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how to treat past service cost ? the period in which the cost incurred or spread it over like in the question.
Q:Jocatt operates a defined benefit scheme. The current service costs for the year ended 30 November 2010 are
$10 million. Jocatt enhanced the benefits on 1 December 2009 however, these do not vest until 30 November
2012. The total cost of the enhancement is $6 million. The expected return on plan assets was $8 million for
the year and Jocatt recognises actuarial gains and losses within other comprehensive income as they arise.ans.Defined benefit scheme
Opening balance at 1 December 2009 22
Current service costs 10
Past service costs ($6m/3) 2
Expected return on assets (8)
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Charge to income statement 4
Actuarial losses 6
Contributions paid (7)
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Closing balance at 30 November 2010 25I imagine that the printed solution has not been updated for the changes to IAS 19 ( for example there is now no separate calculation for expected return on plan assets )
However, if the past service costs do not vest for three years, then I can see the sense in spreading that cost. But there again, I can’t! If they literally relate to “past service” then they have already vested. The pensioners may not receive the benefit of them for three more years, but a “past service cost” is literally that – it relates to a service received in the past
And where in the answer you have provided is the Interest Cost ( net of the expected return? )
thanks for the prompt reply..its a past paper question of Dec 2010 and no interest cost is given there..as far as i understand is that now any changes which relates to past or already taken benefit from i-e service comes under the head of remeasurements under new ias 19 ..and is charged in the year in which arise plus any gains/loses taken immediately to P/L..thats what i able to understand..kindly shed some light on the matter i appreciate that.
I stand by my previous post – if it’s a past service cost, then it should be recognised immediately. If the revision to the scheme relates to current employees, then the revision is spread over the vesting period in so far as it has not already vested.
Please let me know if you find out differently!
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