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

Omega Co has a defined benefit plan with a surplus of $4m. The asset ceiling, based on available refunds and reductions in future contributions, is $1.5m. The finance director wants to recognise the full $4m asset because the plan is 'legally Omega's money'. What amount should be recognised in the statement of financial position under IAS 19?

Omega should recognise $1.5m, the lower of the $4m surplus and the $1.5m asset ceiling. Recognising the full $4m would overstate assets, and the $2.5m difference is the restriction effect, which goes through other comprehensive income, not the asset itself.

  1. A$4.0m, since the surplus belongs to the plan sponsor
  2. B$2.5m, being the surplus less the ceiling
  3. C$1.5m, being the lower of the surplus and the asset ceilingCorrect
  4. DNil, because surpluses are never recognised

Explanation

IAS 19 limits the net defined benefit asset to the lower of the surplus and the asset ceiling, the present value of economic benefits available. Here min($4m, $1.5m) is $1.5m. Recognising $4m overstates assets, and $2.5m is the amount of the restriction, not the asset.

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