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Hello Mike & Hope you are fine 🙂
1- Would you please tell me what is the meaning of ”plan assets” in SIMPLE words?! Your P2 note says : ”are assets held in a legally separate trust in order to be able to pay the pension in future.”, but I still can not get the meaning.
For example if I am an employer and want to have a defined benefit plan for my employees, then what should I do in respect of the ”plan asset” ?
– Should I go and buy some assets and give those assets to a trust? If yes, then what type of asset I should buy? Gold & Silver?! Property? Land?
– Who does control those assets? The trust?
– What is the accounting treatment for this ? DR (Plan asset) & Cr (cash)?
– And if this accounting treatment is right, then how ”Plan assets” should be recognised in SOFP?Current asset? Non-current asset ? ….Excuse me if I asked too many questions about ”plan assets” , but I think the problem is that I can not imagine what is it at all!
Many Thanks with your help and answers …
Have a nice day
Kind RegardsHi, first of all, I haven’t forgotten your sale and leaseback post – ill get to it
When a company establishes a pension plan for its employees, the funds that are built up in order to be able to finance the pension payments are the plan assets. But cash devalues, as you know, over time and the funds kept in the company’s control may be a temptation for the company to use when facing its own financial crisis. (Look what happened when Robert Maxwell was able to access the assets of the Daily Mirror pension fund)
So the assets are placed into the care of Trustees (Maxwell was one, and therein lay the problem!) the trustees will invest the funds …… into whatever other assets or business that the trustees may choose and hopefully make the value of those assets grow over time thus ensuring that there will be the availability to pay the pensions as they fall due for payment
As for accounting treatment, I think that that is explained in recorded lectures
Still got a problem?
Then post again
Hello
Thank you for your reply Mike 😉 . It is very clear.
Just a simple question, Would you please let me know the initial accounting treatment?
Suppose I want to just run a defined benefit plan and so have a Plan asset= $1000.Is it right? Dr (Plan asset) 3000 & Cr (cash) 3000
Many thanks
Thank you for your reply.
Excuse me to continue asking about this subject, but as far as I know “CONTROL” is an essential factor to recognise an asset.
we are recognising the plan asset in our SoFP and on the other hand we do not have CONTROL over that asset, because in fact this is the trust that has the control.
There is no contradiction ??Thank you in advance …
The net position for the pension plan (plan assets less pv of future obligations) is shown as an assets (or liability, if applicable) because ultimately the company does have that control
If we are in a situation where plan assets exceed pv of future obligations, so we have net pension fund asset, IF we were to close the scheme and pay off the obligation, there would be a surplus asset after that full settlement of pension obligation. That surplus would be returned to the company
Is that better?
Hello Mike
Thank you for your answer. It was very helpful. 🙂Would you please also help me a little about “remeasurement component”, if my asking limit is not exceeded yet !!
1- What does remeasurement component actualy mean? Why does it exist!? (I know it is in fact the balancing figure, but don’t understand its concept)
2- what are the double entries for remeasurement component, specialy the Cr side ? Suppose the net remeasurement=$1000. I know we do Dr net asset & Cr Comprehensive income. But my question is which component of comprehensive income is credited!? Eg share premium?reseves?what !?Extremely Thanks …
Kind Regards@yellow said:
Hello Mike
Thank you for your answer. It was very helpful. 🙂Would you please also help me a little about “remeasurement component”, if my asking limit is not exceeded yet !!
1- What does remeasurement component actualy mean? Why does it exist!? (I know it is in fact the balancing figure, but don’t understand its concept)
2- what are the double entries for remeasurement component, specialy the Cr side ? Suppose the net remeasurement=$1000. I know we do Dr net asset & Cr Comprehensive income. But my question is which component of comprehensive income is credited!? Eg share premium?reseves?what !?Extremely Thanks …
Kind RegardsExcuse me for my mistake. For the second question, I know we should Dr Comprehensive income &Cr net liabilty ( or asset) , but which component of Comprehensive income should be debited ??
First, “share premium, reserves” these are not directly themselves part of comprehensive income. These are part of shareholders’ funds (shareholders’ equity)
The whole topic of employee benefits is shrouded in estimation and guesswork – essentially educated guesses by the actuaries.
This being so, there will be balances to carry forward in both plan assets and in pv of future obligation. But these guesstimates by the actuaries will invariable not be the theoretical missing figures from the accounts for plan assets and future obligation.
So that’s where the remeasurements come in – they’re the figures necessary to include in order to bring the running total of those two accounts so that the balance to carry forward is equal to the actuaries’ estimates
As for where they fit into a statement of profit or loss, I believe that they fit within the appropriate section of the expenses. Thus there would be an apportionment amongst CoS: A and E: D and C dependent upon which department the pension-fund-member employees are employed in
Honestly, that allocation is not going to be a deal breaker in terms of achieving success at P2 – if you have scored 49% and the marker is looking for one more mark to squeeze you through, they’re unlikely to look to see that the location of the remeasurement is correct within the statement of profit or loss for that extra mark!
Trust me!
Dear Mike
Many THANKS with all your help. I trust you 😉God bless you
Kind Regards
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