Based on the advice from actuaries regarding contribution levels and overall liabilities of the defined benefit retirement plan to pay benefits to…

CA Final · Financial Reporting · PYQS · May 2024
Based on the advice from actuaries regarding contribution levels and overall liabilities of the defined benefit retirement plan to pay benefits to past and present employees, the Accountant Mr. Krishna of TUNA Limited provides the following information: (i) On 1st April, 2023, the actuaries of the company advised that the present value of the defined obligation was - 2,88,420. On the same date, the fair value of the assets of the defined benefit plan was - 2,49,670 and the annual market yield on government bonds was 8%. (ii) During the year ended 31st March, 2004, TUNA Limited made contributions of 33,650 into the plan and the plan paid out benefits of 20,160 to retired members. Both these payments were made on 31st March 2024 (iii) The actuaries advised that the current service cost for the year ended 31st March, 2024 was - 29,760. On 28th February 2024, the rules of the plan were amended with retrospective effect. These amendments meant that the present value of the defined obligation was increased by - 7,280 from that date. (iv) During the year ended 31st March, 2024, TUNA Limited was in negotiation with employee representatives regarding planned redundancies. The negotiations were completed shortly before the year end and redundancy packages were agreed. The impact of these redundancies was to reduce the present value of the defined benefit obligation by - 38,390. Before 31st March, 2024, TUNA Limited made payments of 36,270 to the employees affected by the redundancies in compensation for the curtailment of their benefits. These payments were made out of the assets of the retirement benefits plan. (v) On 31st March, 2024, the actuaries advised that the present value of the defined benefit obligation was - 3,26,480. On the same date, the fair value of the assets of the defined benefits plan were - 2,68,340. Examine and present how the above events would be reported in the financial statements of TUNA Ltd. for the year ended 31st March, 2024 as per Ind AS. Please note that the finance cost is to be computed on the opening balance.

Suggested Answer and Working Notes:

Remeasurement of gain or loss Particulars ₹ Liability at the start of the year (₹ 2,88,420 -2,49,670) 38,750 Current service cost 29,760 Past service cost 7,280 Net finance cost 3,100 Gain on settlement (2,120) Contributions to plan (33,650) Benefits paid NIL Remeasurement loss (balancing figure) 15,020 Liability at the end of the year (₹ 3,26,480 -2,68,340) 58,140 On 31st March 2024, Tuna Ltd. will report a net pension liability in the balance sheet. The amount of the liability will be - 58,140 (₹ 3,26,480 -2,68,340). For the year ended 31st March 2024, Tuna Ltd. will report the current service cost as an operating cost in the statement of profit or loss. The amount reported will be - 29,760. The same treatment applies to the past service cost of 7,280. For the year ended 31st March 2024, Tuna Ltd. will report a finance cost in profit or loss at the start of the year of 38,750 (₹ 2,88,420 -2,49,670). The amount of the finance cost will be - 3,100 (38,750 × 8%). The redundancy programme represents the partial settlement of the curtailment of a defined benefit obligation. The gain on settlement of 2,120 (₹ 38,390 - 36,270) will be reported in the statement of profit and loss. Other movements in the net pension liability will be reported as remeasurement gains or losses in other comprehensive income. For the year ended 31st March, 2024, the remeasurement loss will be 15,020 (Refer above table). In the Statement of Profit and loss, the following will be recognised: Particulars ₹ Current service cost 29,760 Net interest on net defined liability (₹ 23,074 - 19,974) 3,100 Gain on settlement (38,390 - 36,270) 2,120 Defined benefit re-measurements recognised in Other Comprehensive Income: Particulars ₹ Loss on defined benefit obligation (36,496) Gain on plan assets 21,476 Gain on remeasurement (15,020) In the Balance Sheet, the following will be recognised: Particulars ₹ Net defined benefit liability (₹ 3,26,480 - 2,68,340) 58,140

Topics: Ind AS 19, Ind AS 1

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