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IAS 19 Disclosures Example: Reconciliation of Present Value of Defined Benefit Obligation and Fair Value of Assets

In this and the following posts we will be looking at some of the disclosures[1] that are made under the IAS 19 requirement. In particular in this post we will look at the disclosure of the company’s accounting policy relating to recognition of actuarial gains and losses, plan description and reconciliation or movement in the present value of defined benefit obligation and fair value of assets:

According to Section 120 of IAS 19 the company would need to disclose, among other disclosure requirements, the following information:

a) Its accounting policy for recognizing actuarial gains and losses. For our example this may be as follows:

“LifeCorp. Inc. amortizes actuarial gains and losses, that fall outside the corridor limit as specified under sections 92 & 93 of IAS 19, on a straight line basis over the expected average remaining working lives of the employees participating in the plan.”

b) A general description of the type of plan. For our example this may be as follows:

“LifeCorp. Inc. offers a defined benefit gratuity plan to its employees. The plan pays a benefit equal to final monthly salary for each year of service. The total number of years of service that may be considered in the determination of the gratuity amount is subject to a cap of 40 years. The benefit is payable to the employees covered by the plan on normal retirement only. The normal retirement age under the plan is 60 years. No benefits are payable on account of death or disability while in service, termination, dismissal, withdrawal/ resignation from service.”

c) A reconciliation of opening and closing balances of the present value of the defined benefit obligation (PVDBO). For our example this is as follows:

Reconciliation of opening and closing balances of PVDBO for the year ended

12/31/2010

1Present value of Funded Gratuity Obligation- Actuarial Liability as at 31/12/2009 8,867.77
2Current Service Cost 1,108.47
3Interest Cost 1,152.81
4Actuarial (Gain) Loss on obligations; (6) – [(1)+(2)+(3)-(5)]

– 674.96

5Benefit Paid
6Present value of Funded Gratuity Obligation- Actuarial Liability as at 31/12/2010 10,454.09

Where, Interest Cost = Actuarial Liability as at 31-12-2009 * Discount Rate (2009) =8,8677.77*13%

Current cost is as determined in the Actuarial Valuation of the Gratuity plan for year ended 31-12-2009.

The Actuarial (gain) loss on obligations is the balancing figure= Actuarial Liability as at 31-12-2010 less Actuarial Liability as at 31-12-2009 less Interest Cost less Current Service Cost plus Benefits Paid during 2010.

d) A reconciliation of opening and closing balances of the fair value of plan assets. For our example this is as follows:

Reconciliation of opening and closing balances of Fair Value of Plan Assets for the year ended

12/31/2010

1Fair Value of Plan Assets as at 31/12/2009 8,000.00
2Expected return on Plan Assets 1,040.00
3Contributions Received 1,000.00
4Actuarial Gain (Loss) on assets; (6) – [(1)+(2)+(3)-(5)]

-40.00

5Benefit Paid
6Fair Value of Plan Assets as at 31/12/2010 10,000.00

Where, Expected Return on Plan Assets = Fair Value of Plan Assets as at 31-12-2009 * Expected Rate of Return (2009) =8,000*13%

The Actuarial gain (loss) on assets is the balancing figure = Fair Value of Plan Assets as at 31-12-2010 less Fair Value of Plan Assets as at 31-12-2009 less Expected Return on Plan Assets less Contribution Received during 2010 plus Benefits paid during 2010.

We have looked at disclosures related to the movement in the present value of defined benefit obligation and fair value of assets during the year. In the next post we will look at disclosures pertain to the reconciliation of the actuarial liability and fair value of plan assets to the assets and liabilities to be recognized in the balance sheet.

[1]According to an exposure draft of proposed amendments to IAS 19 published by the IASB in April 2010, there are significant changes proposed to the presentation approach for changes in the present value of defined benefit obligations and fair values of plan assets and improvements to the disclosures.

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