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IAS 19Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIAS 19L3 · Advanced

Plan amendment and settlement during the year: prior remeasurement, past service cost, settlement loss and net interest for the rest of the period

5 documents10 tasks≈ 90 min
0 / 12 items completed
Standards
IAS 19 — Employee Benefits
Assistance levelNo help · reduced assistance
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Marquin SA (fictitious entity) closes its accounts on 31 December 20X6. On 30 June 20X6, the board decided three measures on its defined benefit pension plan, applicable on 1 July 20X6. You prepare the accounting for the events and the net interest of the second half-year.

Your assignment

Say in which order to treat the events and why; classify each of the three measures; compute the past service cost of the amendment and the settlement loss, and record them; compute the net interest for the rest of the year on the remeasured net liability; present the effect on the financial statements and conclude. One document is not useful.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Advanced level: no help, the work is grouped by kind.

Documents

File documents

5 documents: open each one to read it.

Document 1Memo

Company profile and case conventions

Marquin SA (fictitious entity) closes its accounts on 31 December; its functional currency is the euro. Case conventions (pedagogical assumptions): amounts in EUR; the events take effect on 1 July 20X6 and six months out of twelve remain; the loss on the prior remeasurement is already recognised in other comprehensive income; the net interest of the first half-year is already recognised; the plan is in deficit, so there is no ceiling; the tax effect is ignored.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Obligation remeasured before the events€8,400,000.00
Obligation of the active members, before the amendment€7,500,000.00
Obligation of the active members, after the amendment€7,880,000.00
Obligation settled for the retirees€900,000.00
Settlement price paid by the fund€960,000.00
Assets at the fair value of 1 July€7,100,000.00
Net liability remeasured before the events€1,300,000.00
Assets after the events€6,140,000.00
Net liability after the events€1,740,000.00
Net interest of the first half-year€30,000.00
Effective rate of the second half-year2.75%
Legal advice invoice€22,500.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort5

  • Company profile and case conventions

  • Board decision of 30 June 20X6

  • Actuary report at 1 July 20X6

  • Finance note: net interest

  • Legal advice invoice

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      10 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Analysis

        In which order to treat the events, and why remeasure the net liability first?

      2. Task 2Professional judgement

        Classify each of the three measures decided by the board.

      3. Task 3Calculation

        Compute the past service cost of the amendment.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the past service cost of the amendment.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Journal entries

        Record the past service cost.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      5. Task 5Calculation

        Compute the settlement loss.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the settlement loss.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Journal entries

        Record the settlement loss.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      7. Task 7Analysis

        Reconcile the net liability before and after the events.

      8. Task 8Calculation

        Compute the net interest for the rest of the year.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the net interest for the rest of the year.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      9. Task 9Effects on the financial statements

        What is the effect of the two entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      10. Task 10Conclusion

        Write the conclusion.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 12).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IAS 19 §99
      • IAS 19 §101A