Past service cost

Learning objectives

• Calculate past service cost as the change in the obligation resulting from the amendment, after remeasurement.L2
• Recognise past service cost in profit or loss.L3

Normative references

• IAS 19 §8Definitions: categories of benefits (short-term, i.e. expected to be settled wholly before twelve months after the end of the annual reporting period in which the service is rendered; post-employment; other long-term; termination benefits); defined contribution plan (fixed contributions paid into a separate entity, with no legal or constructive obligation to pay further contributions if the fund is insufficient) and defined benefit plan (any other plan); deficit or surplus (present value of the obligation less the fair value of plan assets), net defined benefit liability (asset) (the deficit or surplus adjusted for the effect of the asset ceiling) and asset ceiling (present value of the refunds or reductions in future contributions available); plan assets (assets held by a legally separate fund dedicated to the benefits, and qualifying insurance policies, not available to the entity's creditors); past service cost (change in the obligation for prior service resulting from a plan amendment or a curtailment, the latter being a significant reduction in the number of employees covered); settlement (a transaction that eliminates all or part of the obligations, other than benefits provided for in the plan terms and included in the actuarial assumptions).
• IAS 19 §99When determining past service cost or a gain or loss on settlement, the entity remeasures the net defined benefit liability (asset) using the current fair value of plan assets and current actuarial assumptions (including current market interest rates and other current market prices), reflecting the benefits offered and the plan assets before and after the plan amendment, curtailment or settlement.
• IAS 19 §101AWhen a plan amendment, curtailment or settlement occurs, past service cost or the gain or loss on settlement is determined without considering the effect of the asset ceiling; the effect of the asset ceiling is then determined after the event, and any change in it is recognised in remeasurements (para. 57(d)) (amendments of February 2018).
• IAS 19 §103Past service cost, defined in para. 102 as the change in the obligation resulting from a plan amendment or curtailment, is recognised as an expense at the earlier of two dates: when the plan amendment or curtailment occurs, and when the entity recognises related restructuring costs (IAS 37) or termination benefits (para. 165); a curtailment is a significant reduction in the number of employees covered (para. 105).

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

4 questions

• On 1 April, Evaris SA amends its defined benefit plan by improving the benefits. At the last reporting date, the obligation was 9,600,000. At 1 April, using current actuarial assumptions, the obligation is 9,910,000 before the amendment and 10,270,000 after the amendment (case facts). How does Evaris determine the past service cost?L2
• On 1 July, Rovel SA improves the benefits of its defined benefit plan. After remeasuring the net liability at current assumptions, the past service cost is {past_service_cost}. Post the entry for the past service cost.L2
• On 1 April, Sablet SA amends its defined benefit plan. At the last reporting date, the obligation was {dbo_last}. At 1 April, after remeasuring the net liability using the fair value of assets and current actuarial assumptions, the obligation is {dbo_before} before the amendment and {dbo_after} after the amendment (case data). Calculate the past service cost.L2
• On 1 March N, Altair SA amends its defined benefit plan, which increases the obligation by 400,000 (past service cost, case data). This amendment is part of a restructuring whose related costs were recognised under IAS 37 as early as 15 January N (case facts). When does Altair recognise the past service cost as an expense?L3