Accounting for defined contributions

Learning objectives

• Explain that the expense of a defined contribution plan is the contribution payable for the period of service.L1
• Recognise the contribution for the period, whether paid or still payable, from the data of a case.L2

Normative references

• IAS 19 §51For a defined contribution plan, the contribution payable in exchange for service rendered during the period is recognised as a liability, after deducting any contribution already paid (an excess paid being an asset to the extent that it will lead to a reduction in future payments or a cash refund), and as an expense, unless included in the cost of an asset; contributions not expected to be settled wholly within twelve months are discounted (para. 52).

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

2 questions

• Dalen SA takes part in a defined contribution plan: it must pay 6% of the year's salaries and has no legal or constructive obligation to pay more (case facts). Its expense for the year equals the contributions due for services rendered during the year, and it does not provide for future benefits.L1
• Nordane SA takes part in a defined contribution plan and pays {contrib_rate} of pensionable salaries, with no other commitment (case facts). For the year, pensionable salaries amount to {pensionable}; total payroll is {total_payroll}, because it includes bonuses that the plan rules exclude from the base. Calculate the expense for the year in respect of the plan.L2