Chapter 9 - Employee Benefits Flashcards
What are the two types of pension plans?
- defined contribution plans
- defined benefit plans
What is a defined contribution plan?
Where the entity pays fixed contributions into a separate entity and has no legal or constructive obligation to make further contributions
What is a defined benefit plan?
One which is not a defined contribution plan
Where should an entity charge the agreed pension contribution?
To the profit and loss as an employment expense in each period
What does a entity with a defined benefit plan have an obligation to do?
Pay its employees a promised level of pension benefit upon retirement
How is a pension plan obligation measured?
At present value
How is a pension plan asset measured?
At fair value
What is a net interest component?
The change in the deficit/surplus due to the passage of time
Where is the net interest component recorded?
Profit or loss
What is a service cost component?
The change in the deficit/surplus relating to employee service, plan amendments
Where is the service cost measured?
Recorded in the profit or loss
What is contributions to the pension scheme?
Cash payments into the plan (no impact on profit or loss)
What are benefits paid?
The amounts paid out to the retired employees during the period, no impact on the deficit/surplus
What is the measurement component?
Arises due to changes in actuarial assumptions year-on-year. It is calculated as a balancing figure and is recorded in other comprehensive income
If a defined benefit plan is in surplus, IAS 19 states that the asset reported in the statement of financial position must be measured at the lower of:
- amount calculated as normal
- present value of the economic benefits available to the entity in the form of refunds or reduced pension contributions
