Pension Liability – NBC Institute

CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

Question

Nzema prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) with a financial year end of 31 December 2018. On 1 January 2018, Nzema commenced a defined benefit pension plan for a number of head office employees. Under the pension scheme, Nzema has an obligation to provide these staff with agreed post-employment benefits. Nzema carries the actuarial and investment risk associated with the pension scheme.

The following information has been compiled from workings by Nzema’s accounting staff and actuarial reports for the 2018 financial year:

GH¢
Interest income on plan assets	16,500
Employer contributions to plan	550,000
Current service cost	600,000
Interest on plan liability	18,000
Fair value of plan assets at 31/12/2018	580,000
Present value of plan obligation at 31/12/2018	620,000

The Accountant was not sure which accounting standard to apply when accounting for the pension scheme. The only adjustment made to account for the scheme was to expense the company’s contributions of GH¢550,000 for the 2018 financial year in the Statement of Profit or Loss and Other Comprehensive Income and to credit the ‘Cash’ account.

Required:
Recommend, with appropriate calculations, the necessary accounting treatment for this accounting issue.

Answer

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Tags: Actuarial Gains/Losses, Defined Benefit Plan, Employee Benefits, Interest on Plan Liability, Pension Liability
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: MAY 2020

CR – Nov 2019 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Herd Ltd and its subsidiaries as of 31 March 2019.

Question

The following statements of financial position are as at 31 March 2019:

Assets	Herd Ltd (GH¢m)	Swarm Ltd (GH¢m)	Army Ltd (GH¢m)
Tangible non-current assets	1,280	440	280
Investment in Swarm Ltd	400	–	–
Investment in Army Ltd	60	–	–
Current assets	544	190	130
Total assets	2,284	630	410

Equity and liabilities	Herd Ltd (GH¢m)	Swarm Ltd (GH¢m)	Army Ltd (GH¢m)
Stated capital	950	260	230
Revaluation reserve	90	–	–
Retained earnings	390	210	94
Total equity	1,430	470	324
Non-current liabilities	640	30	16
Current liabilities	214	130	70
Total equity and liabilities	2,284	630	410

Herd Ltd acquired the following shareholdings in Swarm Ltd and Army Ltd:

Company	Date of Acquisition	Holding Acquired	Fair Value of Net Assets (GH¢m)	Purchase Consideration (GH¢m)
Swarm Ltd	1 April 2016	10%	325	30
	1 April 2018	70%	460	370
Army Ltd	1 April 2018	25%	200	60

You are provided with the following additional information relevant to the consolidation:

The carrying value of Swarm Ltd’s net assets at 1 April 2016 was equal to its fair value (GH¢325m).
The fair value of the initial 10% investment in Swarm Ltd at 31 March 2018 was GH¢40m.
Herd Ltd uses the full fair value method for acquisition accounting. The non-controlling interests in Swarm Ltd at 1 April 2018 were valued at GH¢95m.
The fair value of Swarm Ltd’s land was GH¢25m above its carrying value as of 1 April 2018. No change in this value occurred subsequently.
Army Ltd’s land had a fair value excess of GH¢16m over its carrying value as of 1 April 2017.
Goodwill from the acquisition of Swarm Ltd has been impaired by GH¢15m as of 31 March 2019. No impairment has occurred for the Army Ltd investment.
Herd Ltd formed a defined benefit pension scheme and contributed GH¢250m to it, included in receivables as of 31 March 2019. The present value of the pension obligations is GH¢317m, and the fair value of plan assets is GH¢302m.

Required: Prepare the consolidated statement of financial position of the Herd Ltd group as at 31 March 2019.

Answer

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Tags: Acquisition Accounting, Consolidated Statement of Financial Position, Goodwill, Non-Controlling Interest, Pension Liability
Level: Level 3

Topic: Consolidated Financial Statements
Series: NOV 2019

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 – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

Question

The following information has been compiled from workings by Nzema’s accounting staff and actuarial reports for the 2018 financial year:

GH¢
Interest income on plan assets	16,500
Employer contributions to plan	550,000
Current service cost	600,000
Interest on plan liability	18,000
Fair value of plan assets at 31/12/2018	580,000
Present value of plan obligation at 31/12/2018	620,000

Required:
Recommend, with appropriate calculations, the necessary accounting treatment for this accounting issue.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Actuarial Gains/Losses, Defined Benefit Plan, Employee Benefits, Interest on Plan Liability, Pension Liability
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: MAY 2020

CR – Nov 2019 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Herd Ltd and its subsidiaries as of 31 March 2019.

Question

The following statements of financial position are as at 31 March 2019:

Assets	Herd Ltd (GH¢m)	Swarm Ltd (GH¢m)	Army Ltd (GH¢m)
Tangible non-current assets	1,280	440	280
Investment in Swarm Ltd	400	–	–
Investment in Army Ltd	60	–	–
Current assets	544	190	130
Total assets	2,284	630	410

Equity and liabilities	Herd Ltd (GH¢m)	Swarm Ltd (GH¢m)	Army Ltd (GH¢m)
Stated capital	950	260	230
Revaluation reserve	90	–	–
Retained earnings	390	210	94
Total equity	1,430	470	324
Non-current liabilities	640	30	16
Current liabilities	214	130	70
Total equity and liabilities	2,284	630	410

Herd Ltd acquired the following shareholdings in Swarm Ltd and Army Ltd:

Company	Date of Acquisition	Holding Acquired	Fair Value of Net Assets (GH¢m)	Purchase Consideration (GH¢m)
Swarm Ltd	1 April 2016	10%	325	30
	1 April 2018	70%	460	370
Army Ltd	1 April 2018	25%	200	60

You are provided with the following additional information relevant to the consolidation:

The carrying value of Swarm Ltd’s net assets at 1 April 2016 was equal to its fair value (GH¢325m).
The fair value of the initial 10% investment in Swarm Ltd at 31 March 2018 was GH¢40m.
Herd Ltd uses the full fair value method for acquisition accounting. The non-controlling interests in Swarm Ltd at 1 April 2018 were valued at GH¢95m.
The fair value of Swarm Ltd’s land was GH¢25m above its carrying value as of 1 April 2018. No change in this value occurred subsequently.
Army Ltd’s land had a fair value excess of GH¢16m over its carrying value as of 1 April 2017.
Goodwill from the acquisition of Swarm Ltd has been impaired by GH¢15m as of 31 March 2019. No impairment has occurred for the Army Ltd investment.
Herd Ltd formed a defined benefit pension scheme and contributed GH¢250m to it, included in receivables as of 31 March 2019. The present value of the pension obligations is GH¢317m, and the fair value of plan assets is GH¢302m.

Required: Prepare the consolidated statement of financial position of the Herd Ltd group as at 31 March 2019.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisition Accounting, Consolidated Statement of Financial Position, Goodwill, Non-Controlling Interest, Pension Liability
Level: Level 3

Topic: Consolidated Financial Statements
Series: NOV 2019

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

———————————————————————

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

Find Related Questions by Tags, levels, etc.

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

Topic: IAS 19: Employee Benefits
Series: DEC 2022

Question Tag: Pension Liability

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CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

CR – Nov 2019 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Herd Ltd and its subsidiaries as of 31 March 2019.

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.

CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

CR – Nov 2019 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Herd Ltd and its subsidiaries as of 31 March 2019.

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.

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CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

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CR – Nov 2019 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Herd Ltd and its subsidiaries as of 31 March 2019.

You're reporting an error for "CR – Nov 2019 – L3 – Q1 – Consolidated Financial Statements"

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.

You're reporting an error for "CR – Dec 2022 – L3 – Q3b – IAS 19: Employee benefits"

CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

You're reporting an error for "CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan"

CR – Nov 2019 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Herd Ltd and its subsidiaries as of 31 March 2019.

You're reporting an error for "CR – Nov 2019 – L3 – Q1 – Consolidated Financial Statements"

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.

You're reporting an error for "CR – Dec 2022 – L3 – Q3b – IAS 19: Employee benefits"

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