Termination benefits Ind AS 19

Termination benefits arise when an employee is terminated by the employer or when an employee accepts the employer’s offer of benefits in exchange of termination of employment. This is different to post-employment benefits. Classic example of termination benefits is retrenchment compensation where the employee has no option to accept the termination. Voluntary Retirement Scheme is also an example of termination benefits where the employees are due a compensation and in return accept early retirement.

Termination Benefits are to be recognised on the earlier date of when the company can no longer withdraw the offer of the termination benefits, or when the company recognises costs for restructuring which involves the payment of termination benefits. For instance, a company may face debt restructuring and accordingly, several employees would have to be laid off, and the termination benefits would be recognised.

Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment as a result of either:

• An entity’s decision to terminate an employee’s employment before the normal retirement date; or
• An employee’s decision to accept an offer of benefits in exchange for

An entity shall recognize a liability and expense for termination benefits at the earlier of the following dates: The termination of

• When the entity can no longer withdraw the offer of those benefits; and
• When the entity recognises costs for a restructuring that is within the scope of Ind AS 37 and involves the payment of termination benefits

It does not cover an employee’s voluntary termination or mandatory retirement. It is generally a lump sum payment and also includes:

• Enhancement of post-employment benefits (through benefit plan).
• Salary to be paid until the end of a specified notice period.

Recognition

An employer should recognize termination benefits as a liability and as an expense at the earlier of the following dates:

• The employer can no longer withdraw the offer for those benefits. The employer recognizes restructuring cost per Ind AS 37 and involves payment of termination benefits

Measurement

Termination Benefits are measured based on the criteria considering if they are an enhancement to post-employment benefits. If they are an enhancement to post-employment benefits (for instance payable after retirement), then they are accounted as per Defined Contribution Plan or Defined Benefit Plan, as the case maybe. If they are not an enhancement to post-employment benefits, based on whether the termination benefits are expected to be settled within 12months they are accounted as either Short Term Employee Benefits (for cases when the settlement is within 12 months) or Other Long Term Employee Benefits (for other cases).

• Measure the termination benefits on initial recognition and recognize subsequent changes with the nature of employee benefit.
• Analyze if the benefits are an enhancement of post-employment benefits or short-term employee benefits or long-term employee benefits.