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CFA Level I · CFA Level I Exam · Topics in Long-Term Liabilities and Equity

Under IFRS, a company reports a defined benefit obligation of 540 million and plan assets at fair value of 480 million at year-end. The amount most likely reported on the balance sheet related to the plan is a:

The company most likely reports a net pension liability of 60 million. Funded status is plan assets of 480 million minus the defined benefit obligation of 540 million, which is a 60 million deficit, and IFRS reports this net underfunded amount on the balance sheet.

  1. Anet pension asset of 60 million
  2. Bnet pension liability of 60 millionCorrect
  3. Cnet pension liability of 540 million

Explanation

Funded status = plan assets 480 − obligation 540 = −60 million. Under IFRS the net underfunded amount is reported as a net defined benefit liability of 60 million. Reporting the gross obligation of 540 million ignores the offsetting plan assets.

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