Page 248 - Group Insurance and Retirement Benefit IC 83 E- Book

Employee Benefits 197

(c) the effect of changes in the discount rate; and

(d) differences between the actual return on plan assets and the
expected return on plan assets (see paragraphs 107-109).

Past Service Cost

94. In measuring its defined benefit liability under paragraph 55, an
enterprise should recognise past service cost as an expense on a straight-
line basis over the average period until the benefits become vested. To the
extent that the benefits are already vested immediately following the
introduction of, or changes to, a defined benefit plan, an enterprise should
recognise past service cost immediately.

95. Past service cost arises when an enterprise introduces a defined
benefit plan or changes the benefits payable under an existing defined
benefit plan. Such changes are in return for employee service over the
period until the benefits concerned are vested. Therefore, past service cost
is recognised over that period, regardless of the fact that the cost refers
to employee service in previous periods. Past service cost is measured as
the change in the liability resulting from the amendment (see paragraph
65).

Example Illustrating Paragraph95
An enterprise operates a pension plan that provides a pension of
2% of final salary for each year of service. The benefits become
vested after five years of service. On 1 January 20X5 the
enterprise improves the pension to 2.5% of final salary for each
year of service starting from 1 January 20X1. At the date of the
improvement, the present value of the additional benefits for
service from 1 January 20X1 to 1 January 20X5 is as follows:

Employees with more than five years’ service at 1/1/X5 Rs. 150
Employees with less than five years’ service at 1/1/X5
(average period until vesting: three years) Rs. 120

Rs. 270

The enterprise recognises Rs. 150 immediately because those
benefits are already vested. The enterprise recognises Rs. 120
on a straight-line basis over three years from 1 January 20X5.