Strategic Business Reporting (International) · Employee benefits

IAS 19 Defined Benefit Costs: P&L and OCI Recognition

Updated 11 October 2026 · Fact-checked

Under IAS 19, defined benefit cost has three parts. Service cost and net interest on the net defined benefit liability go to profit or loss. Remeasurements, such as actuarial gains and losses and return on plan assets above the interest amount, go to OCI. To solve it, build the obligation and asset reconciliations, then split the movement.

Understand Defined Benefit Costs: P&L and OCI Recognition

In a defined benefit plan, the employer promises a set pension. The employer carries the risk. So the statement of financial position shows the net defined benefit liability (asset): the present value of the obligation less the fair value of plan assets.

Every movement in that net figure must go somewhere. IAS 19 sorts the movements into three groups.

Service cost (profit or loss): current service cost, plus past service cost and gains or losses on settlement. It reflects benefits earned by employees.
Net interest (profit or loss): the unwinding of the discount on the net liability, shown as a finance cost.
Remeasurements (OCI): actuarial gains and losses on the obligation, return on plan assets excluding the amount in net interest, and changes in the effect of the asset ceiling excluding interest.

Remeasurements are not reclassified to profit or loss in later periods. You may transfer them within equity, but they never pass through profit or loss.

Net interest uses one rate for both sides: the discount rate set at the start of the year, based on high-quality corporate bonds. You apply it to the opening net liability. This means the expected return on assets is no longer a separate profit item. Any actual return above or below the discount rate goes to OCI.

The cleanest way to see all this is two reconciliations, one for the obligation and one for the plan assets. Whatever is not service cost or interest, and is not a cash flow, is a remeasurement.

Key rules to remember

Net defined benefit liability (asset): Present value of obligation − Fair value of plan assets; A negative result is a net asset, limited by the asset ceiling.
Net interest: Net defined benefit liability at start of year × discount rate, adjusted for contributions and benefits paid in the year; Use the discount rate at the start of the year. Equals interest on obligation minus interest on assets.
Obligation reconciliation: Opening + current service cost + interest cost + past service cost + actuarial losses (− gains) − benefits paid = Closing; The actuarial figure is usually the balancing figure.
Plan assets reconciliation: Opening + interest income + contributions + return on assets excluding interest (− loss) − benefits paid = Closing; Return excluding interest is usually the balancing figure.
Profit or loss charge: Current service cost + past service cost + settlement loss (− gain) + net interest; Service cost may sit in operating costs. Net interest is a finance cost.
OCI remeasurement: Actuarial (gain) loss on obligation − (Return on plan assets excluding interest) + change in asset ceiling effect excluding interest; Not reclassified to profit or loss.
Net liability roll-forward: Opening net liability + P&L charge + OCI loss (− gain) − contributions = Closing net liability; Use as a check on your split.

How to solve Defined Benefit Costs: P&L and OCI Recognition questions

Use this method for any question that asks for the defined benefit expense, the OCI amount, journals or the closing position.

1List the data: opening obligation and assets, discount rate, current service cost, contributions, benefits paid, and closing values. Note the timing of cash flows.
2Calculate interest on the opening obligation and interest on opening assets at the opening discount rate. Adjust for contributions and benefits paid part-way through the year. Net interest is the difference.
3Build the obligation reconciliation. Insert service cost, interest and benefits paid. The balancing figure to the closing obligation is the actuarial gain or loss.
4Build the plan asset reconciliation. Insert interest, contributions and benefits paid. The balancing figure to closing fair value is the return excluding interest.
5Total the profit or loss items (service cost plus net interest) and the OCI items (actuarial movement net of asset return).
6Write the journals: service cost and net interest to profit or loss, remeasurement to OCI, contributions against the liability.
7Check by rolling forward the net liability: opening + P&L + OCI loss − contributions should equal closing. Then state the closing amount for the statement of financial position.

Quickest way: Net liability roll-forward shortcut

When to use it: Use when the question gives opening and closing net positions and asks only for the total OCI figure, or when you need a quick check on your split.

Calculate opening net liability and closing net liability.
Calculate P&L charge: current service cost plus past service cost plus net interest.
Roll forward: opening + P&L charge − contributions.
The difference between that figure and the closing net liability is the net remeasurement. A higher closing liability means an OCI loss.
Cross-check against the two reconciliations if time allows.

Common mistakes in Defined Benefit Costs: P&L and OCI Recognition

Putting actuarial gains and losses in profit or loss.
Older practice allowed deferral or recognition in profit or loss, so students carry that habit over.
Fix: Under current IAS 19 all remeasurements go to OCI and are never reclassified to profit or loss.
Using the expected return on plan assets as income in profit or loss.
Pre-2013 versions of IAS 19 used an expected return, and many old notes still show it.
Fix: Use the discount rate on assets as well. Only the net interest goes to profit or loss. Actual return less interest income goes to OCI.
Applying the closing discount rate or closing balances to calculate interest.
Students use the most recent figures given.
Fix: Use the opening net liability and the discount rate at the start of the year. Adjust only for cash flows during the year.
Including benefits paid as an expense, or ignoring them in one reconciliation.
Benefits paid look like a cost.
Fix: Benefits paid reduce both the obligation and the plan assets by the same amount. They are not an expense and have no net effect on the net liability.
Treating contributions as a P&L expense in a defined benefit plan.
It is how defined contribution plans work.
Fix: Contributions are paid into the plan assets and reduce the net liability. The expense is the service cost and net interest.
Getting the sign of the OCI figure wrong.
Two balancing figures with opposite effects get mixed up.
Fix: An actuarial loss and a lower return on assets both increase the net liability, so both are OCI losses. Use the roll-forward check.

Worked examples

Example 1

At 1 January, Delta Co has a defined benefit obligation of $500m and plan assets of $450m. The discount rate is 6%. In the year, current service cost is $40m. Contributions of $30m and benefits of $25m were paid on 31 December. At 31 December the obligation is $580m and plan assets have a fair value of $490m. Calculate the amounts in profit or loss and OCI, and give the journals.

Show the solution

Opening net liability = 500 − 450 = $50m. Net interest = 6% × 50 = $3m (interest on obligation $30m less interest on assets $27m).
Obligation: 500 + 40 service cost + 30 interest − 25 benefits = 545. Closing is 580, so the actuarial loss is $35m.
Assets: 450 + 27 interest + 30 contributions − 25 benefits = 482. Closing is 490, so the return excluding interest is a gain of $8m.
Profit or loss = 40 + 3 = $43m.
OCI = loss 35 − gain 8 = net loss of $27m.
Check: closing net liability = 580 − 490 = 90. Roll-forward: 50 + 43 + 27 − 30 = 90. This agrees.
Journals: Dr Profit or loss (service cost) 40, Cr Net DB liability 40. Dr Profit or loss (net interest) 3, Cr Net DB liability 3. Dr OCI (remeasurement) 27, Cr Net DB liability 27. Dr Net DB liability 30, Cr Cash 30.

Answer: Profit or loss charge $43m ($40m service cost plus $3m net interest). OCI net remeasurement loss $27m. Closing net defined benefit liability $90m.

Example 2

At 1 January, Omega Co has an obligation of $800m and plan assets of $650m. The discount rate is 5%. Current service cost is $60m. On 1 July, the company paid contributions of $36m into the plan and the plan paid benefits of $40m. At 31 December the obligation is $870m and plan assets are $700m. Calculate the net interest, the remeasurement in OCI and the profit or loss charge.

Show the solution

Interest on obligation: 800 × 5% = 40, less benefits paid 40 × 5% × 6/12 = 1. Interest cost = $39m.
Interest on assets: 650 × 5% = 32.5, plus contributions 36 × 5% × 6/12 = 0.9, less benefits paid 40 × 5% × 6/12 = 1. Interest income = $32.4m.
Net interest = 39 − 32.4 = $6.6m. Check: opening net liability 150 × 5% = 7.5, less contributions 36 × 2.5% = 0.9, gives 6.6.
Obligation: 800 + 60 + 39 − 40 = 859. Closing is 870, so the actuarial loss is $11m.
Assets: 650 + 32.4 + 36 − 40 = 678.4. Closing is 700, so the return excluding interest is a gain of $21.6m.
OCI = gain 21.6 − loss 11 = net gain of $10.6m.
Profit or loss = 60 + 6.6 = $66.6m.
Check: opening 150 + 66.6 − 36 − 10.6 = 170, which equals closing 870 − 700.

Answer: Net interest $6.6m. Profit or loss charge $66.6m. OCI net remeasurement gain $10.6m. Closing net defined benefit liability $170m.

Exam tips

Draw the two reconciliations in columns, one for obligation and one for assets. Marks are given for each correct line even if the balancing figure is wrong.
State the classification explicitly: profit or loss versus OCI, and that OCI is never reclassified. Many students lose the easy mark for the explanation.
Check whether cash flows happen mid-year. If the question gives dates, adjust net interest for them. If it gives none, assume year-end.
In SBR you may need to explain why the net liability changed, or comment on the effect on profit and gearing. Link the numbers to the commentary, not just the calculation.
Finish with the closing net liability and tie it to the statement of financial position. It shows that your split is consistent.

Practice questions from Employee benefits

Defined Benefit Costs: P&L and OCI Recognition in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Defined Benefit Costs: P&L and OCI Recognition: frequently asked questions

What goes to profit or loss and what goes to OCI under IAS 19?

Current service cost, past service cost, settlement gains or losses and net interest go to profit or loss. Remeasurements go to OCI. These are actuarial gains and losses, return on plan assets excluding interest, and asset ceiling changes excluding interest.

How do I calculate net interest on the net defined benefit liability?

Multiply the opening net liability by the discount rate at the start of the year. Adjust for contributions and benefits paid during the year, weighted by time. It equals interest on the obligation minus interest on the plan assets.

Can remeasurements in OCI ever be recycled to profit or loss?

No. IAS 19 does not allow reclassification to profit or loss in a later period. You may transfer the amount between components of equity, such as to retained earnings, but it does not pass through profit or loss.

What is the journal entry for a defined benefit plan?

Debit profit or loss and credit the net defined benefit liability for service cost and net interest. Debit OCI and credit the liability for a remeasurement loss, and reverse this for a gain. Debit the liability and credit cash for contributions paid.