ACCA SBR ^INT Syllabus C. Reporting The Financial Performance Of A Range Of Entities - Curtailments and Settlements - Notes ^{5 / 6}

A Curtailment occurs when there is a significant reduction in the number of employees covered by the plan.

This gives rise to a  Past Service Cost and is brought in when the related termination costs / benefits are recognised or when the curtailment occurs (if earlier)

When the plan is curtailed, the change in the present value of the defined benefit obligation arising is recognised in profit or loss

The Current Service cost and Net Interest are calculated on the updated actuarial assumptions after the curtailment (and not using those at the beginning of the year as was previously done)

A settlement eliminates all further obligations

Eg: A lump-sum cash payment made in exchange for rights to receive post-employment benefits.

The gain or loss on a settlement is recognised in profit or loss when the settlement occurs:

DEBIT PV obligation (as advised by actuary) X
CREDIT FV plan assets (any assets transferred) X
CREDIT Cash (paid directly by the entity) X
CREDIT/ DEBIT Profit or loss (difference) X