IAS 19 Employee Benefits | Defined Benefit Obligation Example | International Accounting | ACCA Exam

[@ariskarageorgiou9517]

hi sir, during the year end 30 November 2003 the directors of Jecy co decided to form a defined benefit pension scheme for the employees of the company and contributed cash of 160 m to it on the final day of the reportin period. details related to 30 November 2003 present value of obligation 208 m fair value of plan asset 200 m current service cost 176 m interest cost 32 m expected return 16 m the only entry in the financial statement made to date is in respect of the cash contribution which has been included in trade receivables. the directors have been uncertain as to how to deal with the above pension scheme in the consolidate sfp. in this note the solution has an adjustment to the sfp which is Dr retained earnings 168 m Cr receivables 160 m Cr define benefit pension scheme liability 8 m ( 208 m - 200 m) could you please explain me why the amount of 160 m is debited to retained earnings and no to the benefit pension scheme asset ?

[@alegremohammadallem6993]

Because the fair value of the plan asset is lower than the present value of the obligation. Both are used to compute for the Net Defined Benefit Obligation (liability) or (asset). In this case the present value of the obligation has 8M excess than the asset invested (plan asset). Therefore, it is a liability. No asset is to be recognized.