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Hi, Can someone please help me. Having done the above question I do not understand where they have gotten the past service cost in the SOCI and SOFP? If someone could explain this I would greatly appreciate it. Is there a formula for calculating PSC in the SOCI and SOFP?
Thanks
KatieHi
Yes, it’s a problem. I think BPP have got the calculation relating to the current employees’ past service costs wrong – please BPP, if you’re reading this, tell me that you’re correct, and then explain it.
I think the 12 relating to former employees is correct, and should be easily understood – the benefits are fully vested and the employees are now entitled to this revision.
The 8 ( ie 20 – 12 ) which relates to current employees? We are told in the question that, as at 1 January 20X1, these employees had worked for two years already. Then they work for the whole of 20X1 and that’s where we are with the question. So that’s three years these affected employees have now worked. And benefits vest when the employee has worked for six years. So, at the end of 20X1, our current employees have now worked 3 years – ie half of the six year vesting period. Therefore, I believe that the amount of PSC recognised in respect of current employees should be 3 / 6 x 8 = 4 ( and not 2 as shown in the BPP answer )
Hope that that helps
Hi,
When calculating interest cost of pv of obligation, do the past service cost have to be included?
E.g.
pv of oblig. $3,000
past service cost $ 125
interst cost
(3,000+125=3,125*6%) $ 188
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Werty, very interesting question, but if you watch the 3rd video (IAS 19), Past service cost for current employees is divided by average working life,(in the question the average working life is 7 years(7-3=4)) 8/4 =2 the amount for the current year is a note to statement of comprehensive income, 8-8/4=6 the reminder is deffered liability in finacial postition. But something in my opinion mismatches here, as ideally we have to divide PSC to average working life. Do you have any suggestions??
dou,
in my opinion, the interest cost will only be calculated based on the pv of obligation b/f because most of them, we assume that the changes of the defined benefit plan scheme, and therefore incremental of past service cost, will occur at the year end, so no interest on it.
i still don’t confirm this answer since i had read that some question do include some item when calculate the interest cost
456852,
i’m received your opinion, but in the bpp’s exam kit, i saw there are 2 examples about to add on the past service cost to calculate the interest cost.
By the way, where are you come from?
Thanks Gagik – but I’m not sure I understand where you’re going with this! I found the BPP answer difficult to follow and, until persuaded otherwise, I have to query it. Maybe I am wrong, but I need to be persuaded!
Well as far as i hav understood n I have also gone through OT notes the PSC hav 2 b added before calculating interest n when using 10 % corridor even then u hav 2 add psc ……
yes, Ahsan, in this example, I believe the past service costs should be added before calculating Interest Cost because the change to the scheme happened on the first day of the accounting year. Normally one assumes that flows / changes occur on the last day of the year – unless told otherwise. And here, we are told otherwise!
so u mean 2 say that If it’s not written that PSC plan or scheme was applied on first day of relevant accounting year u dnt need 2 add PSC ???
I imagine that that is a correct summary. In the exam, Graham Holt is almost certain to have the adjust ment to the scheme happening on either the first or the last day of the accounting period. Maybe you should check up in a study text what happens when the change takes place part way through the year.
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