Ind AS 19 – Accounting Concessional Employee Air Tickets

1. Question

Fair Airlines Limited (hereinafter referred to as “the company”), a commercial airline operator in India, offers its employees a concessional scheme where they may purchase up to 10 air tickets annually at a discounted price. Under this scheme:

• The market price of a typical ticket is Rs. 5,000.
• Employees are allowed to purchase tickets at a concessional rate of Rs. 1,500.
• The internal cost to the company for operating a seat (i.e., the marginal cost of accommodating one more passenger) is estimated to be Rs. 2,000 per ticket.
• The concessional tickets are subject to seat availability and are typically allowed only on flights that have spare capacity.

During the year, 100 employees each availed their quota of 10 tickets, i.e., a total of 1,000 tickets were sold under the scheme.

The company accounted for the difference between the market price and the concessional price paid by employees as employee benefit expense.

State whether this treatment complies with the relevant Indian Accounting Standards.

2. Relevant Provisions

Ind AS 19, Employee Benefits

An extract from Para 5 – Employee benefits include:

(a) short-term employee benefits, such as the following, if expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services:

…………

(iv) non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees;

Para 8 – Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment.

Para 11 – When an employee has rendered service to an entity during an accounting period, the entity shall recognise the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service:

(a) as a liability (accrued expense), after deducting any amount already paid. If the amount already paid exceeds the undiscounted amount of the benefits, an entity shall recognise that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or a cash refund.

(b) as an expense, unless another Ind AS requires or permits the inclusion of the benefits in the cost of an asset (see, for example, Ind AS 2, Inventories, and Ind AS 16, Property, Plant and Equipment).

3. Analysis

Ind AS 19 governs the recognition and measurement of employee benefits, including both monetary and non-monetary benefits provided to employees in exchange for their service. Non-monetary benefits, such as concessional or free access to goods and services (e.g., air tickets, accommodation, or company-owned assets), are also covered under the standard.

The standard requires that short-term employee benefits be measured at the cost of the benefits expected to be paid. The emphasis is on the actual economic outflow incurred by the entity, not the hypothetical or fair value of the benefit from the employee’s perspective. This principle suggests that companies must assess the incremental cost they bear to provide such benefits, rather than the price an external customer might pay.

Click Here To Read The Full Story