Defined benefit plan
The employer accounts for the present value of the defined benefit obligation less the fair value of plan assets, subject to the asset ceiling when relevant. Recognise service cost and net interest generally in profit or loss, and remeasurements in other comprehensive income under IAS 19. Measurement uses actuarial assumptions and reflects benefits earned from employee service. The employer bears actuarial and investment risk to the extent promised benefits exceed fund resources.
Worked example
A plan has an obligation of $1.2 million and plan assets of $1.0 million. Ignoring asset-ceiling complications, the net defined benefit liability is $200,000. Subsequent service cost, net interest and remeasurements are presented under their respective IAS 19 rules.
Common mistake
Treating contributions paid as the entire pension expense or recognising all actuarial remeasurements in profit or loss.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBR | Direct | September 2026–June 2027 |