Topic: IAS 19: Employee Benefits

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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.

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 – 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 – Nov 2016 – L3 – Q2b – IAS 19 – Employee Benefits

Account for a pension scheme under the defined benefit plan for Patience Pass All Ltd.

Question

The following information relates to the pension scheme of Patience Pass All Limited for the year ended 30 April 2016:

The pension costs have not been accounted for in the total comprehensive income as the Accountant of the company is not qualified yet and lacks sufficient knowledge on the provisions of IAS 19 Employee Benefits.

Required:
Demonstrate how the above transaction would be accounted for under the provisions of IAS 19 Employee Benefits, including relevant extracts to the financial statements for the year ended 30 April 2016.

Answer

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Tags: Defined Benefit, Interest Cost, Pension Scheme, Service Cost
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: NOV 2016

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

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

Question

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

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

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

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 – Nov 2016 – L3 – Q2b – IAS 19 – Employee Benefits

Account for a pension scheme under the defined benefit plan for Patience Pass All Ltd.

Question

The following information relates to the pension scheme of Patience Pass All Limited for the year ended 30 April 2016:

Answer

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Tags: Defined Benefit, Interest Cost, Pension Scheme, Service Cost
Level: Level 3

Topic: IAS 19: Employee Benefits
Series: NOV 2016

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

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

Topic: IAS 19: Employee Benefits
Series: DEC 2022

Topic: IAS 19: Employee Benefits

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

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

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.

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.

CR – Nov 2016 – L3 – Q2b – IAS 19 – Employee Benefits

Account for a pension scheme under the defined benefit plan for Patience Pass All Ltd.

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

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

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.

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.

CR – Nov 2016 – L3 – Q2b – IAS 19 – Employee Benefits

Account for a pension scheme under the defined benefit plan for Patience Pass All Ltd.

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

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

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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.

You're reporting an error for "CR – May 2018 – L3 – Q2a – IAS 19 Employee Benefits"

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.

You're reporting an error for "CR – Apr 2022 – L3 – Q2b – IAS 19: Employee benefits"

CR – Nov 2016 – L3 – Q2b – IAS 19 – Employee Benefits

Account for a pension scheme under the defined benefit plan for Patience Pass All Ltd.

You're reporting an error for "CR – Nov 2016 – L3 – Q2b – IAS 19 – Employee Benefits"

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

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

You're reporting an error for "CR – May 2021 – L3 – Q3a – Defined Benefit Scheme Accounting"

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.

You're reporting an error for "CR – May 2018 – L3 – Q2a – IAS 19 Employee Benefits"

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.

You're reporting an error for "CR – Apr 2022 – L3 – Q2b – IAS 19: Employee benefits"

CR – Nov 2016 – L3 – Q2b – IAS 19 – Employee Benefits

Account for a pension scheme under the defined benefit plan for Patience Pass All Ltd.

You're reporting an error for "CR – Nov 2016 – L3 – Q2b – IAS 19 – Employee Benefits"

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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