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Pension plan
Digiwire Co provides a pension plan for its employees. From 1 September 20X6, Digiwire Co decided to curtail the
plan and to limit the number of participants. The employees were paid compensation from the plan assets and some received termination benefits due to redundancy. Due to the curtailment, the current monthly service cost changed from
$9 million to $6 million. The relevant financial information relating to the plan is as follows:
Date Net defined liability Discount rate
$m) %
1 January 20X6 Net defined liability 30 discount rate 3
1 September 20X6 Net defined liability 36 discount rate 3·5
31 December 20X6 Net defined liability 39 discount rate 3·7cii) Advise the directors of Digiwire Co on the impact of the amendment to IAS 19 on the calculation of net
interest and current service cost for the year ended 31 December 20X6.q1.sir i am not understanding why we did not take 39 net defined liability in our calculation of net interest cost?
q2. generally, which discount rate to be used for net defined liability and net interest calculus?
1. NIC is calculated on the net liability at the START of the period.
2. Yield on high grade corporate bonds – same rate used for asset and liability since a rule change about 3 years ago.q1. sir if net interest is calculated At start of the year then why the answer was like this,
the net interest component before the amendment would have been $900,000 (3% x $30 million).
After the amendment it would be $1,020,000 (($900,000 x 8/12) + (3·5% x $36m x 4/12))
q2. and why we didn’t take 39 net defined liability in our calculation of net interest cost?
When there is change in the year – you need to split the year up
First 8 months B/D is 30
Last 4 months B/D is 36Always ignore the C/D (39)
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