ACCA Strategic Professional · Strategic Business Reporting (International) · Employee benefits
Birch Co has a defined benefit plan. Before a plan amendment, the net defined benefit liability was $10.0 million, and the plan has no asset ceiling issues. On 1 January 20X6 Birch amended the plan, reducing future benefits for past service, which cut the obligation by $1.5 million. Birch had planned this as part of a restructuring but had not yet recognised any restructuring provision. Which statement is correct?
Birch recognises a $1.5 million negative past service cost in profit or loss on the amendment date. IAS 19 requires immediate recognition of both increases and decreases in obligation caused by plan amendments, with no deferral and no OCI treatment.
- ARecognise a $1.5 million negative past service cost in profit or loss when the amendment occursCorrect
- BRecognise the $1.5 million reduction in other comprehensive income
- CDefer the $1.5 million gain and amortise it over remaining service lives
- DIgnore the reduction until benefits are actually paid to members
Explanation
A reduction in benefits for past service is a negative past service cost, recognised immediately in profit or loss at the date of the amendment (or earlier if related restructuring costs are recognised). It is not deferred and not taken to OCI. Here the amendment date comes first, so the gain is recognised on 1 January 20X6.
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