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I seemed to be following employee benefits fairly well up until the course notes and the lectures went their own separate ways. I hope you will rescue us from all the confusion by updating the Lecture Video for the ‘not so far’ June 2013 exams.
PS: You are a life saver and a LEGEND!
The example 2 illustrated in the video was not the same the as the lecture note for June 2013. Kindly advise whether the new version will be uploaded to reflect the solution for the new example 2 question. Thanks
I refer to the printed solution and noted for year 2, that the additional obligation is not considered in the net interest calculation. Interest is (1046-915)*8% instead of (1046+60-915)*8%. Is this correct and why is the additional obligation not considered for the roll up in 2010? Many thanks for an answer in advance.
@ojss, Ok, ok! I am aware that the answer is now out of date – see my reply to the post from two strings ago. The net interest cost should be calculated on the net figure of “brought forward obligation + 60,000 – brought forward plan assets.
There’s now no Expected Return on Plan Assets, no 10% corridor, no Re-measurements.
Yes, I know! I have to re-record. But that’s not going to happen in time for the December 2012 exams. Sorry
@MikeLittle, sorry that I bothered you. I understood that the recording is outdated. But I thought that you said that the course notes are up to date and reflect the changes. Thats why I asked, refering only to the notes.
Many thanks for the quick answer.
I think the course notes ARE up to date – though I may have missed in the course notes the increase of 60,000 at the start of the year. Certainly the course notes have eliminated the 10% corridor and show the NET interest cost.
The old method (with 10% corridor and deferring past service cost) is still valid for 2012. But in fact many companies chose to apply the changes in IAS 19 earlier (especially when this application lead to an increase in retained earnings and/or in equity).
In my country, we have problems with the treatment of deferred taxation on these remeasurements (unrealised actuarial gains and losses). We had accrued in the past deferred tax on them, but now it is not clear, whether and how, they could be deducted for tax purpose because their amount is restated and transferred as an equity component. Does someone have the same problem?
The lecture not updated,,the question is dfferent from what is in the notes for Decembr,2012.
Update lectures pls.
@ulemu25, Yes, ok, ok! I’ll no doubt get to it over Winter, but there’s no way I can do it before the December 2012 exams
I noticed that the 10% corridor is not given in the answers
Is it still applicable?
@najihnw, Apparently there is an amendment to IAS 19 which no longer allows the usage of the “corridor” method, however the actuarial gains and losses are to be recognised in the period incurred. So there are no longer any “unrecognised gains/losses”. I guess the lecture doesn’t reflect that!
@tashietash, You’re absolutely correct – the notes DO reflect the revision but the lecture is now not up to date
where did the 7.5% and 8.5% come from?
@sadie, given in the question? – But this has now changed so that expected return on assets and interest cost rate shall now both be the same rate
I’m sure that 30 = 930-900 as now we should account net interes cost which is effected by multiplying the NET surplus/deficit in the plan at the beginning of the period by the rate
IAS 19 was changed in June 2011 and P2 in June 2012 has to include the change. Does this lesson fit June 2012 session?
@oandrienko, I dont think so am puzzled too becase the question in the notes has been revised so I have completely disregarded and used the answer at the back of the notes however I havent got a clue how the numbers in the answers we put together for instance interset was on $30000 , where did the number come from??? Hopefully Mike will be able to do an updated lecture fingers crossed
@mmariba2000, maybe that $30000 is got from PV – FV (930-900)…not sure too
@sukiyo0824, I’m sure that 30 = 930-900 as now we should account net interes cost which is effected by multiplying the NET surplus/deficit in the plan at the beginning of the period by the rate
@judi, The revision to IAS 19 has not been incorporated into recorded lectures. The revisions HAVE been reflected in the course notes and the notes therefore ARE applicable for December 2012 ( as they were also for June 2012 )
Can anyone tell me what the 35 for past service costs for current employees is carried forward as? Whats the double entry:
Credit PVof FO – 60 (SOFP)
Debit PSC FE – 20 (I/S)
Debit PSC CE – 5 (I/S)
recalculate ur figure you will get your aner its 35 not 45
hey bro outsatndng is 35 not 45 recalculate it 20plus 5=25
25=60 which is total cost and remaining deffered past sevice cost is 35 which will be vested after 7 years hope you got youranswer
Hello Mr Little. Thanks for a wonderful lecture.
I have a question. In recognising the past service costs, what accounting entries were passed. My tots are
Dr Expense – 20,000 (for retired empees)
Dr Expense – 5,000 (for the existing empee’s one year portion of remaning pension earning life) – assumed
Cr Defined benefit obligation(DBO) – 60,000 (total past service cost)
outstanbding – 45
Where does the rst of the debit go?
im still confused, need help :-s
thanks a lot! this is great!
ok been through this again in detail and I think the sun is starting to shine through the clouds a little now…………. starting to actually want one of these questions in the exam!!
think I need to watch this one back a few times – thanks for providing such a comprehensive worked example
Is he (Mr. Little) who does the lecture for P1 on opentution for last sitting?
Yes he is
Hi Mr Little or anyone
should we use $1046,000 as the b/f amount or $1106,000(1046+60k being the psc) when applying the 10% corridor for 2005?
In the lecture you used 1106 x10% -115.4= $4800. Recognise over 8 years hence $600
This is different from the model answer on Page 229 where 1046×10% -115.4= $10800/8, $1350!!
explained in unequivocal language…big brains Mr Little
“It’s the brought forward fair value + the amounts paid in + the expected return on plan assets.” Sorry – it’s the brought forward ACTUARIAL VALUE + etc
Because 929.5 is not the actual value! It’s the brought forward fair value + the amounts paid in + the expected return on plan assets.
Of those three amounts, only the amount paid in is certain. the brought forward amount is last year’s actuarialvalue and the expected return is just an expectation.
The theoretical value which would hope to have is 929 – but along comes our bl**dy actuary and says “The fair value of your plan assets is only 915″
That’s why we have made a loss.
Same question goes for other three actuarial gains/losses!
I am OK with everything else but I don’t get one important point.
$915 is the actuarial valuation of FV of PA’s. And the actual value of PA’s turns out to be $929.5 .
Which is greater than actuarial value. Then why are you treating $14.5(929.5-915) as an actuarial LOSS?
Isn’t it supposed to be an actuarial GAIN? Because actual value is greater than expected value!
please help me get Bpp Q62 and 63 for P2. Thank u for ur assitance.
okay ignore my question. it’s not future value. it’s fair value :/
Mr.Little, my question is that when we are adding the “amounts paid in to the plan” of 102,000 to the FV of Plan Assets, why are we not adding the FV of the 102,000? or why don’t we add it to the present value of the PA?
the question says that one third of the 60000 psc relates to former employees, so 20000 expensed immediately and 40000 are deferred. At year end 1\8 (average of 8 more years of pension earning eployment) of the 40000 are expensed so another 5000. so total expensed 25000
Did the question indicate how to split the past service cost? if not on what basis was the psc shared pls explain
when compare cumulative unrecognised actuarial G/L 0f 115,4 with 10% corridor is (10%*PV of FO=104,6+6,0=110,6) and difference is 4,8. But in the answer in lecture is to compare cumulative unrecognised actuarial G/L 0f 115,4 with 10% corridor is (10%*PV of FO=104,6) and difference is 10,8. Please help me!
i have the same queries regarding c/f bal. of Yr2005 for “PV of FO” : should we use $1,046 as given to calculate Int. Cost ($1,046 * 8% = 83,680), or shall we use $1,046 + $60 = $1,106 * 8% = 88,480 ? btw, the website and the lecture is really helpful to me! appreicate it!
Interest Cost = (PV of Defined Benefit Obligation + Past Service Cost)*Discount Rate
nice lecture.many thanks. one question:in the last bit, when calculating the net liability, why the 35000 and 106695 go with 940000. I thought they are should be added to the 1135, because they are the losses
Aquafire – you’re absolutely correct. It’s a matter of adding all the debits ( plan assets, ugly debits, past service deferred costs ) and deducting from the aggregate credit balances ( pv of future obligation and unrecognised ugly credits )
It really is a summary exercise of adding the debits and deducting that total from the aggregate credits
@ unzablu : I think since we are finding the net position of the pension fund, we are just finding the difference between the credit balances and debit balances. Since it is the plan asset and ugly a/c are debits we are subtracting from credit balance of future obligation.
That is what i undertood – not 100% sure.Anyone please correct me if I am wrong.
thanks for the quick response, however still confused on why a loss is not reducing our plan asset.or should i take it that we should always add the ugly a/c to the plan asset. in what cases does the ugly a/c reduce the plan asset?
Because it’s an accumulated unrecognised loss. When this loss is recognised ( either by the 10% corridor approach or under the company’s own accounting policy ) it will be debited to the Statement of Income. The Ugly account is a debit balance and is therefore ADDED to plan assets when calculating the NET position for the pension fund.
We’re back in the realms of F3, debits and credits!
why is he adding ugly account to plan assets i thought subtracting is ideal because its a net loss help please
for the first time in my entire life i understand how to deal with pensions
noted with care thanks a million! =)
anyone can explain where to go get recognise 20 and 40??
Split of the $60,000 additional obligation into
1/3 former employees = $20,000
2/3 current employees = $40,000
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