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Golden Gate has a defined contribution pension scheme that all employees are
enrolled into. However, in the year ended 30 June , it set up an additional fund
(Fund) as a way of enhancing post-retirement benefits. The terms of the Fund are as
follows:
• Employees with more than two years’ service will be automatically enrolled
into the Fund.
• Golden Gate’s contributions into the Fund are voluntary. In the year ended
30 April 2015, its contributions were equivalent to 1% of wages and salaries.
• Whilst the fund is in existence members will, upon retirement, receive an
annual lump sum based on their number of years of service.
• Golden Gate can cancel the Fund at any point. If cancelled, no further benefits
or compensation will be paid to members.Previously, the national press have been critical of Golden Gate because of its low
levels of employee remuneration, which have generally increased below the level of
inflation. As a result, some believe that the announcement of the Fund is simply a
public relations exercise, and many employees remain sceptical about Golden Gate’s
commitment to it.I am beyond confused… Any help on how this should be accounted for would be great…
Thanks
Well, it doesn’t look to me like a defined benefit scheme so the accounting for it would simply be to record as a contribution the amount paid by the company each year.
There appears to be no obligation on the company to pay any benefits out – “Golden Gate can cancel the Fund at any point. If cancelled, no further benefits or compensation will be paid to members” – gives us a pretty good clue about that point
What more do you want?
Where’s the question from – you clearly haven’t made it up yourself?
this was a mock question set from Kaplan.The question makes reference to 8 marks in total for the answer and i think that it whats throwing me? I understand the contributions made are what are to be shown in the P&L but i assumed i’m missing something key given the marks at stake?
Thanks
No, you can chat about why it’s not a defined benefit scheme – what the characteristics of a defined benefit scheme should be
Then chat about the characteristics from the question that show that it’s not a db scheme
Then chat about what the accounting treatment should be
Tell me, what has the answer done? For 8 marks there should ideally be 8 separate 2 line paragraphs (you and I call them sentences, with a line left between the sentences)
I was looking at a similar question yesterday (called Minco I seem to remember – look that up in google and you may find the answer useful)
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