Page 288 - F1 Integrated Workbook STUDENT 2018

Chapter 17

4.4 Explanation of the terms used:

Service cost component includes current and past service costs, together with any
gains or losses on curtailments or settlements.

 Current service cost is the increase in the actuarial liability (present value of
the defined benefit obligation) resulting from employee service in the current
period.

 Past service cost is the increase in the present value of the liability (defined
benefit obligation) resulting from a plan amendment or curtailment.

 Curtailment and settlement gains/losses arise when significant reductions
are made to the number of employees covered by the plan or the benefits
promised to them.

Net interest component is determined by multiplying the net defined benefit liability
(or asset) at the start of the period by the discount rate. It can be viewed as
comprising interest income on the plan assets and the unwinding of the discount,
creating an interest cost, on the plan liability.

Re-measurement component principally comprises actuarial gains and losses and
also includes any return on plan assets not already recognised in the net interest
component. The re-measurement component is recognised in other comprehensive
income for the year. It cannot be reclassified to profit or loss in future periods.

 Actuarial gains and losses result from increases or decreases in the pension
asset or liability that occur either because the actuarial assumptions have
changed or because of differences between the previous actuarial assumptions
and what has actually happened (experience adjustments).

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