Scribd
Upload
48 views

Obligation

1. The fair value of plan assets is used to fund future benefit payments. If assets are less than the projected benefit obligation, the plan is underfunded resulting in a liability. If assets exceed the obligation, the plan is overfunded resulting in a noncurrent asset. 2. A settlement occurs when a defined benefit plan's obligations are eliminated, such as through a one-time transfer of funds to an insurance company. 3. Gain or loss on settlement is recognized when it occurs and is the difference between the settlement price and defined benefit obligation. It is included in service cost in the employee benefit expense calculation.

Uploaded by

Justine Airra Ondoy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
48 views

Obligation

1. The fair value of plan assets is used to fund future benefit payments. If assets are less than the projected benefit obligation, the plan is underfunded resulting in a liability. If assets exceed the obligation, the plan is overfunded resulting in a noncurrent asset. 2. A settlement occurs when a defined benefit plan's obligations are eliminated, such as through a one-time transfer of funds to an insurance company. 3. Gain or loss on settlement is recognized when it occurs and is the difference between the settlement price and defined benefit obligation. It is included in service cost in the employee benefit expense calculation.

Uploaded by

Justine Airra Ondoy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

1.

Explain the accounting relationship between fair value of plan assets and projected
obligation.
The fair value of the plan assets is the source of fund set aside in meeting future benefit
payments. The projected benefit obligation is the present value of the defined benefit liability. If
the fair value of plan asset is less than the projected benefit obligation, the plan is underfunded,
and therefore, there is an accrued benefit cost, which is a noncurrent liability. If it is the latter,
the plan is overfunded, and therefore, there is a prepaid benefit cost or surplus, which is a
noncurrent asset (Valix, 2019).

2. What is settlement of a defined benefit plan?


A settlement is a transaction that eliminates all further legal or constructive obligations
for part or all of the benefits provided under a defined benefit plan. For example, a one-off
transfer of significant employer contributions under the plan to an insurance entity through the
purchase of an insurance policy is a settlement (Valix, 2020).

3. Explain the recognition of gain or loss on settlement of a defined benefit plan.


PAS 19, paragraph 110, provides that an entity shall recognize gain or loss on the
settlement of a defined benefit plan when the settlement occurs. The gain or loss on settlement is
the difference between the settlement price and the present value of the defined benefit
obligation on the date of settlement. The settlement price includes any plan assets transferred and
any payments made directly by the entity in connection with the settlement. Any gain or loss on
settlement is fully recognized and included in service cost in the computation of employee
benefit expense (Valix, 2020).

4. What is surplus in relation to a defined benefit plan?


If the fair value of plan assets is more than the projected benefit obligation, the plan is
overfunded, and therefore, there is a prepaid benefit cost which PAS 19 calls it surplus. PAS 19,
paragraph 64, provides that the surplus in defined benefit plan must not exceed the asset ceiling
determined by using the discount rate in the measurement of the defined benefit obligation
(Valix, 2020).

5. Explain asset ceiling.


The asset ceiling is the present value of any economic benefits available in the form of
refunds from the plan or reductions in future contributions to the plan (Valix, 2020).
6. Explain the transition to the revised PAS 19.
Revised PAS 19, paragraph 173, provides that an entity shall apply this standard
retrospectively. This means that any transitional effect of the application of the amendment under
PAS 19 shall be accounted for as adjustment of the beginning balance of retained earnings.

7. What is the treatment of unamortized past service cost and unrecognized actuarial gain
or loss upon adoption to the revised PAS 19?
Under the transitional provision of revised PAS 19, the unamortized past service cost and
unrecognized actuarial gain or loss shall be eliminated and accounted for retrospectively as an
adjustment of retained earnings.

8. Explain the report of a defined contribution plan and a defined benefit plan.
The report of a defined contribution plan shall contain a statement of net assets available
for benefits and a description of the funding policy. In preparing the “statement of net assets
available for benefits”, the plan investment shall be carried at fair value. When plan investments
are held for which an estimate is not possible, the reason why fair value is not used shall be
disclosed.
The report of a defined benefit plan shall contain either:
1. A statement that shows the net assets available for benefits, the actuarial present value
of promised benefits, distinguishing between vested and nonvested benefits, and the
resulting excess or deficit.
2. A statement of net assets available for benefits, including either a note disclosing the
actuarial present value of promised vested and nonvested benefits or a reference to
this information in an accompanying actuarial report.
The actuarial present value of promised benefits shall be based on benefits promised
under the terms of the plan using either current salary or projected salary levels, with disclosure
of the basis used. The report shall explain the relationship between the actuarial value of the
promised benefits and the net assets available for benefits, and the funding policy. As in the case
of defined contribution plan, investment of defined benefit plan shall be carried at fair value.

REFERENCES

You might also like