Liability for Termination Benefits

Comparison between Indian GAAP and Ind-AS/ IFRS

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Under Ind AS, the liability for termination benefits has to be recognized based on constructive obligation. Indian GAAP requires it to be recognized based on legal obligation.

The difference can be explained clearly with the help of the following example:
Under Ind AS, termination benefits are required to be provided when the scheme is announced and the management is demonstrably committed to it. Under Indian GAAP, termination benefits are required to be provided for based on legal liability when employee signs up for the Voluntary Retirement Scheme (VRS) rather than constructive liability. This is generally a timing issue for creating a provision.

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