Companies should bear the cost of an employee’s eventual leaving service benefit or gratuity, from the first day of qualified employment. For each reporting period, the company should immediately recognize the expected amount of the gratuity cost incurred in the period. This cost is the Current Service Cost.

The Current Service Cost is the increase in the liability resulting from an employee accruing service during the reporting period. An additional period of service increases their liability in proportion to their total liability and total service period (actual and expected) using the Projected Unit Credit method.

We calculate the annual Current Service Cost by dividing the total Lifetime Actuarial Liability of the employee by the total actual and expected years of service. Find an example here.