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Hi sir, having trouble understanding the double entry in this particular question I encountered in the BPP revision kit and would like to clarify. Here goes,
The opening balance shows an asset of 72 (which indicate that the liability element is lower than the planned asset thus resulting in an asset being shown on the balance sheet) throughout the year, current service cost and the net interest equate to 55 ,the actuarial re-measurement loss on the planned asset is 19, and the contribution for the year is 45. At the year end, the SOFP shows an asset with the amount of 18.
Therefore, the working that I have done, is to take 72-55-19+45-18=25. The ’25’ represent the re-measurement loss from the defined benefit liability.
Here is the double entry part,
DR PorL 55 CR define benefit liability 55,
DR oci 19 CR planned asset 19,
DR oci 25 CR define benefit liability 25,
the remaining entry of 45 should be,
DR planned asset 45 CR cash 45.However the answer provided in the BPP revision kit is
DR planned asset 45 CR current liability 45,
I am so puzzled by this entry. Please enlighten me!Yes, that’s got me stumped too! From the information you have given me I concur with the entries that you have detailed.
Are you sure that you have given me all the relevant information?
Ok sir, I shall quote the entire verse from the BPP kit,
The actuarial value of traverler’s pension plan showed a surplus at 1 dec 20×0 of 72 million. Losses of 25 million on re-measurement of the net defined benefit asset are to be recognized in other comprehensive income in accordance with IAS 19(revised 2011). The aggregate of the current service cost and the net interest amounted to a cost of 55 million for the year. After consulting with the actuaries, and the company decided to reduce its contribution for the year to 45 million. The contributions were paid on 7 nov 20×1. No entries had been made in the financial statements for the above amounts. The present value of available future refunds and reductions in future contribution was 18 million. Unquote.
End of reporting period is on 30 nov 20×1
The version I am using is BPP revision kit for exams up to June 2015, question 44, traveler.
It is the sixth entry in the question.2 points!
1) You haven’t told me the precise question requirement
2) page 77 of the free opentuition course notes may provide the solution! The value of a defined benefit scheme asset shall not exceed the aggregate of the present values of refunds and reductions.
In your question, it seems that the loss of 25 per the actuary is understated. Using the values for brought forward 75, contributions 45, net csc and interest 55 the carry forward should be 65.
However, the losses per question are just 25 giving a carry forward of 37. But therein lies the problem – the asset of 65 (before accounting for the loss) should not exceed the aggregate present value of refunds and reductions and that value is given as 18
In order to arrive at this revised carry forward value, the loss that needs to be recognised is 47 (65 – 18) so instead of the journal Dr OCI 25 Cr Defined Benefit Liability 25 we need to replace that journal with Dr OCI 47 Cr Defined Benefit Pension Scheme Account 47 (it seems that the question is operating a single defined benefit account combining plan assets with future obligations into a single Defined Benefit Pension Scheme Account)
This now leads me on to two further problems!
1) the figure about which you are confused is 45 and not 47, and
2) I have no idea what the journal entry Dr Planned Assets 45, Cr Current Liabilities 45 relates to
Does this make any more sense to you?
The DR planned asset 45 CR current liability 45,
Relates to the contribution made by the entity and the question is a consolidation question and asked us to present a consolidated statement of financial position.Regarding the points mentioned, I don’t understand the concept of asset ceiling.
However the answer that I double check a lot of times, shows a define planned asset carrying at 18 and a current liability that increases by 45 at the year end.
So, we’re agreed on the value of the asset to carry forward at 18 – that’s because of this restriction that says that a pension asset cannot be carried at a value that exceeds the aggregate of the present values of any reductions and refunds.
There’s not a lot to understand in the logic – just remember that there is this ceiling cap relating to the carrying value of a pension fund asset!
Now you have explained the 45 it’s easier to see! If the entries have not been recorded and we need to put them through, Dr Defined Benefit Pension Scheme Account 45 and Cr Cash 45
In your original post you have given me the journal entry Dr planned asset 45 Cr current liability 45
Now I still don’t understand the credit to current liabilities so I can’t help there but at least I can show you why the asset is restricted to 18
Is that enough for you?
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