Page 13 - 12. COMPILER QB - INDAS 19

Also, the company has been earning profits since 2010. It has decided in financial year 2019-20 to distribute
profits to its employees @ 4% during the year. However, due to the employee turnover in the organisation, the
expected pay-out of the Diamond Pvt. Ltd. is expected to be around 3.5%. The profits earned during the

financial year 2019-20 are ₹ 4,000 crores.
Diamond Pvt. Ltd. has a post-employment benefit plan which is in the nature of defined contribution plan
where contribution to the fund amounts to ₹ 200 crores which will fall due within 12 months from the end
of accounting period.
The company has paid ₹ 40 crores to this plan in financial year 2019-20.

What would be the treatment of the short-term compensating absences, profit-sharing plan and the defined
contribution plan in the books of Diamond Pvt. Ltd.?
SOLUTION

(a) Treatment of short-term compensating absences: Diamond Pvt. Ltd. will recognise a liability in its books
to the extent of 5 days of PL for 200 employees and 10 days of PL for remaining 800 employees and 2
days of SL for 200 employees and 5 days of SL for remaining 800 employees in its books as an unused

entitlement that has accumulated in 2019-2020 as short-term compensated absences.
(b) Treatment of profit-sharing plan: Diamond Pvt. Ltd. will recognise Rs. 140 crores (4,000 x 3.5%) as a
liability and expense in its books of account.
(c) Treatment of defined contribution plan: When an employee has rendered service to an entity during a

period, the entity shall recognise the contribution payable to a defined contribution plan in exchange for
that service.
Under Ind AS 19, the amount of Rs. 160 crores (200-40) will be recognised as a liability (accrued
expense), after deducting any contribution already paid i.e. Rs. 40 crores (with contribution of Rs. 200
crores to the plan) and an expense in the statement of profit and loss.
It can also be seen that the contributions are payable within 12 months from the end of the year in

which the employees render the related service; hence, they will not be discounted.

12. 12