Skip to content

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

At 1 January 20X5 Tarn Co had a defined benefit obligation of $5,000,000 and plan assets at fair value of $4,200,000. The discount rate is 6%. Current service cost for the year is $300,000. Contributions of $250,000 were paid and benefits of $200,000 were paid, both on 31 December 20X5. What total amount is charged to profit or loss for the year under IAS 19?

The profit or loss charge is $348,000: current service cost of $300,000 plus net interest of $48,000, being 6% of the opening net deficit of $800,000. Contributions and benefits paid at year end do not affect the charge.

  1. A$348,000Correct
  2. B$300,000
  3. C$252,000
  4. D$392,000

Explanation

Net deficit at start is $800,000, so net interest is 6% x 800,000 = $48,000. Profit or loss charge = service cost 300,000 + net interest 48,000 = $348,000. Using 6% on the gross obligation (300,000) gives a wrong interest figure, and subtracting the interest ($252,000) is a sign error.

Did you get it right without looking?

One question tells you little. A timed set on Employee benefits shows your real accuracy, how long you take and where you lose marks.

Practise Employee benefitsFree diagnostic mock

More Employee benefits questions