Question Tag: IAS 19

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CR – Nov 2024 – L3 – Q2c – Accounting for Defined Benefit Pension Plans

Compute the pension amounts for Oboisah PLC under IAS 19.

Question

Oboisah PLC (Oboisah) operates a defined benefit pension plan for employees who commenced employment with the company prior to 1 April 2021. The pension scheme is non-contributory.

At 31 March 2023, the Group recorded a net defined liability of GH¢157 million. The following information relates to the year ended 31 March 2024:

Description	Amount (GH¢ million)
Employer contributions paid on 31 March 2024	43
Benefits paid	16
Current service cost	42
Curtailment gain	3
Present value of defined benefit obligation at 31 March 2024	498
Value of plan assets at 31 March 2024	315

The average yield on relevant corporate bonds was 20% on 1 April 2023. Entries so far made in respect of the employer contributions have been incorrectly debited to accounts receivable and credited to cash. Benefits paid have been correctly recorded.

Required:

In line with IAS 19: Employee Benefits, determine how much pension amounts should be included in the financial statements of Oboisah PLC for the year ended 31 March 2024. Show the appropriate extracts for the above and any correction entries, if necessary.

Answer

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Tags: Defined Benefit Plan, Employee Benefits, Financial Reporting, IAS 19, Pension Obligation
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: Nov 2024

CR – May 2023 – L3 – Q3 – Employee Benefits (IAS 19)

Discuss accounting treatments for investment properties and pension plans, including calculations and financial statement impacts.

Question

You are the Financial Controller of Gongon Group. On January 2, 2021, you are busy preparing the financial statements for the year ended December 31, 2020. You are under a lot of pressure as you have been asked to present the draft financial statements to the Board of Directors in two days’ time.

The first draft of the financial statements for each of the three companies has been prepared and is now on your table. You have also compiled a list of outstanding issues that you need to consider before presenting the financial statements to the Board.

Outstanding Issues:

Here’s the rewritten version of the First Issue:

First Issue: Investment Properties and Changes in Use

Gongon Group holds three investment properties in its financial statements. These properties are measured at fair value in line with IAS 40 – Investment Properties, while owner-occupied properties are measured at cost less accumulated depreciation and impairment losses. Currently, the properties are presented at their 2019 year-end valuations, with no adjustments for 2020.

Details of the Properties

Property A (Commercial Warehouse):
- Location: Apapa
- Use Change: Reassigned as office space for the company during 2020. Tenants vacated on May 1, 2020.
- Valuations:
  - January 1, 2020: ₦8,000,000
  - May 1, 2020: ₦7,600,000
  - December 31, 2020: ₦7,400,000
- Depreciation Policy: The company applies a 2% annual depreciation rate, calculated monthly for owner-occupied properties.
Property B:
- Acquisition Year: 2014
- Valuations:
  - January 1, 2020: ₦9,000,000
  - December 31, 2020: ₦8,800,000
- Planned Disposal:
  - Property was vacant from September 2020 and put on the market in October 2020 with an asking price of ₦8,800,000.
  - Estimated disposal costs: ₦600,000.
  - No firm offers had been made by year-end.
Property C:
- Valuation: Last valued at ₦18,500,000 in December 2018.

Draft Statements of financial position at December 31, 2020

Extract of draft statement of profit or loss and other comprehensive income for the year ended December 31, 2020

Second Issue: Pension Scheme Accounting Treatment

On January 1, 2020, Gongon PLC commenced a defined benefit plan for several head office employees. Under the scheme, Gongon PLC is obligated to provide post-employment benefits to these staff members. The company manages the actuarial and investment risks associated with the pension scheme.

Details of the Pension Scheme

Details	₦’000
Interest Income on Plan Assets	330
Employer’s Contribution to Plan	11,000
Current Service Cost	12,000
Interest on Plan Liability	360
Fair Value of Plan Assets (31/12/2020)	11,600
Present Value of Plan Obligation (31/12/2020)	12,400

Current Accounting Treatment

The Chief Accountant was uncertain about the appropriate accounting standard to apply for the pension scheme. The only adjustment made for 2020 was:

Expensing the Employer’s Contribution of ₦11 million in the statement of profit or loss and other comprehensive income.
Crediting the corresponding cash account.

The current treatment does not comply with the requirements of IAS 19 – Employee Benefits, which mandates more comprehensive reporting for defined benefit plans.

Required:
(a) Discuss and analyze the required accounting treatment of the first issue, showing relevant calculations and the impact on Gongon PLC’s financial statements as of December 31, 2020. (12 Marks)

(b) Review the accounting treatment of the second issue (pension plan) and make necessary disclosures in accordance with the relevant accounting standard. (8 Marks)

Answer

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Tags: Change of Use, Defined Benefit Obligation, IAS 19, IAS 40, Investment properties, Pension Plan
Level: Level 3

Topic: Employee Benefits (IAS 19)

CR – Nov 2022 – L3 – Q4 – Employee Benefits (IAS 19)

Discuss pension contributions under IAS 19 and the principles and content of CSR reporting.

Question

a. DOVE-TAIL (Nigeria) Limited is into production of Cashew Nuts for global consumption. The entity has 3,000 employees on the payroll who are qualified for an approved defined contribution plan being operated. The company makes an annual pension contribution of N28,000 per employee. In 2016, the company paid a total contribution amounting to N150 million, as well as N119 million and N54 million in 2017 and 2018, respectively.

Required:
In accordance with IAS 19, how should the pension contribution be treated and accounted for in the financial statements of the company?
(10 Marks)

b. There are no international standards on Corporate Social Responsibility (CSR) reporting. However, there is a strong trend toward the provision of more information on a statutory or voluntary basis, and this trend in corporate reporting is likely to continue in the future. Therefore, companies are encouraged to provide disclosures and report on environmental, social, and corporate governance issues. To this effect, voluntary guidelines for the content of and principles to be applied for social and environmental reports are given.

Required:
i. Explain the principles of corporate social responsibility. (5 Marks)
ii. Discuss the suggested contents of social and environmental reports. (5 Marks)

(Total 20 Marks)

Answer

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Tags: CSR Reporting, IAS 19, Pension Contributions, Social and Environmental Reports
Level: Level 3

Topic: Employee Benefits (IAS 19)
Series: NOV 2022

CR – May 2021 – L3 – Q3a – Defined Benefit Scheme Accounting

Recommend the correct accounting treatment of defined benefit scheme transactions for Meagya Ltd.

Question

Meagya Ltd is a government business entity in Ghana. Meagya Ltd operates a defined benefit scheme which at 31 December 2019 was in deficit by GH¢120 million. Details for the current year are as follows:

GH¢’million
Current service cost	55
Cash contribution to the scheme	100
Benefits paid in the year	80
Net loss on curtailment	11
Gain on remeasurement of liability at 31 December 2020	9

The rate of interest applicable to corporate bonds was 5% at 31 December 2019. The cash contributions for the scheme have been correctly accounted for in the financial statements for the year ended 31 December 2020. This is the only adjustment that has been made in respect of the scheme.

Required:
Recommend the correct accounting treatment of the above transactions to the directors of Meagya Ltd in the financial statements for the year ended 31 December 2020, including financial statements extracts in accordance with IAS 19: Employee Benefits.

Answer

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Tags: Defined Benefit Plan, IAS 19, Net liability, Remeasurement, Service Cost
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: MAY 2021

CR – May 2018 – L3 – Q2a – IAS 19 Employee Benefits

Calculate the net actuarial gain/loss and net pension liability for a defined benefit plan under IAS 19.

Question

Zumah Ltd operates a defined benefit pension plan for its employees. On 1 April 2015, the fair value of the pension plan assets was GH¢8,200,000, and the present value of the pension plan liabilities was GH¢8,500,000. The actuary estimated that the service cost for the year to 31 March 2016 was GH¢2,100,000. The pension plan paid GH¢500,000 to retired members, and Zumah Ltd paid GH¢1,900,000 in contributions to the pension plan in the year to 31 March 2016. The actuary estimated that the discount rate for the year to 31 March 2016 was 6%.

On 31 March 2016, Zumah Ltd announced improvements to the benefits offered by the pension plan to all its members. The actuary estimated that the past service cost associated with these improvements was GH¢2,000,000. At 31 March 2016, the fair value of the pension plan assets was GH¢10,200,000, and the present value of the pension plan liabilities (including the past service costs) was GH¢12,500,000.

Required:
In accordance with IAS 19 Employee Benefits:
i) Calculate the net actuarial gain or loss that will be included in Zumah Ltd’s other comprehensive income for the year ended 31 March 2016. (3 marks)
ii) Calculate the net pension asset or liability that will be included in Zumah Ltd’s statement of financial position as at 31 March 2016. (2 marks)

Answer

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Tags: Actuarial Gains/Losses, Defined Benefit Plan, Employee Benefits, Financial Position, IAS 19, Pension liabilities
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: MAY 2018

CR – Apr 2022 – L3 – Q2b – IAS 19: Employee benefits

Recommend accounting treatment for pension obligations and restructuring costs in financial statements in accordance with relevant IFRS.

Question

Kaase Ltd, a public limited company, operates in the technology sector in Ghana. The company has decided to restructure one of its business segments, affecting employees in two locations. In the first location (A), half of the factory units were closed by 31 March 2021, and the affected employees’ pension benefits were frozen. After restructuring, the present value of the defined benefit obligation in this location was GH¢8 million. Before restructuring, the value was GH¢10 million, and the fair value of plan assets was GH¢7 million, resulting in a net pension liability of GH¢3 million.

In the second location (B), all activities were discontinued, and employees will receive GH¢4 million in exchange for a pension liability of GH¢2.4 million. Kaase Ltd estimates that restructuring costs excluding pension costs will be GH¢6 million. No formal announcement has been made due to a planned rights issue. The pension liability is currently included in non-current liabilities.

Required:
Recommend the accounting treatment of the above transaction in the financial statement of Kaase Ltd, including financial statement extracts for the year ended 31 March 2021, in accordance with relevant International Financial Reporting Standards (IFRS).

Answer

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Tags: Defined benefit plans, Employee Benefits, IAS 19, IAS 37, Pension obligations, Restructuring costs
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: APR 2022

CR – Dec 2022 – L3 – Q3b – IAS 19: Employee benefits

Determine the accounting treatment for the curtailment and settlement in Mensah Ltd's pension scheme under IAS 19.

Question

Mensah Ltd is a telecommunication company with a year-end of 30 September 2022 that operates a defined benefit pension scheme. On 31 March 2022, the company announced that it was to close down a business division and agreed to pay each of its 300 staff a cash payment of GH¢100,000 to compensate them for the loss of pension arising from wage inflation. It is estimated that the closure will reduce the present value of the pension obligation by GH¢11.6 million. Mensah Ltd is unsure of how to deal with the settlement and curtailment and has not yet recorded the transaction in its financial statements.

Required:
In accordance with IAS 19: Employee Benefits, show the accounting treatment for the above transaction in Mensah Ltd’s financial statement for the year ended 30 September 2022.
(Total: 5 marks)

———————————————————————

Answer:

Settlement and Curtailment Loss
The estimated settlement on the pension liability is calculated as follows:
- 300 employees x GH¢100,000 = GH¢30 million
- This amount of GH¢30 million should be included within current liabilities in the statement of financial position.
Curtailment Gain
The curtailment gain is estimated at GH¢11.6 million. As this is GH¢18.4 million (i.e., GH¢30 million – GH¢11.6 million) more than the estimated curtailment gains, a loss of GH¢18.4 million should be recognised within retained earnings.
Reduction in Non-Current Liabilities
The non-current liabilities are reduced by the GH¢11.6 million due to the reduction in pension obligations.

(Appropriate distribution of 5 marks)

Answer

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Tags: Curtailment, Employee Compensation, IAS 19, Pension Liability, Settlement
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: DEC 2022

CR – Nov 2024 – L3 – Q2c – Accounting for Defined Benefit Pension Plans

Compute the pension amounts for Oboisah PLC under IAS 19.

Question

Oboisah PLC (Oboisah) operates a defined benefit pension plan for employees who commenced employment with the company prior to 1 April 2021. The pension scheme is non-contributory.

At 31 March 2023, the Group recorded a net defined liability of GH¢157 million. The following information relates to the year ended 31 March 2024:

Description	Amount (GH¢ million)
Employer contributions paid on 31 March 2024	43
Benefits paid	16
Current service cost	42
Curtailment gain	3
Present value of defined benefit obligation at 31 March 2024	498
Value of plan assets at 31 March 2024	315