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

Dunmore Group's subsidiary Evra Co participates in a multi-employer pension plan that is defined benefit in nature. Evra cannot obtain sufficient information to account for its share as a defined benefit plan, and the plan is not a state or common-control plan. The plan administrator has said Evra will have to pay a contractually agreed deficit-funding schedule of $0.4m annually for four years. Which treatment is consistent with IAS 19 in Evra's financial statements?

Evra should account for the plan as defined contribution because it lacks sufficient information, but it must recognise a liability and expense for the contractually agreed deficit-funding payments. Ignoring them until paid is wrong, as the agreement creates a present obligation.

  1. AAccount for it as a defined contribution plan, expensing contributions, and recognise a liability for the agreed deficit-funding amounts to the extent they arise from an agreementCorrect
  2. BAccount for it as a defined contribution plan and ignore the deficit-funding agreement until paid
  3. CEstimate the share of the deficit and recognise it in other comprehensive income only
  4. DDo not recognise anything and disclose only the existence of the plan

Explanation

Where sufficient information is unavailable, IAS 19 requires a multi-employer defined benefit plan to be accounted for as defined contribution, with disclosures. If there is an agreement determining how a surplus or deficit will be funded, the entity recognises a liability for the contributions payable under it, with an expense. Ignoring the agreement until paid is wrong, as it creates an obligation.

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