Where there is uncertainty about the number of employees who will accept an offer of termination benefits, a contingent liability exists.

As required by AS 29, “Provisions, Contingent Liabilities and Contingent Assets” an enterprise discloses information about the contingent liability unless the possibility of an outflow in settlement is remote.

As required by AS 5, “Net Profit or Loss for the Period, Prior Period items and Changes in Accounting Policies” an enterprise discloses the nature and amount of an expense if it is of such size, nature or incidence that its disclosure is relevant to explain the performance of the enterprise for the period.

Termination benefits may result in an expense needing disclosure in order to comply with this requirement.

Where required by AS 18, “Related Party Disclosures”, an enterprise discloses information about termination benefits for key management personnel.

When drafting AS 15 (revised), the standard setters felt that merely on the basis of a detailed formal plan, it would not be appropriate to recognise a provision since a liability cannot be considered to be crystallized at this stage. See Chart 5 for its recognition and measurement as per the standard. Accordingly, the revised AS 15 (2005) requires more certainty for recognition of termination cost, for example, if the employee has sign up for the termination scheme.

As per the transitional provision of revised AS 15, as regards VRS as paid upto 31 March,

2009, there is a choice to defer it over payback period, subject to prohibition on carry forward to periods commencing on or after 1 April, 2010.

Accounting Treatment
Accounting for Borrowing Cost in AS-16

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