The asset ceiling

Learning objectives

• Calculate the net asset recognised as the lower of the surplus and the asset ceiling, and the effect of the asset ceiling.L3
• Recognise the effect of the asset ceiling in other comprehensive income from the data of a case.L3

Normative references

• IAS 19 §64A net defined benefit asset is measured at the lower of the surplus in the plan and the asset ceiling, the latter being the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions, discounted at the rate in paragraph 83.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

6 questions

• At 31 December, the plan of Pelvane SA shows an obligation of {dbo} (present value) and plan assets with a fair value of {assets}. The present value of the economic benefits available as reductions in future contributions, discounted at the plan's discount rate, is {ceiling}; Pelvane has an unconditional right to realise them (case data). Calculate the plan surplus, the net asset to recognise and the effect of the asset ceiling.L3
• At the reporting date, the plan of Tarvik SA shows a surplus of {surplus}, already recognised as a net asset before any adjustment. The present value of the economic benefits available (asset ceiling) is {ceiling} (case data). Post the entry that brings the net asset down to the ceiling.L3
• The plan of Belmar SA shows a surplus of 800,000. The plan rules give Belmar an unconditional right to obtain a refund of the surplus when the plan is settled, although that refund cannot be realised today. Management states that it has no intention of recovering the surplus (case facts). Which conclusion on the asset ceiling is correct?L3
• A trainee summarises the treatment of the asset ceiling for a defined benefit plan in surplus. Which of his sentences is wrong?L3
• The plan of Corlan SA is in surplus by {surplus}. Corlan has an unconditional right to a refund whose present value is {refund_pv}. For future services, the present value of future service costs under IAS 19 is {pv_service_cost} and that of the minimum funding contributions required for those same future services is {pv_min_funding}. Additional contributions of {catch_up} (present value) cover an existing minimum funding shortfall in respect of services already rendered; once paid, they will remain available to Corlan as a refund (case data). Calculate the excess of the minimum funding contributions for future services over the future service cost, the benefit available as a reduction in future contributions (floor at zero) and the net asset to recognise.L4
• The plan of Devane SA is subject to a minimum funding requirement of 150,000 per year: 90,000 for future services, and 60,000 to clear an existing minimum funding shortfall in respect of services already rendered. The annual future service cost under IAS 19 is 100,000 (case data). Which conclusion on the benefit available as a reduction in future contributions is correct?L3