IAS 19 - Employee Benefits

Question 1

IAS 19 - Intro (perspective), Pension - Types - DC, DB

Answer 1

This is from the company perspective, the employer
The company needs to account for employee benefits now and the cost must be charged during their working lives

Defined contribution
1. Defined amount paid into pension POT
2. Employer does not guarantee amount paid to employee
3. There is no ongoing liability
4. Company contribution is expensed
5. It is simple

Defined Benefit
1. Amount of employee pension is guaranteed.
2. There is an ongoing liability
3. PL expense includes finance cost, current service costs and OCI

Question 2

Defined contribution pension scheme &
Defined benefit - conditions, accounting (B/S,P&L, cashflow), types of costs

Answer 2

DC
Fixed contribution based on current salary
Once employer pays the fixed amount, there is no ongoing liability
Employee has the risk

DB
Employee output is guaranteed
Employer undertakes a pension based on
1. Final or average salary
2. Years of service

The numbers are complex and subjective, we rely on the actuarial expert to provide the numbers.

Accounting - B/S
Pension fund liabilities are measured at FV (LVL 3)
Pension fund asset are measured at F.V (LVL 1)
The deficit of pension fund asset/liability is carried as Non current liability (Deficit on DB scheme)

P&L -
- Potential of 4 number
- all postings are costs and increase PFL and deficit - DR P&L, CR PFL
- Finance cost
- Current service cost
- Past service cost
-settlement & curtailments

1. Finance cost - Unwinding the discount on the opening net deficit
2. CSC - This is the actuarial estimate of the increase in PFL as staff have worked one extra year
3. PSC - This is the increase in the PFL due to enhancements to benefits - RECOGNISE IN FULL
4. S&C - Increase in PFL due to generous terms on redundancy and early retirement

Cashflow
Add back all 4 costs above, only pension contribution paid goes through cashflow

Question 3

Defined benefit - Remeasurement Gain or loss, define Net deficit, proforma

Answer 3

This is calculated as the balancing figure on the reconciliation of the net deficit,
Closing Net deficit is difference between closing PFL and PFA
Recognised in OCI /OCE
Not recycled.
It arises because actuarial assumption has changed

proforma
Opening deficit X
finance cost x
CSC X
PSC X
contribution paid (X)
Sub total X

Balancing figure
(remeasurement
gain/loss) X
Closing deficit X
(PFL - PFA)

Question 4

Defined benefit - pension surplus - asset ceiling

Answer 4

This is when pension assets exceeds liabilities
This creates an asset, employer can benefit in two ways
1. Refund
2. Contribution holiday, reduce future payments

It may not be recoverable due to contractual agreement or restricted

When a surplus occurs, asset ceiling test is required
1. Write down to higher of refunds and reduced contributions

The write down is expensed