A.

ACCOUNTING FOR DEFINED BENEFIT PLAN

· Measurement of defined benefit cost is made by ACTUARY.
· PAS 19 encourages but does not require an entity to involve a qualified actuary to measure the defined benefit
obligation.
· Projected unit credit method also known as accrued benefit method shall be used to determine the PV of defined
benefit obligation.
Component of defined Benefit Cost:
1. Service cost;
Includes:
· Current Service cost
· Past service cost
· Gain or loss on settlement
2. Net interest
Includes:
· Interest expenses
· Interest income
· Interest expenses on “effect of asset ceiling”
3. Remeasurement
Includes:
· Remeasurement of Plan assets
· Remeasurement of Projected benefit Obligation
· Remeasurement of "Effect of Asset ceiling"
NOTE: Number 1 (service cost) and No. 2 (Net interest) are recognized in PL (Profit or Loss). WHILE the
remeasurement (no 3) is recognized in OCI (Other Comprehensive Income)

FORMULAS/ DEFINITIONS of components of Employee Benefit Cost:

1. Employee Benefit Cost=Service cost + Net interest + Remeasurement

2. Employee benefit expense (recognized in income Statement as Expense) = Service cost + net interest
3. Service cost= Current service cost + past service cost + or – gain or loss on settlement
4. Net Interest=Interest expense – interest income + interest expense e on asset ceiling
5. Remeasurement=(Preseneted under OCI)

Remeasurement of Plan assets (loss) + Remeasurement of Projected benefit Obligation (loss) + Remeasurement of Effect of
Asset ceiling (increase in asset ceiling)
OR
Remeasurement of Plan assets (gain) + Remeasurement of Projected benefit Obligation (gain) - Remeasurement of Effect of
Asset ceiling (decrease in asset ceiling)

1. Current Service Cost- Increase in the Present Value of Defined benefit Obligation resulting from
employees services in the current period. Recognized in PL.
2. Past Service Cost- Change in Present value of Defined Benefit Obligation (DBO) for employee services in
prior period resulting from a plan amendment. Recognized in PL.
3. Gain or loss on settlement=

Settlement Price less Present Value of PBO settled*

(*If Settlement price is greater than PBO settled, then it is a loss on settlement and vice versa)
4. Interest expense=
Projected Benefit Obligation, beginning x discount rate
5. Interest income**=
FV of Plan Assets, beginning x discount rate
6. Interest expenses on “effect of asset ceiling***=
Asset ceiling, beginning x discount rate
7. Remeasurement of Plan assets=
Actual return less interest income**
8. Remeasurement of Projected benefit Obligation=
Actuarial gain or loss due to decrease or increase of PBO (Projected Benefit Obligation)
9. Remeasurement of Effect of Asset ceiling=
(Asset ceiling, end LESS Asset ceiling, beginning) less interest expense on asset ceiling***
Interest on asset ceiling= Asset ceiling, beginning x discount rate