Notes to the Consolidated Financial Statements - Seylan Bank

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