Page 236 - Group Insurance and Retirement Benefit IC 83 E- Book

Employee Benefits 185

62. Other Accounting Standardsrequire the inclusion of certain employee
benefit costs within the cost of assets such as tangible fixed assets (see
AS 10 Accounting for Fixed Assets). Any post-employment benefit costs
included in the cost of such assets include the appropriate proportion of the
components listed in paragraph 61.

Illustration

63. Illustration I attached to the standard illustrates describing the
components of the amounts recognised in the balance sheet and statement
of profit and loss in respect of defined benefit plans.

Recognition and Measurement: Present Value of Defined
Benefit Obligations and Current Service Cost

64. The ultimate cost of a defined benefit plan may be influenced by
many variables, such as final salaries, employee turnover and mortality,
medical cost trends and, for a funded plan, the investment earnings on the
plan assets. The ultimate cost of the plan is uncertain and this uncertainty
is likely to persist over a long period of time. In order to measure the
present value of the post-employment benefit obligations and the related
current service cost, it is necessary to:

(a) apply an actuarial valuation method (see paragraphs 65-67);

(b) attribute benefit to periods of service (see paragraphs 68-72); and

(c) make actuarial assumptions (see paragraphs 73-91).

Actuarial Valuation Method

65. An enterprise should use the Projected Unit Credit Method to
determine the present value of its defined benefit obligations and the related
current service cost and, where applicable, past service cost.

66. The Projected Unit Credit Method (sometimes known as the accrued
benefit method pro-rated on service or as the benefit/years of service
method) considers each period of service as giving rise to an additional
unit of benefit entitlement (see paragraphs 68-72) and measures each unit
separately to build up the final obligation (see paragraphs 73-91).