ACCA Strategic Professional · Strategic Business Reporting (International) · Employee benefits
Fargo Ltd amends its defined benefit plan so that benefits for past service are improved. This increases the present value of the obligation by $2,400,000, relating to employees' service already rendered. Some employees have not yet vested in the improved benefits and will do so over the next three years. How should Fargo account for the $2,400,000 under IAS 19?
Fargo recognises the full $2,400,000 immediately in profit or loss as past service cost. IAS 19 requires this at the plan amendment date regardless of vesting, so the former practice of spreading cost over the vesting period is no longer allowed.
- ARecognise it immediately in profit or loss as past service costCorrect
- BRecognise it in other comprehensive income as a remeasurement
- CSpread it over the three-year vesting period in profit or loss
- DAdjust it against opening retained earnings
Explanation
Under current IAS 19, past service cost is recognised in profit or loss at the earlier of plan amendment date and when related restructuring costs or termination benefits are recognised, whether or not benefits are vested. Spreading over vesting was the old treatment. It is not an OCI remeasurement item.
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