When an employee has rendered service to an entity during a period, the entity shall recognize the contribution payable to a defined contribution plan in exchange for that service: Page | 1
Part 5 – Chapter 2: Employee benefits (IAS 19) D EFINED BENEFIT PLANS Accounting by an entity for defined benefit plans involves the following steps: (a) Determining the deficit or surplus (b) Determining the amount of the net defined benefit liability (asset) (c) Determining the amounts to be recognised in profit or loss (d) Determining the remeasurements of the net defined benefit liability (asset) to be recognised in other comprehensive income. D ETERMINING THE DEFICIT OR SURPLUS The deficit or surplus is determined by deducting the fair value of any plan assets from the present value of the defined benefit obligation. P RESENT VALUE OF THE DEFINED BENEFIT OBLIGATION The present value of a defined benefit obligation is the present value of expected future payments required to settle the obligation resulting from employee service in the current and prior periods. The actuarial technique that is used to estimate the ultimate cost of the entity of the benefit that employees have earned in return for their service in the current and prior period is called the projected unit credit method. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. The projected unit credit method is also known as the accrued benefit method pro-rated on service or as the benefit/years of service method. Each period gives rise to an additional unit of benefit entitlement and each unit is measured separately to build up the final obligation. In order to estimate the defined benefit obligation resulting from a defined benefit plan actuarial assumptions have to be made. These assumptions have to be unbiased and mutually compatible and are the entity’s best estimates of the variables that will determine the ultimate cost of providing the post employment benefit Demographic assumptions are assumptions about the future characteristics of current and former employees (and their dependants) who are eligible for benefits, such as mortality, rates of employee turnover, disability and early retirement,… Financial assumptions shall be based on market expectations at the end of the reporting period over the period over which the obligations are to be settled, and deal with items such as the discount rate, which will be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. FAIR VALUE OF THE PLAN ASSETS Plan assets comprise assets held by a long-term employee benefit fund and qualifying insurance policies.
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- Summer '17
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