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IAS 19Workpapers (Step 4 of 5)

Workpaper template

Step 4 of 5
WorkpaperIAS 19 — Employee BenefitsL2 · L3 · L4

Cost of a defined benefit plan: reconciliation of the obligation and the assets, profit or loss, other comprehensive income and remeasurement as a balancing item

2 missions10 sections to document120 min
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Status
Published

Objective of the workpaper

Reconcile the obligation and the plan assets from the opening to the closing balance. Net interest follows IAS 19 (start-of-year rate on the opening net liability, flows at year end by case convention); the remeasurements are the differences between the closing balances supplied and the balances computed. Actuarial assumptions, rate and attribution are case data; their choice remains a supported judgment.

10 sections · 44 blocks · 16 calculations · 4 entries

  • IAS 19 §8
  • IAS 19 §70
  • IAS 19 §83

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

2 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Defined benefit plan over a year: service cost, net interest, reconciliations of the obligation and the assets, remeasurement as a balancing item and entries
Case tasks documented here
  • Compute the benefit attributed to the year.
  • Compute the service cost of the year.
  • Compute the opening net liability.
  • Compute the interest on the opening obligation.
  • Compute the interest income on the plan assets.
  • Compute the net interest of the year.
  • Reconcile the obligation and determine the actuarial loss as a balancing item.
  • Compute the return on the assets excluding interest from the actual return.
  • Reconcile the assets and determine, as a balancing item, the gain excluding interest.
  • Compute the cost of the year in profit or loss.
  • Compute the net remeasurement in other comprehensive income.
  • Compute the closing net liability.
  • Record the service cost.
  • Record the net interest.
  • Record the net remeasurement in other comprehensive income.
  • Record the employer contribution to the fund.
1

Facts and data

Inputs

  • Plan: members, benefit formula, funding and date of the events of the year

    TextRequired

    DEFINED_BENEFIT_PENSION_PLAN_FUNDED_THROUGH_A_SEPARATE_FUND_WITH_NO_PLAN_CHANGE_IN_THE_YEAR

  • Actuarial assumptions of the actuary (discount rate, salaries, mortality, turnover)

    Text

    ACTUARIAL_ASSUMPTIONS_AND_DISCOUNT_RATE_GIVEN_BY_THE_ACTUARY_AND_MANAGEMENT

  • Defined benefit obligation at the opening date

    Number

    5,000,000

  • Fair value of the plan assets at the opening date

    Number

    4,200,000

  • Closing obligation reported by the actuary

    Number

    5,298,908.97

  • Closing fair value of the plan assets reported by the fund manager

    Number

    4,611,500

  • Discount rate at the start of the year (case data)

    Number

    6 %

  • Projected benefit at the settlement date (actuary data)

    Number

    9,000,000

  • Share of the benefit attributed to the year (case convention)

    Number

    4 %

  • Number of discounting years until settlement (case data)

    Number

    12 years

  • Benefits paid by the plan during the year

    Number

    310,000

  • Contributions paid by the employer to the fund

    Number

    420,000

  • Actual return on the plan assets (interest included)

    Number

    301,500

  • Alternative discount rate for the sensitivity (optional)

    Number

2

Supporting documents

Evidence

  • Documents obtained and referenced (actuary report, fund manager statement, plan rules)

    EvidenceRequired

3

Analysis: components of the cost and treatment

Analysis

IAS 19 §8IAS 19 §70IAS 19 §83

  • Points examined: components of the defined benefit cost

    ChecklistRequired

    • Deficit (surplus) = obligation − fair value of the assets
    • Rate set by reference to yields on high quality corporate bonds
    • Current service cost in profit or loss
    • Net interest on the net liability (asset) in profit or loss, under IAS 19
    • Remeasurements in other comprehensive income, never reclassified to profit or loss
    • Attribution of the benefit to periods of service applied consistently
4

Calculations

Calculations

IAS 19 §8IAS 19 §70IAS 19 §83

  • Benefit attributed to the year (projected benefit × attributed share)

    Calculation

    360,000

    Projected benefit at the settlement date (actuary data) ; Share of the benefit attributed to the year (case convention)

  • Current service cost (present value of the attributed benefit)

    Calculation

    178,908.97

    Benefit attributed to the year (projected benefit × attributed share) ; Discount rate at the start of the year (case data) ; Number of discounting years until settlement (case data)

  • Present value of the attributed benefit at the alternative rate (sensitivity)

    Calculation

    Benefit attributed to the year (projected benefit × attributed share) ; Alternative discount rate for the sensitivity (optional) ; Number of discounting years until settlement (case data)

  • Effect of the change of rate on the service cost (value at the new rate − value at the initial rate)

    Calculation

    -178,908.97

    Present value of the attributed benefit at the alternative rate (sensitivity) ; − Current service cost (present value of the attributed benefit)

  • Net liability (asset) at the opening date (obligation − assets)

    Calculation

    800,000

    Defined benefit obligation at the opening date ; − Fair value of the plan assets at the opening date

  • Net liability (asset) at the closing date (obligation − assets)

    Calculation

    687,408.97

    Closing obligation reported by the actuary ; − Closing fair value of the plan assets reported by the fund manager

  • Interest on the obligation (opening obligation × rate)

    Calculation

    300,000

    Defined benefit obligation at the opening date ; Discount rate at the start of the year (case data)

  • Interest income on the assets (opening fair value × same rate)

    Calculation

    252,000

    Fair value of the plan assets at the opening date ; Discount rate at the start of the year (case data)

  • Net interest (opening net liability × start-of-year rate, IAS 19)

    Calculation

    48,000

    Net liability (asset) at the opening date (obligation − assets) ; Discount rate at the start of the year (case data)

  • Closing obligation computed (opening + service cost + interest − benefits)

    Calculation

    5,168,908.97

    Defined benefit obligation at the opening date ; Closing obligation reported by the actuary ; Current service cost (present value of the attributed benefit) ; Interest on the obligation (opening obligation × rate) ; − Benefits paid by the plan during the year

  • Actuarial loss (gain): obligation reported − obligation computed

    Calculation

    130,000

    Defined benefit obligation at the opening date ; Closing obligation reported by the actuary ; Current service cost (present value of the attributed benefit) ; Interest on the obligation (opening obligation × rate) ; − Benefits paid by the plan during the year

  • Return on the assets excluding interest (actual return − interest income)

    Calculation

    49,500

    Actual return on the plan assets (interest included) ; − Interest income on the assets (opening fair value × same rate)

  • Closing fair value computed (opening + interest + contributions − benefits)

    Calculation

    4,562,000

    Fair value of the plan assets at the opening date ; Closing fair value of the plan assets reported by the fund manager ; Interest income on the assets (opening fair value × same rate) ; Contributions paid by the employer to the fund ; − Benefits paid by the plan during the year

  • Gain (loss) on the assets excluding interest: fair value reported − fair value computed

    Calculation

    49,500

    Fair value of the plan assets at the opening date ; Closing fair value of the plan assets reported by the fund manager ; Interest income on the assets (opening fair value × same rate) ; Contributions paid by the employer to the fund ; − Benefits paid by the plan during the year

  • Cost in profit or loss (service cost + net interest)

    Calculation

    226,908.97

    Current service cost (present value of the attributed benefit) ; Net interest (opening net liability × start-of-year rate, IAS 19)

  • Net remeasurement in other comprehensive income (actuarial loss − gain on the assets)

    Calculation

    80,500

    Actuarial loss (gain): obligation reported − obligation computed ; − Return on the assets excluding interest (actual return − interest income)

5

Illustrative entries

Entries

  • Current service cost

    Entry

    AccountDebitCredit
    Employee benefit expense178,908.97
    Net defined benefit liability178,908.97

  • Net interest on the net liability

    Entry

    AccountDebitCredit
    Net interest expense48,000
    Net defined benefit liability48,000

  • Net remeasurement loss in other comprehensive income

    Entry

    AccountDebitCredit
    Remeasurements (other comprehensive income)80,500
    Net defined benefit liability80,500

  • Employer contributions to the fund

    Entry

    AccountDebitCredit
    Net defined benefit liability420,000
    Cash paid420,000
6

Judgments: actuarial assumptions and attribution

Judgment

IAS 19 §8IAS 19 §70IAS 19 §83

  • Are the actuary's assumptions consistent and is the discount rate supported?

    JudgmentRequired

    Assumptions consistent and rate supported

    Assumptions consistent and rate supported / Assumptions or rate to be supported before concluding

    Professional judgment: assumptions are estimates of the entity; in the case they are given by the actuary and are not imposed by the standard.

  • Rationale: source of the rate, consistency of the assumptions with each other and with the prior year

    Text

    THE_RATE_IS_THE_YIELD_ON_HIGH_QUALITY_CORPORATE_BONDS_OF_COMPARABLE_TERM

  • Is the benefit attributed to periods of service according to the plan formula?

    JudgmentRequired

    Linear attribution retained for the case (pedagogical assumption)

    Linear attribution retained for the case (pedagogical assumption) / Plan formula to be analysed before choosing the attribution

    Professional judgment: linear attribution is here a case convention, never presented as imposed by the standard.

  • Rationale: plan formula and service period retained

    Text

    LINEAR_ATTRIBUTION_IS_A_CASE_CONVENTION_ONE_YEAR_OUT_OF_TWENTY_FIVE

7

Information to prepare for the notes

Disclosure

IAS 19 §8IAS 19 §70IAS 19 §83

  • Information: reconciliations and components

    Checklist

    • Reconciliation of the obligation from opening to closing
    • Reconciliation of the fair value of the plan assets
    • Components recognised in profit or loss and in other comprehensive income
    • Principal actuarial assumptions
8

Effect on the financial statements

FS impact

  • Effect derived from the entries

    Table

9

Conclusion

Conclusion

  • Conclusion: cost in profit or loss, remeasurement in other comprehensive income and closing net liability

    ConclusionRequired

10

Normative references

References

  • Normative references cited in this workpaper

    References

11

Checks and financial statement impact

  • Plan facts recordedPass
  • Judgment on the assumptions recordedPass
  • Judgment on the attribution recordedPass
  • Return excluding interest = asset reconciliation differencePass
  • Cost in profit or loss = service cost + net interestPass
  • Service cost entry balancedPass
  • Net interest entry balancedPass
  • Remeasurement entry balancedPass
  • Contribution entry balancedPass
Assets
-420,000
Liabilities
-112,591.03
Profit or loss
-226,908.97
OCI
-80,500
Equity
-307,408.97