IAS-19 EMPLOYEES BENEFITS ICAP PAST PAPERS WITH SOLUTION

Question 1 (D-20)
For the purpose of this question, assume that the date today is 1 February 2020.
Financial statements of Hikmat Limited (HL) for the year ended 31 December 2019 are under
preparation. In this respect, following matters are under consideration:
During 2019, HL announced a bonus scheme for its employees. Under the scheme, all employees
completing 5 years of service at HL would be entitled to 2 bonus salaries.
HL was incorporated in 2016, so the first employee would complete 5-year period in 2021 and therefore
nothing has been recorded in the HL’s financial statements. (04)
Required:
Discuss how the above matters should be dealt with in HL’s financial statements for the year ended 31
December 2019. Show all calculations wherever possible.

Question 2 (D-19)
You are the Finance Manager of Dirham Limited (DL). Your assistant has prepared draft financial
statements of DL for the year ended 31 December 2018.
Net profit for 2018 (draft), 2017 (audited) and 2016 (audited) were Rs. 198 million, Rs. 311 million and
Rs. 242 million respectively.
The draft statement of financial position as on 31 December 2018 shows total assets and total liabilities
of Rs. 2,977 million and Rs. 785 million respectively.
The following information has been received from actuary in respect of DL’s pension fund for the year
ended 31 December 2018:
Rs. in million
Contribution paid 40
Benefits paid 32
Current service cost 45
Re-measurement gain 18*

*Re-measurements were nil in 2017 and 2016.

Applicable annual discount rate and net pension liability as on 1 January 2018 were 10% and Rs. 85
million respectively.
During the year, payments made by DL were charged to profit or loss. No further adjustment has been
made.
Required:
Determine the revised amounts of total assets and total liabilities after incorporating effects of the
above corrections. (06)

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Question 3 (J-19)
Fiji Limited (FL) is involved in the manufacturing and trading of consumer goods. The following
transactions/events have occurred during 2018.
FL operates a defined benefit pension scheme for its employees. The scheme shows the following net
balance as at 31 December:
2018 2017
Rs. in million
Present value of defined benefit obligations 450 380
Fair value of plan assets (610) (322)
(160) 58

This is for the first time that the fair value of plan assets exceeds the present value of defined benefit
obligations. Currently, the excess of Rs. 160 million is presented as current assets. (04)
Required:
Discuss how the above transactions/events should be dealt with in FL’s books for the year ended 31
December 2018. (Show all calculations wherever possible. Also mention any additional information
needed to account for the above transactions/events)

Question 4 (J-16)
Mehran Industries Limited (MIL) operates a funded gratuity scheme for all employees. The following
relevant information has been extracted from the actuarial reports/records for the year ended 31
December 2015:
2015 2014
Discount rate 9% 8%
Rs. in million
Present value of defined benefit obligations 482 438
Fair value of plan assets 491 449
Current service cost 19 15
Contributions paid during the year 37 21
Benefits paid during the year 23 16

Additional information:
(i) Present value of defined benefit obligations and fair value of plan assets as on 1 January 2014
were Rs. 380 million and Rs. 351 million respectively.
(ii) On 28 December 2014, MIL sold one of its divisions and transferred the relevant portion of
defined benefit plan to the buyer. The present value of defined benefit obligation and plan
assets transferred was Rs. 21 million and Rs. 19 million respectively.
(iii) On 1 January 2015, MIL changed the terms of the scheme for employees who had completed 4
years of service. As a result, present value of defined benefit obligation increased by Rs. 30
million. 40% of increased obligations related to employees who have already completed 4 years
of service whereas remaining increase pertained to employees who have provided an average of
2 years of service.

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(iv) Based on the advice received from the actuary, the contribution for the year 2016 will be Rs. 23
million.
(v) The plan assets comprise of 65% debt securities (2014: 66%), 15% mutual fund units (2014:
10%), 10% equity (2014: 14%) and the balance in bank deposits.
(vi) The average remaining working lives of employees are 10 years.

Required:
Prepare relevant extracts to be reflected in the statement of financial position, statement of
comprehensive income and notes to the financial statements for the year ended 31 December 2015 in
accordance with International Financial Reporting Standards. (Show comparative figures) (11)

Question 5 (J-15)
Tanzeem Limited (TL) operates a defined benefit pension plan for its employees. The following details
relate to the plan:

2014 2013
Discount rate for plan obligation 9% 8%
----- Rs. in million -----
Present value of obligation at year-end 2,040 2,300
Fair value of plan assets at year-end 1,784 2,150
Current service cost 125 143
Benefits paid during the year 99 110
Contribution made during the year 105 118

Additional information:
 Present value of pension obligation and fair value of plan assets as on 1 January 2013 were Rs. 2,050
million and Rs. 1,995 million respectively.
 During the year 2013, TL amended the scheme whereby the benefits available under the plan had
been increased. It resulted in an increase in the present value of the defined benefit pension
obligation by Rs. 5 million and Rs. 8 million on account of vested and non-vested benefits
respectively. The period to vest is 4 years.
 On 31 December 2014, TL sold a business segment to Sachai Limited (SL). Accordingly, TL transferred
the relevant component of its pension fund to SL. The present value of the defined benefit pension
obligation transferred was Rs. 280 million and the fair value of plan assets transferred was Rs. 240
million. TL also made a cash payment of Rs. 20 million to SL in respect of the plan.
 Average remaining working lives of employees is 10 years.

Required:
(i) Prepare relevant extracts to be reflected in the statement of financial position, statement of
comprehensive income and notes to the financial statements for the year ended 31 December 2014 in
accordance with International Financial Reporting Standards. (Show comparative figures) (11)
(ii) Prepare entries to record the pension obligation:
 on sale of business segment to SL
 at the year-end. (03)

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Question 6 (D-12)
Lion Engineering Limited (LEL) operates an approved pension scheme (defined benefit plan) for all its
permanent employees who have completed one year’s service. The details for the year ended 30 June
2012
relating to the pension scheme are as follows:

Rs. million
Present value of pension scheme obligation at June 30, 2011 100
Fair value of scheme’s assets at June 30, 2011 70
Current service cost 29
Contributions made during the year 30
Benefits paid during the year 45
Present value of pension scheme obligation at June 30, 2012 110
Fair value of scheme’s assets at June 30, 2012 80

Additional information:
(i) With effect from 1 July 2011, LEL had amended the scheme whereby the employees’ pension
entitlement had been increased. The benefits would become vested after three years. According to
actuarial valuation the present value of the cost of additional benefits at 1 July 2011 was Rs. 15 million.
(ii) The relevant discount rate was 13%.
(iii) LEL was required to pay Rs. 40 million to the scheme, during the year ended 30 June 2012. Because
of cash
flow constraints, LEL was able to contribute Rs. 30 million only.

Required:
Prepare the relevant extracts from the statement of financial position and the related notes to the
financial statements for the year ended 30 June 2012. Show all necessary workings.
(Accounting policy note is not required. Deferred tax may be ignored)

Question 7 (J-11)
Galaxy Textiles Limited (GTL) operates a funded gratuity scheme for all its employees.
Contributions to the scheme are made on the basis of annual actuarial valuation. The following
relevant information has been extracted from the actuarial report pertaining to the year ended
March 31, 2011.

Rs. in million
Present value of defined benefit obligations as of:
April 1, 2010 133
March 31, 2011 166
Fair value of plan assets as of:
April 1, 2010 114
March 31, 2011 120
Benefits paid by the plan to the employees 6
Current service cost 15

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Interest cost 16
Expected return on plan assets 14

Required:
Prepare a note on retirement benefits for presentation in the financial statements for the year ended
March 31, 2011 in accordance with International Financial Reporting Standards. (14)

Question 8 (D-07)
Mohani fertilizer Company Limited, a listed company, operates a funded gratuity scheme for its
employees. Following relevant information has been extracted from the actuarial reports:

June 30, 2007 June 30, 2006

Rs. (m) Rs. (m)
Present value of defined benefits obligations 900 600
Fair value of plan assets 750 570
Current service cost for the year 25 22
Contribution paid during the year 15 14
Benefits paid during the year 17 15
Discount rate for plan liabilities 10% 10%

Required:
Compute the amount which need to be reported in the balance sheet and the profit and loss account of
Mohani Fertilizer Company Limited for the year ended June 30, 2007. (13)

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Solution 1
Scheme announced by HL is an “other long term employee benefits” under IAS 19.

Though the first payment might be made in 2021, HL needs to record the expense in 2019 and estimate
the defined benefit obligation in respect of the scheme similar to defined benefit post retirement
employee benefits.

HL shall attribute benefit to the periods of service under the plan’s benefit formula i.e. 5 year and record
expenses in 2019 for benefits attributable to current and prior years. For other long-term employee
benefits, an entity shall recognize the net total of the following amounts in profit or loss:

(i) service cost;

(ii) interest on the defined benefit liability; and
(iii) re measurements of the net defined benefit liability

Solution 2

Solution 3
When there is a surplus in the defined benefit plan, it shall measure the net defined benefit asset at the
lower of the:
surplus in the defined benefit plan and
asset ceiling
Asset ceiling would be computed as the present value of any economic benefits available in the form of
refunds from the plan or reduction in the future contributions to the plan.
The effect of restricting the asset at a lower amount would be charged to OCI.
IAS 19 does not specify whether an entity should distinguish current and non-current portions of asset
arising from post-employment benefits.
Additional information needed:
Amount of refunds from plan or reduction in future contribution along with timing
Applicable discount rate

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Solution 4

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Solution 5

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Solution 6

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Solution 7

Statement of financial position Rs. (m) Rs. (m)

Present value of defined benefit liability 166
Fair value of plan assets (120)
Deficit/net liability 46

Statement of comprehensive income

Profit or loss account
Current service cost 15
Interest cost (Net) (16-14) 2 17

Statement of comprehensive income

Re-measurement gain (actuarial gain) () 27
Net effect in statement of comprehensive income 44

W-1 Present value of defined benefit liability

Opening balance 133
Past service cost
Benefits paid (6)
Current service cost 15
Interest cost 16
Actuarial loss 8
Closing balance 166

W-2 fair value of plan asset

Opening balance 114
Contribution during the year (15+2) 17

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Benefits paid (6)

Expected return 14
Actuarial loss (19)
Closing balance 120

Solution 8

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