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On 30 June 20X4 Mickleover paid $0.3m in settlement of a defined
benefit obligation with a present value of $0.2m. This related to staff that
were to be made redundant although, as at 30 June 20X4, they still had
an average remaining employment term of one month. The
redundancies were not foreseen at the start of the year.confused in curtailment working and concept
Hi,
A curtailment is when there is a significant number of employees that leave the scheme, so usually through a redundancy. To compensate the employees it is usual to pay them slightly more than the liability owed to them under the scheme. Any additional amounts to be paid are treated as a service cost in the year of the redundancy.
Using you example it appears that if the scheme owed $0.2 million but paid $0.3 million then the extra $0.1 million increase in liability is an additional service cost in the year.
We can ignore the average remaining employment term.
Thanks.
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