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

Delta Group acquired Sigma Co during the year. At the acquisition date Sigma had a defined benefit plan in deficit by $6m, which Delta's finance team has excluded from the acquisition accounting on the basis that it is 'contingent on future experience'. Subsequently the finance director suggests recognising the deficit directly in post-acquisition other comprehensive income to protect consolidated profit. Which treatment is correct under IFRS Accounting Standards?

The $6m deficit must be recognised at acquisition date as a liability assumed, measured under IAS 19, reducing net assets acquired and increasing goodwill. Excluding it or recognising it later through OCI or profit or loss to manage results is incorrect and raises ethical concerns.

1. AExclude the deficit permanently, as plan deficits are not liabilities of the acquirer
2. BRecognise the $6m net defined benefit liability at acquisition date as an assumed liability in the net assets acquired, measured under IAS 19, which affects goodwillCorrect
3. CRecognise the deficit in post-acquisition other comprehensive income only
4. DRecognise the deficit as a provision in profit or loss in the first post-acquisition period