Page 287 - F1 Integrated Workbook STUDENT 2018

IAS 19 Employee benefits

4.2 Defined benefit plans

The entity recognises the net defined benefit liability (or asset) in the statement of
financial position.

 If the pension plan liability exceeds its assets, there is a deficit (the usual
situation) and a liability reported in the statement of financial position of the
entity.

 If the pension plan assets exceed its liability, there is a surplus and an asset is
reported in the statement of financial position of the entity.

In practice the actuary measures the plan assets and liabilities using a number of
estimates and assumptions on an annual basis.

4.3 Measuring the pension plan liability and assets

In practice, the actuary measures the plan assets and liabilities using a number of
estimates and assumptions on an annual basis.

 The plan liability is measured at the present value (PV) of the defined benefit
obligation. Discounting is necessary because the liability will be settled many
years in the future and therefore the effect of the time value of money is
material.

 Plan assets are measured at fair value (FV) at the reporting date. This is
normally market value.

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