IAS 19 Employee Benefits

Question 1

Pensions

Answer 1

1. Defined contribution (money purchase)
2. Defined benefit (final salary)

Question 2

Defined contribusion scheme

Answer 2

Co. Pays a fixed contribution –> employee’s pension fund -> pensioner will get variable return ( employee is at risk) no risk with company .
Dr Expense
Cr Cash/Accruals
With agreed contribution (%*salary)

Question 3

Defined benefit pension scheme

Answer 3

Risk lies with company - guarantee you fixed return
Co.pays a variable contribution ( if fund is going down it must top up) -> Company’s pension fund
Co. Defines the benefit one gets
Has to account for Pension fund too.-> guaranteed return to employee on retirement (%*final salary)

Question 4

Defined benefit pension scheme

Answer 4

Risk lies with company - guarantee you fixed return
Co.pays a variable contribution ( if fund is going down it must top up) -> Company’s pension fund
Co. Defines the benefit one gets
Has to account for Pension fund too.-> guaranteed return to employee on retirement (%*final salary)

Question 5

Curtailment

Answer 5

When there are a significant number of employees who leave the scheme
The asset and liability are re-measured to FV and any change is taken to PL ( service cost)
Ex. FV of the plan assets (£48 m) and of liabilities (£60m). Assets didnt change following curtailment, but liabilities are measure at £55m
Reduction in liability = gain of £5m goes to PL

Question 6

Asset ceiling

Answer 6

Think about prudence. Arises only when there eis overall pension asset on SFP then the asset can be recognised up to the level of asset ceiling.
If assets are higher than liability, no need to pay into pension scheme.

The asset ceiling is the PV of any future cash Savings of not having to contribute to the scheme as it is on surplus ( pension holiday)
If the asset needs to be reduced to the asset ceiling limit then the reduction in the asset is shown as an expense in PL

Question 7

Forex g o l

Answer 7

Arising on consolidation of a foreign operation are reported in OCI

Question 8

Forex g o l

Answer 8

Arising on consolidation of a foreign operation are reported in OCI

Question 9

Increase in carrying value of land

Answer 9

If land is under IAS 40 Investment Property, gain in PL
If it is under IAS16 PPE, then gain in OCI

Question 10

Lease

Answer 10

Contract conveys right to control the use of an identified asset for a period of time in exchange for consideration

Question 11

When customer controls the asset

Answer 11

1. It has right to substantially all of the identified asset’s economic benefits
2. The right to direct the identified assets use ( can exist even of there are some restrictions ( max mileage of vehicle, limiting which countries assets can be used). They just define scope, not prevent them from directing use
   If supplier has practical ability to substitute the asset for an alternative and it would be economically beneficial for them to do so - then customer does not have ROU

Question 12

Asset

Answer 12

An economic resource that as a result of past event is controlled by an entity