Remeasurement of Defined Benefit Plans
Actuarial gains or losses on the gratuity and pension liability, kept in equity rather than profit under NFRS. On the Balance Sheet.
In detail
A defined benefit plan is a promise such as gratuity where the company bears the risk of how much it will finally cost. An actuary estimates the liability each year, and the part of the change that comes from revised assumptions, such as salary growth, staff turnover or the discount rate, or from experience differing from estimate, is an actuarial gain or loss. NFRS sends that gain or loss to other comprehensive income and this reserve, while the regular service and interest cost stays in Gratuity and Retirement Benefits. The reserve is never recycled to profit. Companies that accrue gratuity on a simple percentage will not use it, but any company with an actuarial valuation must.
Formula
Remeasurement = Actuarial liability at year end - (Opening liability + Service cost + Interest cost - Benefits paid)
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Remeasurement of Defined Benefit Plans | Rs 30,000 | |
| Liability for Employee Benefits - Non-Current | Rs 30,000 |
How to record it in BRAccount
- 01Obtain the actuarial valuation report for the gratuity and leave plans at Ashadh end.
- 02Separate the service and interest cost from the actuarial gain or loss in the report.
- 03Go to Invoicing > Journal Entry > New dated the year end.
- 04Post the service and interest cost to Gratuity and Retirement Benefits and the actuarial loss to this reserve.
- 05Credit Liability for Employee Benefits - Non-Current for the total increase.
- 06Submit. The entry below posts.
When to use it
Post by Journal Entry at year end from the actuary's report. Companies without defined benefit schemes never use it.
Example from the demo books
Dr Remeasurement of Defined Benefit Plans Rs 30,000, Cr Liability for Employee Benefits - Non-Current Rs 30,000 for an actuarial loss.