Page 286 - F1 Integrated Workbook STUDENT 2018

Chaptter 17

Acccounting forr penssion scchemees

4.1 Defined contributionn plans

The exxpense of pproviding pensions inn the periodd is normally the samme as the aamount
of contributions ppaid.

 Thhe entity should charrge the agrreed pensiion contribution to proofit or losss as an
emmployment expense each periood.

 An asset (prrepaymentt) or liabilityy (accrual)) for pensioons only arrises if the cash
dooes not equal the ammount of coontributionss due.

 IAAS 19 Empployee Bennefits requires disclossure of the amount reecognised as an
exxpense in tthe period.

Exxampple 1

An entity makkes contribuutions to thhe pensionn fund of emmployees aat a rate of
5% of gross ssalary. The contributioons made are $10,0000 per monnth for
connvenience wwith the baalance beinng contribuuted in the first monthh of the
folloowing accoounting yeaar. The waages and salaries for 20X6 are $2.7m.

Reqquired:

Calculate thee pension expense ffor 20X6 aand the acccrual/prep payment aat
the end of the year.

Solution

Thee charge too the statemment of proofit or loss should be:

$2.77m × 5% = $135,0000

Thee statemennt of financial positionn will therefore show an accruaal of $15,0000,
beinng the diffeerence between the $$135,000 aand the $120,000 paaid in the yeear.

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