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First of all great lectures, much appreciated.
Snippit from BPP Session 11 Example 1 Defined Benefit Pension Scheme
PV of Benefit Obligation 1,270
FV of plan assets 1,025Discount rate 3%
Expected return on fund assets 5%Answer in the book: Net Interest (1270 – 1025) *3% = 7
Just to clarify wouldn’t interest on assets be based on return on fund assets rate 5% and obligations on discount rate 3%?
Thank you in advance.
Hi,
Glad you find the lectures beneficial.
The interest rate used is the interest rate on high quality government bonds, which in questions reads as the discount rate. The expected return on assets is there to trick you as it is not used.
If you’re interested then it was used in an older version of IAS 19, and is possibly why it is still sitting in the question.
Thanks
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