Actuarial Valuation as required under LKAS 19

Transcription

1 Actuarial Valuation as required under LKAS 19

2 Accounting Standards are Definitive benchmarks prescribed by a country s Accounting Standard Board.

3 Comparison Measurement Disclosures & Recognition under expense in the Income Statement and Balance Sheet

4 Short-Term Employee Benefits Other Long-Term Employee Benefits Post Employment Benefits Termination Benefits

5 Requires a best estimate of likely Future Benefit Payment. Future Payments are to be Discounted back. Gains/ Losses: Deviations between Actual and Expected

6 Projected Unit Credit Method : Present Value of All Accrued Benefit on valuation Date on Projected Salaries at Exit (PBO) Required Under LKAS 19. Required Under ASC 715 (US-GAAP) Required Under IAS-19 (IFRS)

7 Mortality Demographic Assumptions Turnover/Attrition Retirement Age...

8 Setting the Assumptions is a Group Work. Salary Escalation, Attrition Rate best Known by the Employer Disount Rate is market driven Other related assumptions are taken on a best estimate from past trend.

9 As per Payment of Gratuity Act (1983)- Gratuity is the payment made by the employer to an employee in appreciation of continuous service rendered by the employee. Gratuity is payable immediately on the EXIT of employment of the employee after he/she has rendered a continuous service of not less than 5 years On retirement/early exit, or On death, or Exit due to disablement, accident or disease.

10 Required Information To determine Identification of the Employee Date of Birth Date of Joining Date of Valuation Monthly Salary Retirement Age Benefit Description Age Past service Discontinuance liability Actuarial Liability

11 Benefit : 15 days salary per year of service Past Service = 10 Years Age = 40 Years Current Salary = 10,000 Rate of Discounting = 7% Vesting Period = 5 Years Retirement Age = 60 Years Method of Valuation = Projected Unit Credit Method

12 Future Salary Growth = 5% Benefits = 15/30*10,000*10 = 50,000 Actuarial Value = 50,000*(1.05/1.07)^(60-40) = 34,283 Actuarial Value differs due to uncertainty of early withdrawal and mortality

13 Future Salary growth = 4% Benefits = 15/30*10,000*10 = 50,000 Actuarial Value = 50,000*(1.04/1.07)^(60-40) = 28,311 Actuarial Value differs due to uncertainty of early withdrawal and mortality

14 Future Salary growth = 9% Benefits = 15/30*10,000*10 = 50,000 Actuarial Value = 50,000*(1.09/1.07)^(60-40) = 72,414 Actuarial Value differs due to uncertainty of early withdrawal and mortality

15 General description of the type of plan Principal actuarial assumptions Accounting policy for recognizing actuarial gains & losses. Reconciliation with movements during the period of the liability in the balance sheet. Details of total expense (income statement)

16 100 Liability 4 Benefit Payments (leavers) Extra year s interest and benefit accrual Liability Loss Year Start Year End Year End Expected Year End Actual

17 SLAS 16 Hit to Income statement

18 I. ASSUMPTIONS: 01/04/2011 to 31/03/2012 DISCOUNT RATE [PREVIOUS] 8.25% RATE OF RETURN ON PLAN ASSETS [PREVIOUS] 0.00% SALARY ESCALATION [PREVIOUS] 8.00% ATTRITION RATE [PREVIOUS] 2.00% DISCOUNT RATE [CURRENT] 8.50% RATE OF RETURN ON PLAN ASSETS [CURRENT] 0.00% SALARY ESCALATION [CURRENT] 8.00% ATTRITION RATE [CURRENT] 2.00%

19 II. TABLE SHOWING CHANGE IN THE PRESENT VALUE OF DEFINED BENEFIT OBLIGATION: PRESENT VALUE OF BENEFIT OBLIGATION AS AT THE BEGINNING OF THE CURRENT PERIOD 01/04/2011 to 31/03/ ,00,000 INTEREST COST 8,25,000 CURRENT SERVICE COST 20,00,000 LIABILITY TRANSFERRED IN - (LIABILITY TRANSFERRED OUT) - (BENEFIT PAID) (4,00,000) ACTUARIAL (GAINS)/LOSSES ON OBLIGATIONS 25,75,000 PRESENT VALUE OF BENEFIT OBLIGATION AS AT THE END OF THE CURRENT PERIOD 150,00,000

20 III. TABLE OF FAIR VALUE OF PLAN ASSETS: 01/04/2011 to 31/03/2012 FAIR VALUE OF PLAN ASSETS AT THE BEGINNING OF THE PERIOD EXPECTED RETURN ON PLAN ASSETS - CONTRIBUTIONS 4,00,000 TRANSFER FROM OTHER COMPANY - (TRANSFER TO OTHER COMPANY) - (BENEFIT PAID) (4,00,000) ACTUARIAL GAINS/(LOSSES) ON PLAN ASSETS - FAIR VALUE OF PLAN ASSETS AT THE END OF THE PERIOD -

21 IV. EXPENSES RECOGNIZED IN THE STATEMENT OF OTHER COMPREHENSIVE INCOME (OCI) 01/04/ /03/2012 ACTUARIAL (GAINS)/LOSSES ON OBLIGATION FOR THE PERIOD 25,75,000 ACTUARIAL (GAINS)/LOSSES ON ASSET FOR THE PERIOD - NET (INCOME)/EXPENSE FOR THE PERIOD RECOGNIZED IN THE STATEMENT OF OCI 25,75,000 (ACCUMULATED OTHER COMPREHENSIVE INCOME AT THE BEGINNING OF THE PERIOD) - (ACCUMULATED OTHER COMPREHENSIVE INCOME AT THE END OF THE PERIOD) 25,75,000

22 V. AMOUNT RECOGNIZED IN THE BALANCE SHEET: 01/04/2011 to 31/03/2012 FAIR VALUE OF PLAN ASSETS AT THE END OF THE PERIOD - (PRESENT VALUE OF BENEFIT OBLIGATION AS AT THE END OF THE PERIOD) (150,00,000) FUNDED STATUS (150,00,000) NET (LIABILITY)/ASSET RECOGNIZED IN THE BALANCE SHEET (150,00,000)

23 VI. EXPENSES RECOGNIZED IN THE INCOME STATEMENT: 01/04/2011 to 31/03/2012 CURRENT SERVICE COST 20,00,000 INTEREST COST 8,25,000 (EXPECTED RETURN ON PLAN ASSETS) - EXPENSE RECOGNIZED IN INCOME STATEMENT 28,25,000

24 VII. BALANCE SHEET RECONCILIATION: 01/04/2011 to 31/03/2012 OPENING NET LIABILITY 100,00,000 EXPENSE RECOGNIZED IN P&L 28,25,000 EXPENSE RECOGNIZED IN THE STATEMENT OF OCI 25,75,000 NET TRANSFER IN - (NET TRANSFER OUT) - (EMPLOYER'S CONTRIBUTION) (4,00,000) NET LIABILITY/(ASSET) RECOGNIZED IN THE BALANCE SHEET 150,00,000

25 VIII. EXPENSES RECOGNIZED IN THE INCOME STATEMENT OF NEXT YEAR: 01/04/2012 to 31/03/2013 CURRENT SERVICE COST 25,00,000 INTEREST COST 12,75,000 (EXPECTED RETURN ON PLAN ASSETS) - EXPENSE RECOGNIZED IN INCOME STATEMENT 37,75,000

26 IX. CASH FLOW PROJECTION: PROJECTED BENEFITS PAYABLE IN ,41, ,23, ,45, ,92, ,26, ,12,274

27 X. EXPERIENCE ADJUSTMENT: 01/04/2011 to 31/03/2012 ON PLAN LIABILITY (GAINS)/LOSSES 35,42,543 ON PLAN ASSETS (LOSSES)/GAINS -

28 SLAS 16 LKAS 19 Current Service Cost 2,000,000 2,000,000 Interest Cost 825, ,000 Actuarial (Gain)/Loss 2,575,000 0

29 Assumption Increase Decrease Discount rate Salary Increase Rate Liab. would decrease and leads to actuarial gain Liab. would increase and leads to actuarial loss Liab. would increase and leads to actuarial loss Liab. would decrease and will lead to actuarial gain

30 LKAS19 Full and immediate recognition outside Income statement via Other Comprehensive Income (OCI). This results in Reduction Of Volatility in profits and losses of company.

31 LKAS19 Corridor approach can be used to delay recognition of losses / (gains) Corridor Approach amortizes over employees future service periods any unrecognized gains or losses in excess of 10% of greater of projected benefit obligation or fair value of plan assets

32 Unrecognized net gain/loss Net gain/loss subject to recognition Corridor = 10% Max(PBO, Fund Assets)

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