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- This topic has 3 replies, 2 voices, and was last updated 6 years ago by P2-D2.
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- May 23, 2018 at 10:53 pm #453674
Hello tutor,
In what circumstances do we recognise curtailment/settlement loss or gain in the defined benefit liability?
I notice that the treatments in both of these questions are different:
Question 1 (March 2017)
The company announced that it was to close down a business division and agreed to pay each of its 150 staff a cash payment of $50,000 to compensate them for loss of pension arising from wage inflation. It is estimated that the closure will reduce the present value of the pension obligation by $5·8 million.The answer did not add the curtailment loss of $1.7m to the net defined obligation but instead reduced the obligation by only $5.8m.
Question 2 (September 2015)
A payment of $3 million was made out of the cash of the pension scheme in relation to employees who left the scheme. The reduction in the pension scheme liability as a result of the curtailment was $4 million. The actuary has assessed that the scheme is in deficit by $17 million as at 31 October 2015.The answer deducted the curtailment gain of $1m from the Net defined obligation.
What could possibly account for the difference in treatment?
May 24, 2018 at 1:31 pm #453739Hi,
When we account for the curtailment we will need to adjust to the value of the net pension asset/obligation.
In the first scenario the payment hasn’t been made and instead we’re told how much these payments will reduce the pension obligation by. We therefore need to process the entry that gives the reduction.
In the second scenario the payment has been made and the change is given also, we therefore need to process both of the entries, thus the net effect of $1m.
Thanks
May 25, 2018 at 10:32 pm #453983I see, thank you so much for the clarification. Hope you enjoyed your vacation 🙂
May 28, 2018 at 8:23 pm #454476It was fun, thanks. Good luck next week.
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