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Under AS 15 (Revised 2005), how are actuarial gains and losses on a defined benefit plan recognised?
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2026 Statistics
Key Facts: IAI SP4 Exam
3h 20m
Exam Duration
IAI/IFoA SP4 syllabus
5
Syllabus Areas
IAI SP4 syllabus
30%
Top Domain Weight
IAI SP4 syllabus
PUC
Core Valuation Method
Ind AS 19 / AS 15
Rs 20 lakh
Gratuity Ceiling
Payment of Gratuity Act
100
Practice Questions
OpenExamPrep
IAI Subject SP4 Pensions and Other Benefits is a Specialist Principles stage written paper of 3 hours 20 minutes that mirrors the IFoA SP4 syllabus with an India jurisdiction focus. The syllabus weights Models, Valuations and Setting Assumptions most heavily at 30%, with Pension Provision and Business Environment, Scheme Design and Financing, and Managing Schemes and Risks each at 20%, and Monitoring Experience and the Control Cycle at 10%. IAI does not publish a fixed pass mark or question count; results are reported as pass or fail. This free prep delivers 100 multiple-choice questions over the same body of knowledge, including the Projected Unit Credit method, the Payment of Gratuity Act 1972, EPF/EPS, NPS/PFRDA, and Ind AS 19 and AS 15 accounting.
Sample IAI SP4 Practice Questions
Try these sample questions to test your IAI SP4 exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.
1In a defined benefit (DB) pension scheme, who primarily bears the investment and longevity risk?
A.The sponsoring employer
B.The pension regulator
C.The annuity provider only
D.The employee/member
Explanation: In a DB scheme the promised benefit is defined by a formula (e.g. accrual rate times service times final salary), so the sponsoring employer must make up any shortfall if investment returns disappoint or members live longer than assumed. The employer therefore carries the investment and longevity risk.
2Which actuarial funding method is mandated in India for accounting valuation of gratuity liabilities under Ind AS 19 and AS 15 (Revised)?
A.Aggregate Cost Method
B.Projected Unit Credit Method
C.Entry Age Normal Method
D.Current Unit Method without salary projection
Explanation: Both Ind AS 19 and AS 15 (Revised 2005) require employee-benefit liabilities such as gratuity to be measured using the Projected Unit Credit (PUC) Method, which attributes benefit to periods of service and projects future salary growth. This produces the Defined Benefit Obligation for accounting disclosure.
3Under the Payment of Gratuity Act, 1972 (India), the standard gratuity formula for a covered employee on the monthly wages basis is:
A.Average of last 12 months wages times 1/12 times years of service
B.Last drawn wages times 30/26 times years of service
C.Last drawn monthly wages times 15/26 times completed years of service
D.Last drawn monthly wages times completed years of service
Explanation: Under the Payment of Gratuity Act, 1972, gratuity equals 15 days' wages for each completed year of service, computed as last drawn monthly wages times 15/26 (treating a month as 26 working days) times the number of completed years (with six months or more counted as a full year).
4A DB scheme has an accrual rate of 1/60th of final pensionable salary per year of service. A member retires with 30 years of service and final pensionable salary of Rs 800,000. What is the annual pension?
A.Rs 480,000
B.Rs 133,333
C.Rs 240,000
D.Rs 400,000
Explanation: Annual pension equals accrual rate times service times final pensionable salary = (1/60) times 30 times 800,000 = (30/60) times 800,000 = 0.5 times 800,000 = Rs 400,000.
5Under Ind AS 19, where are remeasurements of the net defined benefit liability (actuarial gains and losses) recognised?
A.Other Comprehensive Income (OCI), not reclassified to P&L
B.Deferred and amortised over expected remaining service
C.Directly against share capital
D.Profit and loss account in full
Explanation: Ind AS 19 (aligned with IAS 19 revised) requires remeasurements, including actuarial gains and losses and the return on plan assets excluding amounts in net interest, to be recognised immediately in Other Comprehensive Income and not subsequently reclassified to profit or loss.
6Which of the following is the key distinguishing feature of a defined contribution (DC) arrangement compared with a DB arrangement?
A.The benefit is fixed by a salary-and-service formula
B.The contribution is defined and the benefit depends on accumulated fund and annuity rates
C.The employer guarantees a minimum pension at retirement
D.Investment risk is borne entirely by the employer
Explanation: In a DC scheme the contributions are defined (e.g. a percentage of salary), and the retirement benefit equals the accumulated fund, which depends on actual investment returns and the annuity rate (or drawdown choices) at retirement. Investment and longevity risk rest with the member.
7When setting the discount rate for valuing employee benefit obligations under Ind AS 19, the rate should be determined by reference to:
A.A fixed statutory rate set by the IRDAI
B.The expected long-term return on the scheme's assets
C.Market yields on government bonds (in the absence of a deep market in high-quality corporate bonds) of appropriate term
D.The sponsor's weighted average cost of capital
Explanation: Ind AS 19 requires the discount rate to be based on market yields at the reporting date on high-quality corporate bonds; where there is no deep market in such bonds, the market yields on government (sovereign) bonds of a term consistent with the benefit obligations are used. India typically uses government bond yields.
8Under the Projected Unit Credit method, the Current Service Cost for a year represents:
A.The interest on the opening obligation
B.The benefits actually paid out during the year
C.The present value of the total benefit accrued to date
D.The increase in the present value of the defined benefit obligation from service rendered in the current period
Explanation: Under PUC, the Current Service Cost is the present value of the additional benefit earned by members for one more year of service in the current period, valued using projected final salary. It is distinct from interest cost (the unwinding of the discount) and from benefit payments.
9A scheme's defined benefit obligation is Rs 500 lakh and the fair value of plan assets is Rs 420 lakh. What is reported on the balance sheet under Ind AS 19?
A.A net defined benefit liability of Rs 80 lakh
B.A net liability of Rs 920 lakh
C.Nothing, as the plan is funded
D.A net defined benefit asset of Rs 80 lakh
Explanation: The net defined benefit liability equals the present value of the defined benefit obligation less the fair value of plan assets: Rs 500 lakh minus Rs 420 lakh = Rs 80 lakh deficit, recognised as a net liability (subject to the asset ceiling only when a surplus exists).
10Which assumption is classified as a financial (rather than demographic) assumption in a pension valuation?
A.Mortality rate
B.Salary escalation rate
C.Proportion taking early retirement
D.Withdrawal/attrition rate
Explanation: Salary escalation (and the discount rate, price inflation and pension increases) are financial assumptions because they relate to monetary growth and discounting. Withdrawal, mortality and early-retirement proportions are demographic assumptions relating to the incidence of events.
About the IAI SP4 Practice Questions
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