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hi sir,
during the year end 30 November 2003 the directors of Jecy co decided to form a defined benefit pension scheme for the employees of the company and contributed cash of 160 m to it on the final day of the reportin period. details related to 30 November 2003
present value of obligation 208 m
fair value of plan asset 200 m
current service cost 176 m
interest cost 32 m
expected return 16 mthe only entry in the financial statement made to date is in respect of the cash contribution which has been included in trade receivables. the directors have been uncertain as to how to deal with the above pension scheme in the consolidate sfp.
solution
deficit is reported as a liability 200 – (208) = (8) m
the note to the SPLOCI for the year includes
current service cost – net interest = 176 – 16 = 192 m
OCI gain 24 madjustment to the sfp
Dr retained earnings 168 m
Cr receivables 160 m
Cr define benefit pension scheme liability 8 mcould you please explain me why the amount of 160 m is debited to retained earnings and no to the benefit pension scheme asset ?
Last part of journal above is easier understood as
Dr pension asset 200
Cr pension liability 208But the answer has netted off – so they have credited the NET liability with 8
OK but why the amount of 160 m of the trade receivables have been debited to retained earnings and not to pension asset?
I am confused because the contribution must be accounted in the pension asset so if the accounting treatment is
Dr trade receivables 160
Cr cash 160And the right entry for contribution is
Dr plan asset 160
Cr cash 160Then we should do the following entry
Dr plan asset 160
Cr trade receivables 160If you want to – that’s fine
Then account for all the other transactions and the journals will eventually net out
Remember that SBR is a written exam so there will be very little if any credit for journalsThis question concern a practise test from bpp diploma ifrs where I am about to participate at the June’s exams.
But if am not mistaken the trade receivables do not affect the retained earnings. Therefore the solution in bpp in which the retained earnings debited with the amount of trade receivables is wrong right?
It is not wrong.
Dr Service cost 176
Dr Interest expense 32
Cr Interest income 16
Cr OCI 24Cr Receivables 160
Cr Pension liability 208
Dr Pension asset 200This can be simplified by netting off all the P&L and OCI items into a single line – RE
Dr RE 168
Cr Net pension liability 8
Cr Receivable 160
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