Module 6 - Ufr

6.
Intended Learning Outcomes

(ILOs)
Mabuhay and welcome class to our Module 6: Amendments Part 2.
For Module 6, we will discuss amendments made by IASB in the financial reporting
standards.
But first, we read our ILO’s.
Intended Learning Outcomes (ILOs):
At the end of the topic, the students are expected to be able to:
1. Articulate amendments to PAS 19 (Plan Amendment, Curtailment or Settlement);

2. Apply Amendments to PAS 19 (Plan Amendment, Curtailment, or Settlement) in
financial reporting.
6.1 Amendments to PAS 19 - Plan

amendment, settlement and
curtailment
The International Accounting Standards Board (IASB) has published 'Plan Amendment,
Curtailment or Settlement (Amendments to IAS 19), thus, finalizing one of two issues
relating to IAS 19 submitted to the IFRS Interpretations Committee and exposed
together in June 2015. IAS 19 is locally adopted as PAS 19.
Background
In June 2015, the IASB published ED/2015/5 Remeasurement on a Plan Amendment,
Curtailment or Settlement/Availability of a Refund from a Defined Benefit Plan
(Proposed amendments to IAS 19 and IFRIC 14) combining two issues submitted
separately to the IFRS Interpretations Committee into a single package of narrow-scope
amendments to IAS 19 Employee Benefits and IFRIC 14 IAS 19 – The Limit on a
Defined Benefit Asset, Minimum Funding Requirements, and their Interaction.

However, in April 2017 the IASB decided to pursue the amendments to IAS 19 and in
September 2017 confirmed it would do so despite putting off the amendments to IFRIC
14. Although exposed together, the IAS 19 amendments are unrelated to the IFRIC 14
amendments.

Effective date and transition requirements
An entity applies the amendments to plan amendments, curtailments, or settlements
occurring on or after the beginning of the first annual reporting period that begins on or
after 1 January 2019. Early application is permitted but must be disclosed.
6.2 Changes to PAS 19

The amendments in Plan Amendment, Curtailment, or Settlement (Amendments to PAS
19) are:
1. If a plan amendment, curtailment, or settlement occurs, it is now mandatory that

the current service cost and the net interest for the period after the remeasurement
are determined using the assumptions used for the remeasurement.
2. In addition, amendments have been included to clarify the effect of a plan
amendment, curtailment, or settlement on the requirements regarding the asset
ceiling.
6.3 Employee benefits

Let us revisit what PAS 19, paragraph 120, reminds us when an entity shall recognize
the following components of defined benefit costs:
Service cost
It includes current service cost, past service cost, and any gain or loss on settlement. It
is reported in the Statement of profit or loss.
Net interest
It includes interest expense on defined benefit obligation, interest income on plan
assets, and interest expense on the effect of asset ceiling. It is also reported in the
Statement of profit or loss.
Remeasurements
It includes remeasurements of plan assets, projected benefit obligation, and the effect of
asset ceiling.
It is recognized as Other comprehensive income but can be reclassified to retained
earnings.
Current service cost is the increase in the present value of the defined benefit
obligation resulting from employee service in the current
period.
Past service cost is the change in the present value of defined obligation for employee
service in prior periods results from a plan
amendment.
Plan assets comprise assets held by a long-term benefit fund and qualifying insurance
policies. It is measured at fair value.
Defined benefit plan shall be viewed as a sub-entity separate from the primary entity
(employer), hence, there is a separate memorandum of
records.
The Memorandum of records is an off-statement of financial statement and contain the
following information:
1. Fair Value of Plan assets (FVPA) - It is the fund set aside for the future benefit
payments (Debit balance)
2. Projected Benefit Obligation (PBO) - It is the present value of expected future
payments required to settle the obligation arising from employee service in the
current and prior periods (Credit balance).
Prepaid benefit cost

If FVPA is > than PBO, the plan is overfunded. It is reported as a noncurrent
asset.
Accrued benefit cost
If FVPA is < than PBO, the plan is underfunded. It is reported as a noncurrent
liability.
6.4 Asset ceiling

Asset ceiling - It is the present value of any economic benefits available in the form of
refunds from the plan or reductions in future contributions to the
plan.
PAS 19 provides that the Prepaid benefit-cost - surplus should not exceed the asset
ceiling by using the discount rate in the measurement of the defined benefit
plan.
The difference between Prepaid benefit-cost - surplus and Asset ceiling is the Effect of
the asset ceiling.
PAS 19, provides that a change in the effect of the asset ceiling, excluding interest on
the effect of the asset ceiling is a Remeasurement to be recognized through other
comprehensive income.
Accordingly, if the surplus is P500,000 and there is an asset ceiling of P300,000, the
difference is called the effect of the asset ceiling.
To fully illustrate the accounting of it, we will solve an illustrative problem on the next
page.
6.5 Asset ceiling - Illustrative

problem
Let us apply the concepts by solving the problem below.
For this problem, we will recall our Intermediate accounting 3 but this time we include
the asset ceiling.
We solve for the following:
1. The fair value of plan asset

2. Projected benefit obligation
3. Effect of the asset ceiling
4. Employee benefit expense
5. Net remeasurements
6.6 Fair value of plan asset and

Projected benefit obligation
Let us first solve the ending balances of FVPL and PBO.
6.7 Effect of asset ceiling

Solution for Effect on asset ceiling:
Since the FVPA is higher than PBO, a surplus occurs.

However, the surplus is higher than the asset ceiling.
The effect of the asset ceiling will have an impact on remeasurements and employee
benefit expenses.
6.8 Employee benefit expense

Solution:
As we all know in Intermediate accounting 3, Employee benefits expense comprises of
1. Current service cost

2. Past service cost
3. Interest expense on PBO
4. Interest income of FVPA (as a deduction)
But this time, we will also include the interest expense on the effect of the asset ceiling.
6.9 Net remeasurement

Solution:
Part of the amendment by IASB is to include in the net remeasurement the
remeasurement loss in asset ceiling.
6.10 Employee benefit expense

(related journal entry)
Solution:
Since it is net remeasurement gain - OCI, therefore, the P670,000 is deducted to

Employee benefits expense to arrive at the Defined benefit-cost of P200,000.
The Defined benefit-cost is P200,000 only but the contribution to the plan is P700,000, a
Prepaid benefit-cost of P500,000 occur.

6.11 Summary
1. An entity applies the amendments to plan amendments, curtailments, or
settlements occurring on or after the beginning of the first annual reporting period
that begins on or after 1 January 2019. Early application is permitted but must be
disclosed.
2. The amendments in Plan Amendment, Curtailment, or Settlement (Amendments
to IAS 19) are:
o
 If a plan amendment, curtailment, or settlement occurs, it is now
mandatory that the current service cost and the net interest for the period
after the remeasurement are determined using the assumptions used for the
remeasurement.
 In addition, amendments have been included to clarify the effect of
a plan amendment, curtailment, or settlement on the requirements regarding
the asset ceiling.
3. The difference between Prepaid benefit-cost - surplus and Asset ceiling is the
Effect of the asset ceiling.
4. IAS 19, provides that a change in the effect of the asset ceiling, excluding
interest on the effect of the asset ceiling is a Remeasurement to be recognized
through other comprehensive income.

Module 6 - Ufr

Uploaded by

Copyright:

Available Formats

Module 6 - Ufr

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Module 6 - Ufr

Uploaded by

Copyright:

Available Formats

6.

Intended Learning Outcomes

1. Articulate amendments to PAS 19 (Plan Amendment, Curtailment or Settlement);

6.1 Amendments to PAS 19 - Plan

6.2 Changes to PAS 19

1. If a plan amendment, curtailment, or settlement occurs, it is now mandatory that

6.3 Employee benefits

Prepaid benefit cost

6.4 Asset ceiling

6.5 Asset ceiling - Illustrative

1. The fair value of plan asset

6.6 Fair value of plan asset and

6.7 Effect of asset ceiling

Since the FVPA is higher than PBO, a surplus occurs.

6.8 Employee benefit expense

As we all know in Intermediate accounting 3, Employee benefits expense comprises of

1. Current service cost

6.9 Net remeasurement

6.10 Employee benefit expense

Since it is net remeasurement gain - OCI, therefore, the P670,000 is deducted to

You might also like