Measurement of net defined benefit liability : The economic substance of the entity’s exposure may be considered as the net surplus or deficit of the fund. It could be argued that the partial capitalization approach potentially does not reflect the entity’s exposure to a defined benefit post-employment plan because the net liability (asset) is understated (overstated) to the extent of any unamortized accumulated actuarial losses.
Conversely, the net defined benefit liability (asset) may be overstated (understated) to the extent of any unamortized accumulated actuarial gains. Further, any unamortized past service costs result understatement of the net liability, or overstatement of the net asset.
However, an alternative view is that the surplus or deficit of the defined benefit post-employment plan does not reflect the entity’s exposure to the defined benefit post-employment plan because the retirement benefits are not immediately due and payable. The measurement of the defined benefit obligation includes benefits that have not yet vested.
Although an obligation arises as services are provided, there is uncertainty as to the amount that will be required to settle the obligation in subsequent periods. Please read more on reference books in order to understand the Recognition and measurement of net defined benefit liability