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ACCA Strategic Professional · Strategic Business Reporting (International) · Employee benefits

Alder plc operates a defined benefit plan. On 1 July 20X5 it amended the plan, granting increased pension entitlement for service already rendered by employees. The amendment raised the present value of the defined benefit obligation by $4.2 million. Under IAS 19 Employee Benefits, how should Alder treat this $4.2 million?

The $4.2 million is recognised immediately in profit or loss as past service cost. IAS 19 no longer allows deferral over a vesting period, and past service cost is not a remeasurement, so it does not go to other comprehensive income.

  1. ARecognise it immediately in profit or loss as past service costCorrect
  2. BRecognise it in other comprehensive income and never reclassify it
  3. CSpread it over the average remaining vesting period of employees
  4. DAdjust it against the opening retained earnings as a prior period error

Explanation

Under IAS 19 (revised), past service cost arising from a plan amendment is recognised in profit or loss at the earlier of when the amendment occurs and when related restructuring costs or termination benefits are recognised. Deferral over a vesting period was removed. Remeasurements, not past service cost, go to OCI.

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