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If I understood correctly- those one vested go to I/s, non vested- B/S- liabilities. In BPP Q B8 Kesare they take non vested for /expected to vest over 5 years / didvide by 5 and decreased the reained earning -OK, but with the same amount they increase liabiliest. For me retain earning are ok, but employee benefit liability should be increased with 4/5 of total non vested past service cost. Am I right?
No, sorry. When psc’s are first created – eg by revising the scheme, we need to debit a cost account and credit the obligation account for the full value of the psc’s. that is, both the vested and the non vested will be credited to the obligation account.
Now, that element which IS vested should be expensed to this year’s I/S. The remainder – that part which relates to the current employees – should be debited to a “Current employees past service costs” account and expensed over the remaining useful lives of the current employees.
In summary, the double entry would be
Dr I/S Former employees past service costs
Dr Current employees past service costs account
Cr Present value of future obligations accountand then
Dr I/S with this year’s element of psc’s relating to current employees
Cr Current employees past service costs account
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