Notes to the Consolidated Financial Statements - Seylan Bank
Notes to the Consolidated Financial Statements - Seylan Bank
Notes to the Consolidated Financial Statements - Seylan Bank
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
282 North Bound > <strong>Seylan</strong> <strong>Bank</strong> Annual Report 2011<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>Consolidated</strong> <strong>Financial</strong> <strong>Statements</strong><br />
3.4.5 Bills Payable and O<strong>the</strong>r Liabilities<br />
Bills payable and o<strong>the</strong>r liabilities include all financial liabilities, interest, fees, expenses payable<br />
and securities purchased but not delivered. These liabilities are recorded at <strong>the</strong> cash value <strong>to</strong> be realised<br />
when settled.<br />
3.4.6 Employee Benefits<br />
3.4.6.1 Defined Benefit Plan<br />
A defined benefit plan is a post-employment benefit plan o<strong>the</strong>r than a defined contribution plan. The <strong>Bank</strong><br />
operates an approved Gratuity Fund <strong>to</strong> facilitate <strong>the</strong> payments for permanent staff of <strong>the</strong> <strong>Bank</strong>. The <strong>Bank</strong>’s<br />
obligation in respect of defined benefit gratuity plans is calculated by estimating <strong>the</strong> amount of future benefit<br />
that employees have earned in return for <strong>the</strong>ir service in <strong>the</strong> current and prior periods and discounting<br />
that benefit <strong>to</strong> determine its present value, <strong>the</strong>n deducting <strong>the</strong> fair value of any plan assets. The discount<br />
rate is <strong>the</strong> yield at <strong>the</strong> reporting date on Government Bonds that have maturity dates approximating <strong>to</strong> <strong>the</strong><br />
terms of <strong>the</strong> <strong>Bank</strong>’s obligations. The calculation is performed by a qualified actuary using <strong>the</strong> Projected Unit<br />
Credit Method which is <strong>the</strong> method recommended by Sri Lanka Accounting Standard 16 (Revised 2006) -<br />
‘Employee Benefits’ (SLAS 16).<br />
When <strong>the</strong> benefits of a plan are improved, <strong>the</strong> portion of <strong>the</strong> increased benefit relating <strong>to</strong> past service<br />
by employees is recognised in <strong>the</strong> Income Statement on a straight-line basis over <strong>the</strong> average period until<br />
<strong>the</strong> benefits become vested. To <strong>the</strong> extent that <strong>the</strong> benefits vest immediately, <strong>the</strong> expense is recognised<br />
immediately in Income Statement.<br />
Monthly provision is made by <strong>the</strong> <strong>Bank</strong> for <strong>the</strong> Gratuity Fund, based on a percentage of <strong>the</strong> basic salary of<br />
employees. The percentage of contributions is determined by <strong>the</strong> same actuary and retirement benefits are<br />
provided <strong>to</strong> all permanent staff. The <strong>Bank</strong> carries out an actuarial valuation of <strong>the</strong> Gratuity Fund in December<br />
each year <strong>to</strong> ascertain <strong>the</strong> full liability of <strong>the</strong> Fund. The valuation method used by <strong>the</strong> actuary <strong>to</strong> value<br />
<strong>the</strong> Fund is <strong>the</strong> ‘Projected Unit Credit Method’, <strong>the</strong> method recommended by SLAS 16. The demographic<br />
assumptions underlying <strong>the</strong> valuation are retirement age (55 years), early withdrawals from service and<br />
retirement on medical grounds, death before and after retirement, etc.<br />
However, under <strong>the</strong> Payment of Gratuity Act No. 12 of 1983, <strong>the</strong> liability <strong>to</strong> an employee arises only on<br />
completion of five years of continued service.<br />
Changes <strong>to</strong> Gratuity Policy<br />
Board of Direc<strong>to</strong>rs of <strong>the</strong> <strong>Bank</strong> at its meeting held on 24th March 2009 decided <strong>to</strong> change <strong>the</strong> previous<br />
policy of gratuity payments of paying one month’s salary (last drawn) <strong>to</strong> resigned staff members who have<br />
completed ten years of service in <strong>the</strong> <strong>Bank</strong> with effect from 5th March 2009.<br />
The policy of paying half a month salary (last drawn) <strong>to</strong> resigned staff members who have completed five<br />
years of service (not completed ten years of service) in <strong>the</strong> <strong>Bank</strong> remains unchanged.<br />
Subsidiary has also adopted <strong>the</strong> Revised SLAS 16 from 1st January 2008 and has made provisions based<br />
on <strong>the</strong> above method.<br />
Defined benefit obligations are funded by <strong>the</strong> <strong>Bank</strong> <strong>to</strong> a separate Gratuity Trust Fund, which is an approved<br />
investment for tax purposes. The <strong>Bank</strong> makes annual contributions <strong>to</strong> <strong>the</strong> fund not exceeding a <strong>to</strong>tal sum<br />
equivalent <strong>to</strong> <strong>the</strong> half a month salary of each employee as depicted in <strong>the</strong> last month of <strong>the</strong> accounting year<br />
<strong>to</strong>ge<strong>the</strong>r with an additional 25% of <strong>the</strong> <strong>to</strong>tal <strong>the</strong>reof.