Accounting Treatment of Past Service Cost in Computing the Defined Benefit Obligation According to Ind AS 19
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- Last Updated on 9 May, 2024
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Accounting for defined benefit plans is complex because actuarial assumptions are required to measure the obligation and expense, and actuarial gains and losses may occur. Moreover, the obligations are measured on a discounted basis because they may be settled many years after the employees render the related service.
Therefore it is important for the enterprise to measure post-employment benefit obligations on a basis that reflects the estimated future changes in the level of any state benefits that affect the benefits payable under a defined benefit plan. For the presentation purpose, an entity shall recognize the net defined benefit liability (asset) in the balance sheet which shall be net of the present value of the defined benefit obligation minus the fair value of the plan asset if any.
In this story, we have discussed the impact of past service costs due to changes in the rules of the defined benefit plan while computing the defined benefit obligation and how such service cost shall impact the defined benefit obligation at the balance sheet date.
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