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IAS 19 Disclosures Example: Gratuity Cost and disclosure of Actuarial Assumptions

In the previous post we looked at the IAS 19 Disclosure relating to the reconciliation of present value of defined benefit obligations and fair value of assets to the assets (liabilities) recognized in the balance sheet. In this post we illustrate the disclosure related to the expected gratuity expense that will be recognized in the following year. We also look at the disclosure made with regard to the actuarial assumptions used in the gratuity valuation.

a)      The total expense to be recognized in the profit or loss. For our example in the current year the total expense is based on the calculation carried out as part of last year’s valuation as follows:

 Gratuity Cost for the year ended


1Current Service Cost     1,108.47
2Interest Cost     1,152.81
3Expected Return on Plan Assets


4Amortization of Loss (Gain) recognized               0.00  
5Gratuity expense recognized in profit or loss; (1)+(2)-(3)+(4)     1,221.28

The expected gratuity expense for the following one-year period commencing 1st January 2011 will be calculated as follows:

Firstly determine the actuarial gain (loss) to be recognized in 2011 using the corridor limit approach:

1Present value of Funded Gratuity Obligation- Actuarial Liability as at 31-12-2010   10,454.09
2Fair Value of Plan Assets as at 31-12-2010   10,000.00
3Greater of (1) and (2)   10,454.09
410% Corridor     1,045.41
5Net cumulative unrecognized actuarial gain     1,134.96
6Excess of (5) over (4)          89.56
7Average expected remaining working lives (years)          29
8Amortization of Gain (Loss) to be recognized in the following year beginning 1st January 2011; (6)/(7)            3.09

Next, calculate the expected gratuity cost for the following year:

 Expected Gratuity Cost for the year commencing


1Current Service Cost     1,161.57
2Interest Cost     1,359.03
3Expected Return on Plan Assets


4Amortization of Loss (Gain) recognized


5Gratuity expense recognized in profit or loss; (1)+(2)-(3)+(4)     1,217.51

Where, Interest Cost = Actuarial Liability as at 31-12-2010 * Discount Rate (2010) =10,454.09*13%

The current service cost is the normal cost determined as per Actuarial Valuation for the year ended 31-December-2010.

Expected Return on Plan Assets = Fair Value of Plan Assets as at 31-12-2010 * Expected Rate of Return (2010) =10,000*13% 

b)      The principal actuarial demographic and financial assumptions used as at the balance sheet date. For our example this is as follows:

Actuarial Assumption20102009
Discount rate at 31-Dec-13%13%
Expected return on plan assets at 31-Dec-13%13%
Future salary increase8%8%
Mortality RateHypothetical TableHypothetical Table
Withdrawal/Turnover Rate0%0%

In this post we reviewed how the IAS 19 disclosure for gratuity expense is prepared. We also demonstrate how demographic and financial actuarial assumptions are disclosed as part of the IAS 19 requirement.

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