ACCA Strategic Professional · Strategic Business Reporting (International) · Employee benefits
Zeta Co operates a defined benefit plan. At the start of the year the present value of the defined benefit obligation (DBO) was $50m and the fair value of plan assets was $42m. The discount rate at the start of the year was 6%. No contributions or benefits were paid in the year. Under IAS 19 (revised), what is the net interest on the net defined benefit liability recognised in profit or loss?
The net interest is $0.48m expense. IAS 19 requires the discount rate to be applied to the opening net defined benefit liability of $8m, which is the DBO less plan assets, rather than to the obligation and the assets separately.
- A$0.48m expenseCorrect
- B$2.52m income
- C$3.00m expense
- D$2.52m expense
Explanation
Net interest is the discount rate applied to the opening net defined benefit liability: ($50m - $42m) x 6% = $0.48m, recognised as an expense in profit or loss. Applying 6% to the DBO alone gives $3.00m, and applying it to the assets gives $2.52m; both ignore that net interest is computed on the net amount.
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