Chapter 6: Liabilities Based Accounting Standards - Test 2: answer key

Question 1 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

Scenario. Sterling Garments Ltd., a listed textile company, maintains a defined benefit gratuity plan for its 850 permanent employees. As at 1 April 2025 (the beginning of the financial year 2025-26), the present value of the defined benefit obligation (DBO) was ₹60,00,000 and the fair value of plan assets (FVPA) was ₹48,00,000. On 1 October 2025, the company amended the plan to enhance gratuity benefits retrospectively for past service; the resulting past service cost of ₹4,00,000 related to past service was fully vested immediately upon the amendment. During the year 2025-26, the following additional information is available from the actuary and the fund manager: current service cost ₹8,00,000; discount rate 10% per annum; expected rate of return on plan assets 9% per annum; benefits paid (at year-end) ₹5,00,000; employer contributions (at year-end) ₹6,00,000; actuarial loss on DBO from experience adjustments ₹1,50,000; actual return on plan assets ₹4,00,000. The company follows AS 15 (Revised 2005) and recognises actuarial gains and losses immediately in the statement of profit and loss. There were no other plan amendments, curtailments or settlements during the year. The company is not entitled to any refund from the plan surplus. All amounts are material. No income-tax adjustments are required.

For the year ended 31 March 2026, what total amount should Sterling Garments Ltd. recognise as employee-benefit expense in the statement of profit and loss?

1. ₹15,50,000 (correct answer)
2. ₹15,82,000
3. ₹15,00,000
4. ₹11,50,000

Answer: A — ₹15,50,000

Explanation. P&L expense = current service cost ₹8,00,000 + interest cost (10% × ₹60,00,000) ₹6,00,000 − expected return (9% × ₹48,00,000) ₹4,32,000 + past service cost ₹4,00,000 + actuarial loss on DBO ₹1,50,000 + actuarial loss on assets (₹4,32,000 − ₹4,00,000) ₹32,000 = ₹15,50,000. Cross-check: closing net liability ₹21,50,000 − opening net liability ₹12,00,000 + contributions ₹6,00,000 = ₹15,50,000.

Where it goes wrong. Forgetting to include the actuarial loss on plan assets or omitting past service cost.

Authority. AS 15 (Revised 2005), paras 55, 61 and 92

Question 2 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

What is the net defined benefit liability to be recognised in the balance sheet as at 31 March 2026?

1. ₹17,50,000
2. ₹26,50,000
3. ₹23,50,000
4. ₹21,50,000 (correct answer)

Answer: D — ₹21,50,000

Explanation. Closing DBO = ₹60,00,000 + CSC ₹8,00,000 + interest ₹6,00,000 + past service cost ₹4,00,000 + actuarial loss ₹1,50,000 − benefits ₹5,00,000 = ₹74,50,000. Closing FVPA = ₹48,00,000 + actual return ₹4,00,000 + contributions ₹6,00,000 − benefits ₹5,00,000 = ₹53,00,000. Net liability = ₹74,50,000 − ₹53,00,000 = ₹21,50,000. No unamortised PSC remains because it vested immediately.

Where it goes wrong. Adjusting closing DBO only for CSC and interest, ignoring past service cost and actuarial loss.

Authority. AS 15 (Revised 2005), paras 55 and 59

Question 3 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · medium

What is the total actuarial loss to be recognised immediately in the statement of profit and loss for 2025-26?

1. ₹1,50,000
2. ₹1,82,000 (correct answer)
3. ₹32,000
4. ₹1,18,000

Answer: B — ₹1,82,000

Explanation. Total actuarial loss = actuarial loss on DBO ₹1,50,000 + actuarial loss on plan assets ₹32,000 = ₹1,82,000. The loss on plan assets equals expected return ₹4,32,000 (9% × ₹48,00,000) minus actual return ₹4,00,000. AS 15 requires immediate recognition in P&L, not deferral under a corridor approach.

Where it goes wrong. Recognising only the DBO actuarial loss or treating expected return as P&L income while ignoring the asset-side actuarial loss.

Authority. AS 15 (Revised 2005), paras 92-94

Question 4 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · medium

What amount of 'return on plan assets' is recognised in the statement of profit and loss for 2025-26, and how is the difference between actual and expected return treated?

1. ₹4,32,000 credited; ₹32,000 difference recognised immediately as actuarial loss (correct answer)
2. ₹4,00,000 credited; no separate treatment for the difference
3. ₹4,32,000 credited; ₹32,000 difference deferred over five years
4. ₹4,00,000 credited; ₹32,000 adjusted directly against plan assets

Answer: A — ₹4,32,000 credited; ₹32,000 difference recognised immediately as actuarial loss

Explanation. Under AS 15, the expected return on plan assets (9% × ₹48,00,000 = ₹4,32,000) is credited to P&L as a component of the defined benefit expense. The difference between actual return (₹4,00,000) and expected return (₹4,32,000), i.e., ₹32,000, is an actuarial loss recognised immediately in P&L. Using actual return directly as P&L income is incorrect.

Where it goes wrong. Crediting actual return to P&L instead of expected return, and failing to route the difference through actuarial gain/loss.

Authority. AS 15 (Revised 2005), paras 61(c) and 94

Question 5 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

Scenario. Zenith Technologies Pvt Ltd. (ZTPL) has two employee-benefit schemes relevant for the year ended 31 March 2026. First, ZTPL announced a voluntary retirement scheme (VRS) on 1 January 2026 for 500 eligible employees. Each accepting employee is entitled to 3 months' salary plus 15 days' salary for each completed year of service. The average monthly salary of eligible employees is ₹40,000 and their average completed service is 12 years. Management reliably estimates that 300 employees will ultimately accept the VRS, with all payments expected to be made within 12 months of the balance sheet date. As at 31 March 2026, 250 employees had actually accepted. Second, ZTPL operated a defined benefit pension plan for its consumer electronics division, which was discontinued on 1 October 2025. This discontinuance constitutes a curtailment without settlement because affected employees will continue to receive benefits for services rendered before discontinuance but will earn no further benefits. Immediately before the curtailment, the PV of the DBO was ₹50,00,000, the FVPA was ₹38,00,000, and the unamortised past service cost was ₹4,00,000. The curtailment reduced the gross DBO by ₹8,00,000 (being 16% of the gross obligation), and the related portion of unamortised past service cost is to be adjusted. There were no other actuarial changes to the plan during the year.

What is the gain from curtailment to be recognised by Zenith Technologies Pvt Ltd. in the statement of profit and loss for 2025-26?

1. ₹8,00,000
2. ₹7,36,000 (correct answer)
3. ₹7,64,000
4. ₹64,000

Answer: B — ₹7,36,000

Explanation. Reduction in gross DBO = ₹8,00,000. Related proportion of unamortised past service cost = 16% × ₹4,00,000 = ₹64,000. Gain from curtailment = ₹8,00,000 − ₹64,000 = ₹7,36,000. AS 15 requires immediate recognition of curtailment gains in P&L when the curtailment occurs.

Where it goes wrong. Recognising the full ₹8,00,000 reduction as gain without adjusting the related past service cost.

Authority. AS 15 (Revised 2005), paras 109-110

Question 6 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

What is the net defined benefit liability to be recognised in the balance sheet immediately after the curtailment on 1 October 2025?

1. ₹4,00,000
2. ₹5,00,000
3. ₹64,000 (correct answer)
4. ₹4,64,000

Answer: C — ₹64,000

Explanation. Reduced DBO = ₹50,00,000 − ₹8,00,000 = ₹42,00,000. Remaining unamortised past service cost = ₹4,00,000 − (16% × ₹4,00,000) = ₹4,00,000 − ₹64,000 = ₹3,36,000. Net liability = ₹42,00,000 − ₹3,36,000 − FVPA ₹38,00,000 = ₹64,000.

Where it goes wrong. Ignoring the unamortised past service cost deduction or applying the wrong proportion (full unamortised amount instead of 16%).

Authority. AS 15 (Revised 2005), para 55

Question 7 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · medium

What is the amount of termination benefit payable to each accepting employee under the VRS?

1. ₹2,40,000
2. ₹3,00,000
3. ₹3,60,000 (correct answer)
4. ₹4,20,000

Answer: C — ₹3,60,000

Explanation. Per employee benefit = 3 months' salary (3 × ₹40,000 = ₹1,20,000) + 15 days' salary × completed years of service = 15 × (₹40,000 ÷ 30) × 12 = 15 × ₹1,333.33 × 12 = ₹2,40,000. Total = ₹1,20,000 + ₹2,40,000 = ₹3,60,000 per accepting employee.

Where it goes wrong. Using annual salary instead of monthly salary for the '3 months' component or miscomputing the 15-day factor.

Authority. AS 15 (Revised 2005), paras 7 and 132

Question 8 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

What termination liability should Zenith Technologies Pvt Ltd. recognise in respect of the VRS at 31 March 2026, given that 250 employees had actually accepted and management still expects 300 total acceptances?

1. ₹9,00,00,000
2. ₹10,80,00,000 (correct answer)
3. ₹12,00,00,000
4. ₹1,80,00,000

Answer: B — ₹10,80,00,000

Explanation. AS 15 requires measurement by reference to the number of employees expected to accept the offer. Since management expects 300 acceptances, liability = 300 × ₹3,60,000 = ₹10,80,00,000. Payments are within 12 months of the balance sheet date, so no discounting is required. The 250 actual acceptances are an early indicator, not the measurement basis.

Where it goes wrong. Using only the 250 employees who had actually accepted (₹9,00,00,000) rather than the expected 300 acceptances.

Authority. AS 15 (Revised 2005), para 140

Question 9 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

Scenario. An entity's defined benefit plan shows: opening DBO ₹5,00,000; closing DBO ₹6,20,000; benefits paid ₹40,000; actuarial loss ₹25,000; discount rate 10% p.a. What is the current service cost for the year?

An entity's defined benefit plan shows: opening DBO ₹5,00,000; closing DBO ₹6,20,000; benefits paid ₹40,000; actuarial loss ₹25,000; discount rate 10% p.a. What is the current service cost for the year?

1. ₹1,20,000
2. ₹1,10,000
3. ₹75,000
4. ₹85,000 (correct answer)

Answer: D — ₹85,000

Explanation. Closing DBO = Opening DBO + CSC + Interest − Benefits + Actuarial loss. Interest = 10% × ₹5,00,000 = ₹50,000. Therefore ₹6,20,000 = ₹5,00,000 + CSC + ₹50,000 − ₹40,000 + ₹25,000 → CSC = ₹6,20,000 − ₹5,35,000 = ₹85,000.

Where it goes wrong. Treating the entire increase in DBO as current service cost or omitting interest and actuarial loss.

Authority. AS 15 (Revised 2005), para 61(a)

Question 10 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

Scenario. Opening FVPA was ₹8,00,000. On 1 October 2025 the plan received contributions of ₹1,50,000 and paid benefits of ₹80,000. Expected return is 10% p.a.; actual return for the year is ₹90,000. What is the actuarial gain or loss on plan assets for the year?

Opening FVPA was ₹8,00,000. On 1 October 2025 the plan received contributions of ₹1,50,000 and paid benefits of ₹80,000. Expected return is 10% p.a.; actual return for the year is ₹90,000. What is the actuarial gain or loss on plan assets for the year?

1. Gain ₹6,500 (correct answer)
2. Gain ₹10,000
3. Loss ₹6,500
4. Gain ₹26,000

Answer: A — Gain ₹6,500

Explanation. Expected return = 10% × ₹8,00,000 (for 12 months) + 5% × (₹1,50,000 − ₹80,000) (for 6 months) = ₹80,000 + ₹3,500 = ₹83,500. Actuarial gain = Actual return ₹90,000 − Expected return ₹83,500 = ₹6,500 gain. Ignoring the mid-year cash flow timing gives a distorted figure.

Where it goes wrong. Applying full-year 10% to the net contribution or ignoring the timing of mid-year cash flows.

Authority. AS 15 (Revised 2005), para 94

Question 11 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · medium

Scenario. A plan amendment on 1 October 2025 increases benefits by ₹8,00,000. Half relates to already-vested benefits; the other half requires 2 years' additional service from 1 October 2025 to vest. What amount of past service cost is recognised in P&L for 2025-26 (year ended 31 March 2026)?

A plan amendment on 1 October 2025 increases benefits by ₹8,00,000. Half relates to already-vested benefits; the other half requires 2 years' additional service from 1 October 2025 to vest. What amount of past service cost is recognised in P&L for 2025-26 (year ended 31 March 2026)?

1. ₹4,00,000
2. ₹5,00,000 (correct answer)
3. ₹6,00,000
4. ₹8,00,000

Answer: B — ₹5,00,000

Explanation. Vested past service cost ₹4,00,000 is recognised immediately. Unvested past service cost ₹4,00,000 is recognised on a straight-line basis over the 2-year vesting period; for the 6 months from 1 October 2025 to 31 March 2026, expense = ₹4,00,000 × 6/24 = ₹1,00,000. Total P&L charge = ₹4,00,000 + ₹1,00,000 = ₹5,00,000.

Where it goes wrong. Recognising the entire unvested past service cost immediately or ignoring the 6-month partial period.

Authority. AS 15 (Revised 2005), para 96

Question 12 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · medium

Scenario. A curtailment reduces a plan's gross DBO by ₹3,00,000. Unamortised past service cost before the curtailment is ₹1,00,000, and 20% of it relates to the curtailment. What is the gain from curtailment?

A curtailment reduces a plan's gross DBO by ₹3,00,000. Unamortised past service cost before the curtailment is ₹1,00,000, and 20% of it relates to the curtailment. What is the gain from curtailment?

1. ₹3,00,000
2. ₹2,20,000
3. ₹2,80,000 (correct answer)
4. ₹3,20,000

Answer: C — ₹2,80,000

Explanation. Gain from curtailment = reduction in gross DBO ₹3,00,000 − portion of unamortised past service cost related to curtailment (20% × ₹1,00,000 = ₹20,000) = ₹2,80,000. The unamortised past service cost related to the eliminated portion must be removed before computing the gain.

Where it goes wrong. Ignoring the past service cost adjustment or applying all of unamortised PSC instead of the 20% proportion.

Authority. AS 15 (Revised 2005), para 109

Question 13 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

Scenario. A company settles a defined benefit obligation by paying ₹5,00,000 in cash. The PV of the settled DBO was ₹4,60,000. What is the settlement gain or loss to be recognised in P&L?

A company settles a defined benefit obligation by paying ₹5,00,000 in cash. The PV of the settled DBO was ₹4,60,000. What is the settlement gain or loss to be recognised in P&L?

1. Loss ₹40,000 (correct answer)
2. Gain ₹40,000
3. Gain ₹60,000
4. Loss ₹1,00,000

Answer: A — Loss ₹40,000

Explanation. Settlement result = PV of DBO extinguished ₹4,60,000 − settlement amount paid ₹5,00,000 = −₹40,000, i.e., a settlement loss of ₹40,000. AS 15 requires immediate recognition of settlement gains and losses in P&L when settlement occurs.

Where it goes wrong. Reversing the sign and reporting a gain, or comparing against plan assets rather than the obligation extinguished.

Authority. AS 15 (Revised 2005), para 111

Question 14 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · medium

Scenario. Which of the following is a curtailment rather than a settlement?

Which of the following is a curtailment rather than a settlement?

1. The company pays a lump-sum cash amount to extinguish all pension obligations
2. The company purchases a qualifying annuity that fully covers all remaining obligations
3. The company discontinues a business segment; affected employees earn no further pension benefits but continue to receive benefits already earned (correct answer)
4. The company transfers all plan assets and obligations to an insurer in a single transaction

Answer: C — The company discontinues a business segment; affected employees earn no further pension benefits but continue to receive benefits already earned

Explanation. A curtailment occurs when the employer commits to reduce the number of employees covered or reduces benefits under a plan, without extinguishing the obligation. Option (c) reduces future benefit accruals while obligations for past service remain, which is a curtailment. Options (a), (b) and (d) eliminate the legal or constructive obligation entirely and are settlements.

Where it goes wrong. Confusing a curtailment (reduction in future accrual/headcount) with a settlement (extinguishment of the obligation).

Authority. AS 15 (Revised 2005), paras 109-113

Question 15 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · medium

Scenario. An employee currently earns ₹5,00,000. Salary is expected to increase 10% per annum, and the employee will retire after 2 years. Total completed years of service at retirement will be 20. The benefit formula is 1.5% × final salary × completed years of service. What is the projected defined benefit obligation at retirement?

An employee currently earns ₹5,00,000. Salary is expected to increase 10% per annum, and the employee will retire after 2 years. Total completed years of service at retirement will be 20. The benefit formula is 1.5% × final salary × completed years of service. What is the projected defined benefit obligation at retirement?

1. ₹1,81,500 (correct answer)
2. ₹1,65,000
3. ₹1,95,000
4. ₹2,00,000

Answer: A — ₹1,81,500

Explanation. Projected final salary = ₹5,00,000 × 1.10 × 1.10 = ₹6,05,000. Projected annual benefit = 1.5% × ₹6,05,000 × 20 completed years = ₹1,81,500. The defined benefit obligation at retirement equals this projected benefit; the PUC method discounts this back to the current year-end.

Where it goes wrong. Applying salary growth to only one year or using current salary instead of projected final salary.

Authority. AS 15 (Revised 2005), paras 73-78

Question 16 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

Scenario. An entity's opening DBO was ₹20,00,000 and FVPA was ₹15,00,000. During the year: current service cost ₹3,00,000; discount rate 8%; expected return 7.5%; contributions ₹2,00,000; benefits paid ₹1,00,000; actuarial loss on DBO ₹50,000; actuarial gain on plan assets ₹30,000. What is the closing net defined benefit liability?

An entity's opening DBO was ₹20,00,000 and FVPA was ₹15,00,000. During the year: current service cost ₹3,00,000; discount rate 8%; expected return 7.5%; contributions ₹2,00,000; benefits paid ₹1,00,000; actuarial loss on DBO ₹50,000; actuarial gain on plan assets ₹30,000. What is the closing net defined benefit liability?

1. ₹9,10,000
2. ₹7,85,000
3. ₹5,60,000
4. ₹6,67,500 (correct answer)

Answer: D — ₹6,67,500

Explanation. Closing DBO = ₹20,00,000 + ₹3,00,000 (CSC) + ₹1,60,000 (interest @ 8%) − ₹1,00,000 (benefits) + ₹50,000 (actuarial loss) = ₹24,10,000. Actual return = expected return ₹1,12,500 (7.5% × ₹15,00,000) + actuarial gain ₹30,000 = ₹1,42,500. Closing FVPA = ₹15,00,000 + ₹1,42,500 + ₹2,00,000 − ₹1,00,000 = ₹17,42,500. Net liability = ₹24,10,000 − ₹17,42,500 = ₹6,67,500.

Where it goes wrong. Using the expected return instead of actual return for closing FVPA or applying the discount rate to the closing DBO.

Authority. AS 15 (Revised 2005), para 55

Question 17 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

Scenario. A company announces termination benefits with an expected total payout of ₹45,00,000. Of this, ₹20,00,000 will be paid within 12 months of the balance sheet date and ₹25,00,000 exactly 2 years after the balance sheet date. Discount rate is 10% p.a. What liability should be recognised at the balance sheet date?

A company announces termination benefits with an expected total payout of ₹45,00,000. Of this, ₹20,00,000 will be paid within 12 months of the balance sheet date and ₹25,00,000 exactly 2 years after the balance sheet date. Discount rate is 10% p.a. What liability should be recognised at the balance sheet date?

1. ₹40,66,116 (correct answer)
2. ₹45,00,000
3. ₹37,19,008
4. ₹38,84,298

Answer: A — ₹40,66,116

Explanation. Benefits falling due within 12 months are measured undiscounted: ₹20,00,000. The ₹25,00,000 payable after 2 years is discounted: ₹25,00,000 ÷ (1.10)^2 = ₹20,66,116. Liability = ₹20,00,000 + ₹20,66,116 = ₹40,66,116. AS 15 permits discounting only for amounts falling due beyond 12 months.

Where it goes wrong. Discounting the entire ₹45,00,000 or failing to discount the portion beyond 12 months.

Authority. AS 15 (Revised 2005), para 133

Question 18 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

Scenario. Opening DBO ₹60,00,000 and FVPA ₹50,00,000. Current service cost ₹7,00,000; discount rate 10%; expected return 9%; contributions ₹5,00,000; benefits paid ₹3,00,000; actuarial loss on DBO ₹80,000; actual return ₹5,20,000. What is the closing net defined benefit liability?

Opening DBO ₹60,00,000 and FVPA ₹50,00,000. Current service cost ₹7,00,000; discount rate 10%; expected return 9%; contributions ₹5,00,000; benefits paid ₹3,00,000; actuarial loss on DBO ₹80,000; actual return ₹5,20,000. What is the closing net defined benefit liability?

1. ₹17,20,000
2. ₹11,40,000
3. ₹15,60,000
4. ₹13,60,000 (correct answer)

Answer: D — ₹13,60,000

Explanation. Closing DBO = ₹60,00,000 + ₹7,00,000 + ₹6,00,000 (10% interest) − ₹3,00,000 + ₹80,000 = ₹70,80,000. Closing FVPA = ₹50,00,000 + ₹5,20,000 (actual return) + ₹5,00,000 − ₹3,00,000 = ₹57,20,000. Net liability = ₹70,80,000 − ₹57,20,000 = ₹13,60,000.

Where it goes wrong. Using expected return ₹4,50,000 instead of actual return ₹5,20,000 in closing FVPA.

Authority. AS 15 (Revised 2005), para 55

Question 19 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · medium

Scenario. A company's actuary reports an actuarial loss of ₹9,00,000 on the DBO and an actuarial gain of ₹3,50,000 on plan assets. What net actuarial amount is recognised in the statement of profit and loss for the year under AS 15?

A company's actuary reports an actuarial loss of ₹9,00,000 on the DBO and an actuarial gain of ₹3,50,000 on plan assets. What net actuarial amount is recognised in the statement of profit and loss for the year under AS 15?

1. ₹9,00,000 loss
2. ₹5,50,000 loss (correct answer)
3. ₹3,50,000 gain
4. ₹12,50,000 loss

Answer: B — ₹5,50,000 loss

Explanation. AS 15 requires immediate recognition of all actuarial gains and losses in P&L. Net actuarial loss = ₹9,00,000 loss − ₹3,50,000 gain = ₹5,50,000 loss. Recognition is immediate; there is no corridor or deferral mechanism under AS 15.

Where it goes wrong. Netting to a gain or applying deferred recognition under an IFRS-style corridor.

Authority. AS 15 (Revised 2005), para 92

Question 20 · 2 marks · Chapter 6: Liabilities Based Accounting Standards · hard

Scenario. Before a curtailment, PV of DBO is ₹80,00,000, FVPA is ₹60,00,000 and unamortised past service cost is ₹8,00,000. The curtailment reduces gross DBO by 10%, and the related portion of unamortised past service cost is adjusted accordingly. What is the gain from curtailment and the net liability immediately after curtailment?

Before a curtailment, PV of DBO is ₹80,00,000, FVPA is ₹60,00,000 and unamortised past service cost is ₹8,00,000. The curtailment reduces gross DBO by 10%, and the related portion of unamortised past service cost is adjusted accordingly. What is the gain from curtailment and the net liability immediately after curtailment?

1. Gain ₹8,00,000; net liability ₹4,00,000
2. Gain ₹6,40,000; net liability ₹4,80,000
3. Gain ₹7,20,000; net liability ₹4,80,000 (correct answer)
4. Gain ₹7,20,000; net liability ₹5,60,000

Answer: C — Gain ₹7,20,000; net liability ₹4,80,000

Explanation. Gain = DBO reduction ₹8,00,000 − 10% of unamortised PSC (₹80,000) = ₹7,20,000. Post-curtailment: DBO = ₹72,00,000; remaining PSC = ₹8,00,000 − ₹80,000 = ₹7,20,000; net liability = ₹72,00,000 − ₹7,20,000 − ₹60,00,000 = ₹4,80,000.

Where it goes wrong. Ignoring the past service cost adjustment or applying the curtailment percentage to the FVPA instead of only the DBO reduction.

Authority. AS 15 (Revised 2005), paras 55 and 109