ACCA SBR ^UK Syllabus C. Reporting The Financial Performance Of A Range Of Entities - Defined Benefit - Illustration - Notes ^{4 / 6}

Illustration

• Pension Fund asset b/f 400
  Pension Fund Liability b/f 600
  Current service cost 100
  Expected return on assets 10%
  Discount rate 10%
  Contributions paid (@ year-end) 80
  Benefits paid (@ year-end) 60

  Actuarial c/f:  Pension Fund Asset 500
  Pension Fund Liability 650

Solution

• Current Service cost

  Dr I/S 100
  Cr Pension Liability 100

• Expected return on Assets

  Dr Pension asset 40 (10% x 400)
  Cr Interest 40

• Unwinding of discount

  Dr Interest 60 (10% x 600)
  Cr Pension Liability 60

.

• Contributions Paid

  Dr Pension asset 80
  Cr Cash 80

• Benefits paid
  

  Dr Pension Liability 60
  Cr Pension Asset 60

Having done those double entry we can see that assets have increased by 60 (400 to 460) and liabilities have increased by 100 (600 to 700) giving a net increase in the SFP pension liability of 40.
We now compare the pension assets and liabilities figure (which is based upon assumptions) to what has actually occurred.

This is given in the actuarial figures c/f.

So, the assets made an actuarial gain of 40 and the liabilities a gain of 50.

This total gain of 90 is recognised in the OCI as a gain.

The balance sheet is showing a liability of 240, less the re-measurement of 90, equals 150 Liability.

This matches what is actually in the pension fund (650- 500) = 150.