Notes to the Consolidated Financial Statements - Seylan Bank

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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.
North Bound > Seylan Bank Annual Report 2011 283 3.4.6.2 Termination Benefits Termination benefits are recognised as an expense when the Bank is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised if the Bank has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. 3.4.6.3 Defined Contribution Plans A defined contribution plan is a post-employment plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay a further amount. Obligations for contributions to defined contribution plans are recognised as expense in profit or loss as and when they are due. 3.4.6.3 (a) Employees’ Provident Fund The Bank and employees contribute 12% and 8% respectively, on the salary of each employee to the approved Private Provident Fund. [Refer Note 10] 3.4.6.3 (b) Employees’ Trust Fund The Bank contributes 3% of the salary of each employee to the Employees’ Trust Fund (ETF). The total amount recognised as an expense to the Bank for contribution to ETF is disclosed in the Notes to Financial Statements. [Refer Note 10] 3.4.6.4 Short-Term Benefits Short-term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term compensated absences if the Bank has a present legal or constructive obligation to pay as a result of past services provided by the employees and the obligation can be estimated reliably. Leave encashment provision has been computed for the annual leave entitlement up to a maximum of 90 working days that could be carried forward up to the date of retirement by the staff member. 3.4.6.5 Provisions A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. A provision for onerous contracts is recognised when the expected benefits to be derived by the Bank from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract before a provision is established, the Bank recognises any impairment loss on the assets associated with that contract.
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Notes to the Consolidated Financial Statements - Seylan Bank

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