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IAS 19Case studies (Step 3 of 5)

Case study

Step 3 of 5
Professional fileIAS 19L4 · Expert

Year-end employee benefits file: plan classification, short-term benefits, cost of a defined benefit plan, plan event and asset ceiling

9 documents43 tasks≈ 300 min
0 / 45 items completed
Standards
IAS 19 — Employee Benefits
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

Sorbane SA (fictitious entity), a furniture manufacturer, closes its accounts on 31 December 20X6. You prepare the year-end employee benefits file: one defined contribution plan and three defined benefit pension plans, the short-term benefits, and the entries of the year. The file will be reviewed by the responsible partner. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.

Your assignment

Classify the four pension plans and record the contribution of the defined contribution plan; establish the accrual for the short-term benefits (salaries, unused leave, bonus) and conclude on the constructive obligation; for the managers plan, compute the service cost, the net interest, the reconciliations of the obligation and the assets, the remeasurement as a balancing item, the cost in profit or loss and in other comprehensive income, and record them; for the workshop plan, classify the amendment and the transfer, compute the past service cost, the settlement result and the net interest of the second half-year, and record them; for the executives plan, conclude on the availability of the surplus, determine the net asset and the effect of the ceiling, and record it; deal with the two open points of the file; present the cumulative effect on the financial statements and conclude. One document is not useful.

You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.

Autonomous professional situation

As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.

  • Organise the work
  • Document each point
  • Argue the conclusion

Documents

File documents

9 documents: open each one to read it.

Document 1Memo

Company profile and case conventions

Sorbane SA (fictitious entity) makes furniture; it closes its accounts on 31 December and its functional currency is the euro. Case conventions (pedagogical assumptions): amounts in EUR; all short-term benefits are settled within twelve months; for the managers plan, the benefits paid and the employer contribution occur on 31 December and net interest is computed at the start-of-year rate on the opening net liability; linear attribution of the benefit; the events of the workshop plan take effect on 1 July 20X6, the loss on the prior remeasurement and the net interest of the first half-year being already recognised in it; the rates, the flows and the horizon of the ceiling are data from the actuary; the tax effect is ignored.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
December salaries still due€96,000.00
Unused leave, production (60 × 200)€12,000.00
Unused leave, offices (25 × 240)€6,000.00
Operating profit before bonus€3,000,000.00
Rate of the annual bonus2%
Exceptional bonus decided in February 20X7€40,000.00
Pensionable salaries of 20X6€2,500,000.00
Contribution rate4%
Opening obligation€8,000,000.00
Closing obligation reported€8,255,756.58
Projected benefit attributable to the active members€5,400,000.00
Share attributed to the year5%
Years until payment10 years
Start-of-year discount rate5%
Benefits paid by the fund€520,000.00
Opening fair value of the assets€6,900,000.00
Closing fair value of the assets reported€7,380,000.00
Actual return on the assets, interest included€400,000.00
Employer contribution€600,000.00
Obligation remeasured before the events€3,600,000.00
Obligation of the active members, before the amendment€2,900,000.00
Obligation of the active members, after the amendment€3,086,000.00
Obligation settled for the deferred members€700,000.00
Transfer value paid by the fund€735,000.00
Assets at the fair value of 1 July€3,050,000.00
Net liability remeasured before the events€550,000.00
Net liability after the events€771,000.00
Net interest of the first half-year€15,000.00
Effective rate of the second half-year2.5%
Surplus of the executives plan€550,000.00
Present value of the future service cost (two years)€227,664.40
Present value of the minimum contributions for future service (two years)€287,981.86
Real estate advisory firm invoice€18,600.00

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 sort9

  • Company profile and case conventions

  • Payroll, unused leave and bonus at December 20X6

  • Rules of the "Savings" plan

  • Managers plan: rules and actuary report

  • Statement of the managers fund manager

  • Workshop plan: board decision and actuary report of 1 July 20X6

  • Executives plan: actuary report and rules

  • Legal opinion on the right to reduce contributions

  • Real estate advisory firm invoice

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Professional judgement

        Classify the four pension plans: defined contribution or defined benefit?

      2. Task 2Calculation

        Compute the contribution of the year for the "Savings" plan.

        Calculator

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

        Part 1 · Calculation

        Compute the contribution of the year for the "Savings" plan.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Journal entries

        Record the contribution to the "Savings" plan.

        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

      4. Task 4Calculation

        Compute the accrual for the unused leave that can be carried forward.

        Calculator

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

        Part 1 · Calculation

        Compute the accrual for the unused leave that can be carried forward.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Professional judgement

        Is there an obligation at the closing date for the annual bonus and for the exceptional bonus of February?

      6. Task 6Calculation

        Compute the annual bonus to recognise.

        Calculator

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

        Part 1 · Calculation

        Compute the annual bonus to recognise.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      7. Task 7Calculation

        Compute the total short-term benefit liability.

        Calculator

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

        Part 1 · Calculation

        Compute the total short-term benefit liability.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      8. Task 8Journal entries

        Record the December salaries still due.

        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

      9. Task 9Journal entries

        Record the accrual for the leave.

        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

      10. Task 10Journal entries

        Record the annual bonus.

        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

      11. Task 11Analysis

        How is the net liability of the managers plan defined, and how is the cost split between profit or loss and other comprehensive income?

      12. Task 12Calculation

        Compute the benefit attributed to the year.

        Calculator

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

        Part 1 · Calculation

        Compute the benefit attributed to the year.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      13. Task 13Calculation

        Compute the service cost of the year.

        Calculator

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

        Part 1 · Calculation

        Compute the service cost of the year.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      14. Task 14Calculation

        Compute the opening net liability.

        Calculator

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

        Part 1 · Calculation

        Compute the opening net liability.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      15. Task 15Calculation

        Compute the interest on the opening obligation.

        Calculator

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

        Part 1 · Calculation

        Compute the interest on the opening obligation.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      16. Task 16Calculation

        Compute the interest income on the plan assets.

        Calculator

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

        Part 1 · Calculation

        Compute the interest income on the plan assets.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      17. Task 17Calculation

        Compute the net interest of the year.

        Calculator

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

        Part 1 · Calculation

        Compute the net interest of the year.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      18. Task 18Calculation

        Reconcile the obligation and determine the actuarial loss as a balancing item.

        Calculator

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

        Part 1 · Calculation

        Reconcile the obligation and determine the actuarial loss as a balancing item.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Actuarial loss (8,255,756.58 − 8,045,756.58)

      19. Task 19Calculation

        Compute the return on the assets excluding interest from the actual return.

        Calculator

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

        Part 1 · Calculation

        Compute the return on the assets excluding interest from the actual return.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      20. Task 20Calculation

        Reconcile the assets and determine, as a balancing item, the gain excluding interest.

        Calculator

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

        Part 1 · Calculation

        Reconcile the assets and determine, as a balancing item, the gain excluding interest.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Gain excluding interest (7,380,000 − 7,325,000)

      21. Task 21Calculation

        Compute the cost of the managers plan in profit or loss.

        Calculator

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

        Part 1 · Calculation

        Compute the cost of the managers plan in profit or loss.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      22. Task 22Calculation

        Compute the net remeasurement in other comprehensive income.

        Calculator

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

        Part 1 · Calculation

        Compute the net remeasurement in other comprehensive income.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      23. Task 23Calculation

        Compute the closing net liability of the managers plan.

        Calculator

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

        Part 1 · Calculation

        Compute the closing net liability of the managers plan.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      24. Task 24Journal entries

        Record the 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

      25. Task 25Journal entries

        Record the net interest.

        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

      26. Task 26Journal entries

        Record the net remeasurement in other comprehensive income.

        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

      27. Task 27Journal entries

        Record the employer contribution to the managers fund.

        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

      28. Task 28Professional judgement

        Are the actuarial assumptions supported, and is linear attribution retained?

      29. Task 29Professional judgement

        In which order to treat the events of the workshop plan, and how to classify them?

      30. Task 30Calculation

        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

      31. Task 31Calculation

        Compute the settlement loss of the transfer.

        Calculator

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

        Part 1 · Calculation

        Compute the settlement loss of the transfer.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      32. Task 32Calculation

        Compute the net interest of the second half-year on the remeasured net liability.

        Calculator

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

        Part 1 · Calculation

        Compute the net interest of the second half-year on the remeasured net liability.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      33. Task 33Journal 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

      34. Task 34Journal 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

      35. Task 35Professional judgement

        Does the entity have an unconditional right to reduce its future contributions or to obtain a refund of the surplus of the executives plan?

      36. Task 36Calculation

        Compute, in present value, the difference between the minimum contributions for future service and the future service cost.

        Calculator

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

        Part 1 · Calculation

        Compute, in present value, the difference between the minimum contributions for future service and the future service cost.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      37. Task 37Calculation

        Determine the benefit available as a reduction in contributions, without it being below zero.

        Calculator

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

        Part 1 · Calculation

        Determine the benefit available as a reduction in contributions, without it being below zero.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      38. Task 38Calculation

        Determine the net asset to recognise for the executives plan.

        Calculator

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

        Part 1 · Calculation

        Determine the net asset to recognise for the executives plan.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      39. Task 39Calculation

        Compute the effect of the ceiling.

        Calculator

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

        Part 1 · Calculation

        Compute the effect of the ceiling.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      40. Task 40Journal entries

        Record the effect of the ceiling.

        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

      41. Task 41Effects on the financial statements

        What is the cumulative effect of the eleven 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. €
        3. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      42. Task 42Analysis

        Which points of the file remain to be dealt with before sign-off, and which of them block?

      43. Task 43Conclusion

        Write the conclusion of the file.

      File review

      Points raised during the review of this file: read them as the preparer would.

      Review notes

      • BlockingResolvedReview point (blocking): support the right to reduce the contributions of the executives plan with a document
      • Non-blockingResolvedReview point: attach the source of the discount rate of the workshop plan

      Information requests

      • ObtainedRequest to legal counsel: right to reduce the future contributions of the executives plan
      • Assumption documentedDocumented assumption: the 5 % rate of the workshop plan is the one of the actuary

      Completion checklist

      • Plans classified on their terms and constructive obligationsDone
      • Short-term benefits recognised at the undiscounted amount, constructive obligation supportedDone
      • Managers plan: reconciliations established, remeasurements as balancing items in other comprehensive incomeDone
      • Workshop plan: prior remeasurement before past service and settlementDone
      • Asset ceiling supported by the rules and the legal opinion; entries balancedDone
      • Source of the discount rate of the workshop plan attached to the fileDone

      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 / 45).

      Document this file

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

      Normative references

      • IAS 19 §8
      • IAS 19 §64
      • IAS 19 §99
      • IAS 19 §101A