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Report Intacc
Report Intacc
If the fair value assets is more than the projected benefit obligation, the plan is overfunded and
therefore, there is a prepaid benefit cost which PAS 19 calls it surplus.
PAS 19, paragraph 64 provides that the surplus in a defined benefit plan must not exceed the asset
ceiling determined by using the discount rate in the measurement of the defined benefit obligation.
The asset ceiling is the present value of any economic benefits available in the form of refunds from the
plan or reductions in future contributions of the plan.
Illustration
The asset ceiling or the present value of available future refunds and reduction in future contributions is
P1,200,000.
Therefore, a prepaid benefit cost or surplus asset of P1,000,000 shall be reported in the statement of
financial position at year-end.
Comprehensive illustration
A defined benefit plan revealed the following information at the beginning of current year:
PAS 19, paragraph 8, provides that any change in the effect of the assets ceiling, excluding interest on
the effect of the asset ceiling is a remeasurement to be recognized through other comprehensive
income.
Paragraph 126 provides that the interest on the effect of the asset ceiling is part of the total change in
the effect of the asset ceiling.
The amount is determined by multiplying the effect of the asset ceiling at the beginning of the period by
the discount rate.
The difference between the total change in the effect of the asset ceiling and the interest on the effect
of the asset ceiling is considered the remeasurement.
Any increase in the effect of asset ceiling is a remeasurement loss minus interest expense on the effect of
asset ceiling.
Any decrease in the effect of asset ceiling is a remeasurement gain plus interest expense on the effect of
asset ceiling.
Computations
Explanation
Actually, the effect of asset ceiling is a credit in the memorandum record which is the same category as
the projected benefit obligation.
Any increase in the effect of the asset ceiling is a remeasurement loss and any decrease in the effect of
asset ceiling is a remeasurement gain.
However, the portion attributable to the interest on the effect of asset ceiling is included in profit or loss
as component of employee benefit expense.
Cash 700,000
Reconciliation
Note that the prepaid benefit cost on December 31 is P800,000 which is equal to the asset ceiling on
December 31.
Transitional Provision
Revised PAS 19, paragraph 173, provides that an entity shall apply this standard retrospectively.
This means that any transitional effect of the application of the amendment under PAS 19 shall be
accounted for as adjustment at the beginning balance of retained earnings.
However, an entity need not adjust the carrying amount of assets for changes in employee benefit costs
that were included in the initial carrying amount of the assets.
In other words, assets such as inventory and property, plant and equipment that include employee
benefit cost in their carrying amount do not have to be restated.
Illustration
On January 1, 2020, the entity applied the revised PAS 19 in relation to the recognition of past service
cost and actuarial gains and losses.
Effective January 1, 2020, all past service costs during the year fully recognized in profit or loss.
All actuarial gains and losses during the year are fully recognized in other comprehensive income.
Accounting question
The question is the treatment of the unamortized past service of P400,000 and the unrecognized
actuarial loss of 500,000 on January 1, 2020.
Under the transitional provision of the revised PAS 19, the unamortized past service cost and the
unrecognized actuarial loss shall be eliminated and accounted for retrospective as an adjustment of
retained earnings.
The adjustment on January 1, 2020 to eliminate the unamortized past service cost and the unrecognized
actuarial loss is:
If this adjustment is posted to the general ledger, the effect would be the following:
This means that the adjusted accrued benefit cost is P2,000,000 on January 1, 2020.
As a proof, the memorandum records show the following on January 1, 2020 after transition:
Note that the unamortized past service cost and the unrecognized actuarial loss are now eliminated and
no longer reported.
a. Characteristics of the defined benefit plan and risks associated with the plan.
b. Reconciliation for the fair value of plan assets and the present value of the defined benefit obligation.
c. Separate showing of current service cost, past service cost, interest expense or income and
remeasurements.
d. Disaggregation of the fair value of plan assets into classes that distinguish the nature and risks of
assets.
e. A sensitivity analysis for each significant actuarial assumption showing the effect on the defined
benefit obligation for any change.
PAS 26
This standard deals with “accounting and reporting by retirement benefit plans”.
It is the standard for the preparation of general purpose financial statements or financial reports of
retirement plans which may be defined contribution plan or defined benefit plan.
In rare cases, a retirement benefit plan may contain characteristics of both defined contribution plan
and defined benefit plan.
For purposes of this standard, such a hybrid plan is deemed to be defined benefit plan.
The report of a defined contribution plan shall contain a statement of net assets available for benefits
and description of the funding policy.
In preparing the “statement of net assets available for benefits”, the plan investments shall be carried at
fair value.
When plan investments are held for which an estimate is not possible, the reason why fair value is not
used shall be disclosed.
In practice, in many cases, plan assets will have determinable fair value because in the discharge of their
fiduciary responsibility, plan trustees will mandate that retirement plans hold only marketable
investment.
1. A statement that shows the net assets available for benefits, the actuarial present value of promised
benefits distinguishing between vested and nonvested benefits, and the resulting excess or deficit.
2. A statement of net assets available for benefits, including either a note disclosing the actuarial
present value of promised vested and nonvested benefits or a reference to this information in an
accompanying actuarial report.
The actuarial present value of promised benefits shall be based on the benefits promised under the
terms of the plan using either current salary or projected salary levels, with disclosure of the basis used.
The report shall explain the relationship between the actuarial value of the promised benefist and the
net assets available for benefits, and the funding policy.
As in the case of defined contribution plan, investments of a defined benefit plan shall be carried at fair
value.
Illustration
ASSETS
Cas 500,000
h
Receivables:
Amounts due from stockbrokers on sale 1,500,000
of security
Accrued Interest receivable 400,000
Dividends receivable 100,000 2,000,000
Investments at fair value:
Treasury bills 2,500,000
Equity securities 1,000,000
Debt securities 500,000 4,000,000
TOTAL ASSETS 6,500,000
LIABILITIES
In many countries, actuarial variations are not obtained more frequently than every three years.
PAS 26 does not make it incumbent upon the pan to use annual actuarial valuation.
If an actuarial valuation has not been prepared on the date of the report, the most recent valuation is
used and the date of actuarial valuation is disclosed.
Disclosure
The report of a retirement plan, defined contribution and defined benefit, shall disclose the following
information:
c. Description of the plan and the effect of any changes in the plan during period.