The Case Study - Seylan Bank

152Seylan Bank PLC Annual Report 2009Notes to the Consolidated Financial Statements1.4.13 Dividends PayableProvision for dividends is recognised at the time the dividend recommended and declared by the board ofdirectors is approved by the shareholders.1.4.14 BorrowingsBorrowings include refinance borrowings, call money borrowings, Vostro account balances and borrowingsfrom financial institutions. They are brought to account at the gross value of the outstanding balance.1.4.15 Securities Sold under Repurchase Agreement (‘Repos’)This relates to Treasury Bills and Bonds sold subject to a commitment to repurchase them at a predeterminedprice. Such Treasury Bills and Bonds remain on the Balance Sheet and the liability is recorded in respect of theconsideration received. The liability is disclosed as borrowing under repurchase agreement. These TreasuryBills and Bonds are not marked to market since the corresponding liability is also not marked to market.1.4.16 Bills Payable and Other LiabilitiesBills payable and other liabilities include all financial liabilities, interest, fees, expenses payable and securitiespurchased but not delivered. These liabilities are recorded at the cash value to be realised when settled.1.4.17 Employee Benefits1.4.17.1 Defined Benefit PlanA 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 amountof future benefit that employees have earned in return for their service in the current and prior periods anddiscounting that benefit to determine its present value, then deducting the fair value of any plan assets. Thediscount rate is the yield at the reporting date on Government Bonds that have maturity dates approximatingto the terms of the Bank’s obligations. The calculation is performed by a qualified actuary using the ProjectedUnit 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 serviceby employees is recognised in the Income Statement on a straight-line basis over the average period untilthe benefits become vested. To the extent that the benefits vest immediately, the expense is recognisedimmediately in Income Statement.In respect of actuarial gains and losses that arise in calculating the Bank’s obligation in respect of a plan,to the extent that any cumulative unrecognised actuarial gain or loss exceeds 10% of the greater of thepresent value of the defined benefit obligation and the fair value of plan assets, that portion is recognised inIncome Statement over the expected average remaining working lives of the employees participating in theplan. Otherwise, the actuarial gain or loss is not recognised.Monthly provision is made by the Bank for the Gratuity Fund, based on a percentage of the basic salary ofemployees. The percentage of contributions is determined by the same actuary and retirement benefits areprovided to all permanent staff. The Bank carries out an actuarial valuation of the Gratuity Fund in Decembereach year to ascertain the full liability of the fund. The valuation method used by the actuary to value the fundis the ‘Projected Unit Credit Method’, the method recommended by SLAS 16. The demographic assumptionsunderlying the valuation are retirement age (55 yrs.), early withdrawals from service and retirement onmedical grounds, death before and after retirement etc.