceding financial year was over Rs 50 Crores. Level 1 also incorporates holding or subsidiary companies.

Benefits for employees

Employee benefits go to those employees employed full-time or part-time, or are on casual or temporary basis. Management personnel and directors also fall under the category of employee. To solidify an employee relationship, enterprises can use employee contracts to be considered for legal and tax purposes.

Short-term benefits

Short-term are the benefits payable within twelve (12) months following the end of the services rendered period. The short-term benefits for employees are broken up into four distinct categories:

  1. Regular period benefits such as a salary, etc.
  2. Short-term leave compensation such as sick leave, etc.
  3. Bonus or profit that’s payable within twelve months of the employee’s service
  4. Non-monetary benefits such as housing, etc.

Benefits after employment

Post-employment benefits rest upon benefits that are a defined contribution or a defined benefit plan. The definitions for these are as follows:

  1. Defined contribution plans are benefits after employees are paid. One major downside to this is investment risk is since actuarial an investment risk land on the employee, and their benefits may be significantly less than expected.
  2. Defined benefits plans are any benefits after employment that are also not covered under the defined contribution plans. Instead of on the employee, both the actuarial and investment risk fall on the employer, with meticulous calculations to determine the charge.

Additional long-term benefits

Besides the above-mentioned long-term benefits in AS 15, an enterprise can also give the following additional benefits to its employees, such as:

  1. Sabbatical leave
  2. Jubilee
  3. Disability
  4. Profit/bonus paid to employee 12 months after services are completed

Benefits on termination

In accounting standard 15, if an enterprise chooses to terminate an employee’s employment or the employee chooses voluntary redundancy in exchange for benefits, such as payments from the Voluntary Retirement Scheme (VRS). Benefits of termination must be marked as a liability or an asset only at the point when a formal policy of termination is approved.

Treatment for accounting

According to accounting standard 15, an enterprise’s balance sheet must name the accounting treatment for employee benefits.. The net total of the following adds up to a benefit liability:

  1. The present value concerning the defined benefit obligation, minus
  2. Services in the past not yet recognized, minus
  3. The plan assets’ fair value at the balance sheet date

If the liability is lower than the Fair Value of the plan assets, then we have Net Assets. If the Fair Value of the plan assets is higher than the liability, then it gives rises to the Net Assets.

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