01 January 2010

IAS19 Employee Benefits

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. Which of the following events will cause a change in a defined benefit obligation?

  2. An entity has decided to improve its defined benefit pension scheme by increasing the benefits payable when staff retire. As a result, the current defined benefit pension liability will increase by USD15m. The average remaining service lives of the employees is 15 years

  3. An entity operates a defined benefit plan that pays employees a pension based on number of years service. It has for many years increased the pension in the final year by the percentage increase in profits over the last two years of working life. How will pensions be calculated if employees retire in the current period?

  4. How should an entity determine the discount rate to be used to discount cash flows relating to plan assets?

  5. An entity has identified the following business segments: Segment 1 has revenue of 70,000, all external. Its profit is 10,000 and its assets 50,000. Segment 2 has revenue of 35,000, of which 30,000 relates to sales to other segments of the entity. Its profit is 1,000 and is assets 4,500. Segment 3 has revenue of 13,000, all external. Its profit is 1,000 and its assets 5,000. Segment 4 has revenue of 12,500, all external. Its profit is 500 and its assets 3,000. All of the segments have different economic characteristics. Which, as a minimum, of the segments are reportable under IFRS 8?

  6. An entity uses IFRS to prepare its financial statements but the defined benefit obligation has been calculated using assumptions that are different from IFRS. How should the entity measure its net pension liability?

  7. An entity operates a defined benefit pension plan and changes it on 1 January 2008 to a defined contribution plan. The defined benefit plan still relates to the past service but not future service. The net pension liability after the plan amendment is USD170m and the net pension liability before the amendment was USD220m. How should the entity account for this change?

  8. At 1 January 2008, the following values relate to a defined benefit plan: the fair value of the plan assets is USD180m; present value of the defined benefit; obligation is USD150m; and there are cumulative unrecognised actuarial gains of USD33m. At 31 December 2008, the following values relate to the defined benefit plan: fair value of the plan assets has risen by USD10m; the present value of the defined benefit obligation has risen by USD6m; and the actuarial gain for the period is USD10m. The average remaining working lives of the employees is unchanged at 10 years. The entity has decided to use the corridor approach in recognising actuarial gains and losses. What is the actuarial gain or loss that would be charged against profit or loss for the year?

  9. Under the terms of a company pension plan, the company contributes 5 percent of an employee's salary to the plan. The employee is guaranteed a return of the contributions plus a terminal bonus of 20 percent by the employer. The plan would be classified as -

  10. Which of the following methods of recognition of actuarial gains and losses is not allowed by IAS 19?

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