LIMIT ON DEFINED BENEFIT ASSET AND MFR (IFRIC-14) – SOLUTIONS (1)

SOLUTIONS
Solution No. 1
2020 2019
Extracts - SOFP ------ Rs. million ------
Net defined benefit asset (W-1) 204 180

Extracts – SOCI
Employee cost (W-2) (W-3) (W-4) (262) (233)
[280 + 151 + 1 – 170] [250 + 130 + 3 – 150]
Other comprehensive income:
Remeasurement gain on benefit plan (W-5) 156 83

Workings 2020 2019 2018

W-1 -------------- Rs. million ------------
Fair value of plan assets 1,970 1,700 1,500
PV of DBO (1,766) (1,510) (1,300)
Net benefit asset 204 190 200
Asset ceiling adjustment - (10) (30)
Net benefit asset 204 180 170

2020 2019
W-2 Reconciliation of PV of DBO ------ Rs. million ------
Opening balance 1,510 1,300
Interest 151 130
Current service cost 280 250
Benefits paid (190) (150)
Actuarial (gain)/loss 15 (20)
Closing balance 1,766 1,510

W-3 Reconciliation of FV of Plan assets

Opening balance 1,700 1,500
Interest 170 150
Contributions 160 120
Benefits paid (190) (150)
Return on plan assets 130 80
Closing balance 1,970 1,700

W-4 Asset ceiling adjustment

Opening balance 10 30
Interest 1 3
Remeasurement (11) (23)
Closing balance - 10

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 LIMIT ON DEFINED BENEFIT ASSET AND MFR (IFRIC-14) – SOLUTIONS (2)

W-5 Remeasurement
Actuarial gain /(loss) (15) 20
Asset ceiling adjustment 11 23
Return on plan assets 130 80
126 123

Solution No. 2
Rs. million
Fair value of plan assets 1,700
PV of DBO 1,500
Surplus in plan 200

Asset ceiling [200 x 92%] 184

Net defined benefit asset to be recognized 184

Solution No. 3

Rs. million
Fair value of plan assets 1,600.00
PV of defined benefit obligation 1,520.00
Surplus 80.00

Asset ceiling (W-1) 67.23

Net defined benefit asset 67.23

W-1
Future MFR Contribution
Year
service cost contributions reduction
----------- Rs. million -----------
2021 15.00 17.00 (2.00)
2022 15.00 15.00 -
2023 15.00 12.00 3.00
2024 15.00 11.00 4.00
onwards
Rs. million
PV of future service cost less MFR 47.23
[-2 x 1.07-1 + 0 x 1.07-2 + 3 x 1.07-3 + 4 x 0.07-1 x 1.07-3]

Prepayment of MFR 20.00

Asset ceiling 67.23

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 LIMIT ON DEFINED BENEFIT ASSET AND MFR (IFRIC-14) – SOLUTIONS (3)

Solution No. 4
IFRIC 14 requires the entity to recognize a liability to the extent that the contributions payable are not fully
available. Payment of the contributions of Rs. 50 million will increase the IAS 19 surplus from Rs. 100 million
to Rs. 150 million. Under the rules of the plan this amount will be fully refundable to the entity with no
associated costs. Therefore, no liability is recognized for the obligation to pay the contributions and the net
defined benefit asset will be presented in SOFP at Rs. 100 million.

Solution No. 5
The payment of Rs. 300 million would increase the IAS 19 surplus of Rs. 100 million to Rs. 400 million. Of this
Rs. 400, 70% (Rs. 280 million) is refundable. The remaining Rs. 120 million (30% of Rs. 400 million) of the
contributions paid is not available to the entity. IFRIC 14 requires the entity to recognize a liability to the extent
that the additional contributions payable are not available to it. Therefore, existing surplus of Rs. 100 million
will be reduced to its asset ceiling of Rs. 70 million and additional liability will be recorded for Rs. 90 million
(30% of Rs. 300 million). As a result the net defined benefit liability recognized in SOFP is Rs. 20 million. On
payment of MFR contribution of Rs. 300 million, it will be converted into net defined benefit asset of Rs. 280
million.

Summary:
Rs. million
Fair value of plan assets 1,600.00
PV of defined benefit obligation 1,500.00
Surplus 100.00
Asset ceiling adjustment(W-1) (120.00)
Net defined benefit liability (20.00)

W-1
Reduction of existing surplus [Rs. 100m x 30%] (30)
Additional liability for additional contributions (90)
(120)

Solution No. 6
The payment of Rs. 300 million would change the IAS 19 deficit of Rs. 100 to a surplus of Rs. 200 million. Of
this Rs. 200 million, 60% (Rs. 120 million) is refundable. The remaining Rs. 80 million (40% of Rs. 200 million)
of the contributions paid is not available to the entity. IFRIC 14 requires the entity to recognize a liability to the
extent that the additional contributions payable are not available to it. Therefore, the net defined benefit
liability is Rs. 180 million, comprising the deficit of Rs. 100 million plus the additional liability of Rs. 80 million.
On payment of MFR contribution of Rs. 300 million, it will be converted into net defined benefit asset of Rs.
120 million.

Summary:
Rs. million
Fair value of plan assets 1,500.00
PV of defined benefit obligation 1,600.00
Deficit (100.00)
Additional liability [200 x 40%] (80.00)
Net defined benefit liability (180.00)

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 LIMIT ON DEFINED BENEFIT ASSET AND MFR (IFRIC-14) – SOLUTIONS (4)

Solution No. 7
Current surplus of Rs. 100 million can not be refunded however it can be used for future reduction in future
contributions. Only Rs. 80 million is available as economic benefit in form of reduction in future contributions,
thus it will be reduced by Rs. 20 million. Moreover, additional liability of Rs. 300 million will be recognized for
MFR in respect of past service as no refund is available.

Summary:
Rs. million
Fair value of plan assets 1,300.00
PV of defined benefit obligation 1,200.00
Surplus 100.00

Asset ceiling adjustment (W-1) (320.00)

Net defined benefit liability (220.00)

W-1
Reduction of existing surplus [Rs. 100m - Rs. 80m] (20)
Additional liability for additional contributions (300)
(320)

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