ACCA Strategic Professional · Strategic Business Reporting (International) · Employee benefits
Corvus Co's defined benefit plan at 31 December 20X5: present value of obligation $12.0m; fair value of plan assets $10.5m. The asset ceiling is not an issue. Corvus pays all contributions into the plan. Which statement correctly describes the balance sheet treatment under IAS 19?
Corvus recognises a net defined benefit liability of $1.5m, being the $12.0m present value of the obligation less $10.5m fair value of plan assets. Payment of contributions into a separate fund does not remove the deficit for a defined benefit plan.
- ARecognise a net defined benefit liability of $1.5mCorrect
- BRecognise a net defined benefit liability of $12.0m and a separate asset of $10.5m offset against equity
- CRecognise no liability, since the contributions have been paid to a separate fund
- DRecognise a net defined benefit asset of $1.5m
Explanation
IAS 19 requires the net defined benefit liability (asset) to be the present value of the obligation less the fair value of plan assets: 12.0 - 10.5 = 1.5m liability. Paying contributions to a separate fund does not remove the deficit for a defined benefit plan. Offsetting against equity is not permitted.
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.
More Employee benefits questions
- 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…
- Rho Co's finance director proposes to raise the discount rate used for the defined benefit obligation from 4% to 6%, citing a high-yield cor…
- Vale Co has a net defined benefit liability. For the year, the opening obligation was $10,000,000 and opening plan assets $9,000,000, with a…
- Belmont Co operates a pension plan where it pays contributions to an insurer and promises employees a pension of 1/60 of final salary per ye…
- Kappa Co's directors wish to raise the discount rate used for its defined benefit obligation from 4% to 5.5%, based on yields on lower-rated…
- Parent Co acquired Sub Co, which operates a defined benefit plan. In Parent's consolidated financial statements for the year after acquisiti…