6. LTEB & PEEB There are two types of benefits that can be given in LTEB and PEEB. There can be : Defined Contribution Plans Defined Benefit Plans Defined Contribution Plans : These are those plans where employee and employer contribute towards any benefit. E.g. Provident Fund or Contribution for Pension In such cases all risks on Price Interest etc are to be born by Employees.

Defined Benefit Obligations (DBO) These are those benefits which are allotted to Employees without any contribution from them. E.g. Gratuity, Leave Salary, Pension, Bonus. DBO will be accounted using Projected unit Credit Method (PUCM). Following Steps are applied : Step 1: Calculate value of Benefit expected to be given. Step 2: Calculate allotted benefit for each year. Step 3: Calculate PV of allocated benefits. Such PV is called Current Service Cost.

Journal Entries i) Current Service Cost ( CSC) : Allocated Expense at PV CSC a/c Dr ( P&L a/c) To PVDBO ( B/S liability under provision) ( Being amount recorded) ii) Interest Cost : Interest Cost a/c Dr ( P&L a/c) To PVDBO ( B/S liability under provision) (Amount of Interest Recorded) iii) Benefit Paid : any benefit paid to employee at the end of period. PVDBO To Bank (Being Amt Paid)

iv. Acctuary Gain/ Loss on PVDBO This Gain or Loss is in Current Year due to changes in actuary assumption. PVDBO a/c Dr To Actuary Gain a/c ( Being gain recorded) Actuary Loss a/c Dr To PVDBO a/c ( Being loss recorded) Note: Acctuary gain or loss can not be deferred it will be transferred to P&L a/c.

Contribution Made ( It means purchase of Investment ) v) If any PVDBO is maintained along with investment, such PVDBO are called Funded and Investment are called Plan Asset. Contribution Made ( It means purchase of Investment ) Plan Asset a/c Dr To Bank a/c (Being amt of Investment made) vi) Benefit Paid : Bank a/c Dr To Plan Asset a/c (Being Investment sold) Note : Profit and Loss on Sale will not be computed.

vii) Expected Return on Plan Asset : Plan Asset a/c Dr To Expected Return on PA ( Interest Income P&L a/c) ( Being Income recorded) Note: Actual return is not recorded here. It is assumed that expected return will be earned in C.Y. It is also assumed Return is on Half Yearly Basis. It is also assumed that contribution and benefit paid are transaction in the middle of the year.

viii) Actuary Gain or Loss is Calculated on Planned Asset. Closing Balance of Plan Asset ( Fair value) ---------- Less: Ledger Balance of Plan Asset ---------- Actuary Gain/ Loss ====== Actuary Gain : Plan asset a/c Dr To Actuary Gain a/c Actuary Loss : Actuary Loss a/c Dr To Plan Asset a/c

ix) Modification in DBO Modification in DBO means changes in plans of DBO. Eg: Change in Bonus rate Such modifications are always in favour of employees. These changes are made by employer. Past service cost a/c Dr Unrecognized Past service cost a/c Dr To PVDBO a/c (Being modification made) Note : PSC will be transferred to P&L UPSC will be w/o over remaining vesting period.

x) Curtailment of DBO W/o of Bonus in upcoming years. PVDBO a/c Dr To UPSC To P&L a/c ( Difference ) ( Being any plan curtailed)

7. Exemption to SMC and SME in LTEB /PEEB SMC are not required to discount allocated benefits in LTEB. SMC Actuary Report can be obtained for calculation of LTEB/ PEEB. SMEs : Entity having employees : More than 50 Upto or Less than 50 Discounting not required Actuary Report can be obtained Not Required Rational method is used

8. Plan Asset can be kept in various investments. Such investments can be maintained by company itself or outsourced. Plans of outsourcing can be : i) Multiemployer Plan ii) State Plan iii) Group Plan iv) Insurance Plan

9. Termination Benefit (VRS Retrenchment Compensation) Any amount of expense recognized in financial statement will be dealt as follows : Incurred beyond 1/4/2010 Fully written off Incurred up to 31/3/2010 Such expenses can be deferred provided that balance of Termination Benefit should be NIL. If at year end there is any VRS open for employees, company / entity can make provision for , If there is any present obligation which is expected to be settled through outflow of resources and it can be measured.