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current service cost- Handfood co S/D 20 b)ii)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › current service cost- Handfood co S/D 20 b)ii)

  • This topic has 5 replies, 3 voices, and was last updated 3 years ago by Stephen Widberg.
Viewing 6 posts - 1 through 6 (of 6 total)
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  • August 29, 2021 at 7:54 am #633306
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    sir reduction in probability of employees leaving and increase in salaries can either be classified as actuarial/remeasurement losses or as increase in current service cost. How can it be both?

    current service cost (increase in PV of obligation) will be charged in SPL and actuarial losses are also charged in SPL , so essentially SPL reduces by double the amount? as per the examiner’s answer

    August 29, 2021 at 1:03 pm #633382
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3411
    • ☆☆☆☆☆

    He is explaining that, in this type of plan, both service and remeasurement differences go to P&L. As always, all he wants to see is the rule, so don’t bog yourself down in numbers.

    November 21, 2021 at 11:17 pm #641273
    rjpatterson
    Participant
    • Topics: 3
    • Replies: 7
    • ☆

    Hi Stephen

    I know we shouldn’t get bogged down in details, but sometimes it’s hard not to…

    In this question, I do not understand why the examiner mentions that the unwinding of the discount each year would be recorded as current service cost – surely it is interest cost? Or is this something in addition?

    Thanks,

    Robert

    November 22, 2021 at 7:07 am #641280
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3411
    • ☆☆☆☆☆

    I would classify any unwinding of discount as interest cost. The key point, though, is that it is recognised in the P&L. I think the examiner is saying ‘in the P&L which includes the service cost’ (last para)

    From IAS plus:

    Other long-term benefits
    IAS 19 (2011) prescribes a modified application of the post-employment benefit model described above for other long-term employee benefits: [IAS 19(2011).153-154]

    the recognition and measurement of a surplus or deficit in an other long-term employee benefit plan is consistent with the requirements outlined above service cost, net interest and remeasurements are all recognised in profit or loss (unless recognised in the cost of an asset under another IFRS), i.e. when compared to accounting for defined benefit plans, the effects of remeasurements are not recognised in other comprehensive income.

    https://www.iasplus.com/en/standards/ias/ias19

    November 22, 2021 at 1:37 pm #641312
    rjpatterson
    Participant
    • Topics: 3
    • Replies: 7
    • ☆

    Hi Stephen

    Thanks, it is the two sentences below which confuse me. They seem to contradict each other.

    “This figure will be unwound each year and the movement recorded as the current service cost (in so far as no other changes to the assumptions are made”

    and

    “Interest, which is calculated on the opening balance of the benefit obligation, will not be affected by the changes in assumptions. It will be charged to profit and loss at $385 ($7’700 x 5%)”

    As far as I understand it, the current service cost in the first year is $7.7M and thereafter there is just the recording of the unwinding of the discount $385,000 each year, recorded as interest cost (both to Profit and Loss)…

    November 23, 2021 at 7:02 am #641353
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3411
    • ☆☆☆☆☆

    When I’ve used the question in the classroom I have suggested to groups that there may be a number of answers. So be calm. 🙂

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