There are two re-measurements of the net defined benefit asset. (a) Return on plan asset (b) Actuarial gains and losses .
Return on plan asset: One of the re-measurements results from the return on plan assets exceeding the interest income included in net interest recognized in profit or loss. The return on plan assets affects the fair value of plan assets.
Actuarial gains and losses : The other re-measurement results from the increase in the discount rate used to measure the present value of the DBO (defined benefit obligation). This re-measurement affects the DBO. The effects of the re-measurements are recognized in other comprehensive income (OCI) and calculated in a defined benefit worksheet.
Any benefits paid to members during the period would reduce both the plan assets and the DBO. It appears in the fund columns only because it is a transaction of the fund, and not a transaction of the sponsoring employer.
Purpose of Defined Benefit Worksheet:
The defined benefit worksheet provides a basis for preparation of notes to the financial statements for some of the disclosures required by IAS 19 in respect of defined benefit post-employment plans. Paragraph 140 of IAS 19 includes a requirement for a reconciliation of the opening balance to the closing balance of the net defined benefit liability (asset), showing separate reconciliations for plan assets, the present value of the defined benefit obligation and the effect of the asset ceiling.
Each reconciliation is required to show the effect, if applicable, of past service cost and gains and losses arising on settlement, current service cost, interest income or expense, and re-measurement of the net defined liability (asset), showing separately return on plan assets excluding amounts included in interest, actuarial gains arising from changes in demographic assumptions, actuarial gains and losses arising from changes in financial assumptions and changes in the effect, if any, of the asset ceiling.
Para 141 also requires disclosure of contributions, distinguishing between those paid by the employer and those paid by the members of the plan, and benefits paid. Other reconciliation items include the effects of changes in foreign exchange rates and the effects of business combinations and disposals.
The net capitalization method can result in large gains and losses being recognized in profit or loss, or other comprehensive income, due to changes in the surplus or deficit of the fair value of plan assets over the present value of accrued benefits. For instance, the present value of the defined benefit obligation increases if employee retention is greater than the amount assumed in the previous actuarial estimate, which may result in a deficit in the superannuation fund.
Similarly, an unexpected decline in the return on investment of plan assets may cause the plan assets to grow at a slower rate than the present value of the defined benefit obligation, giving rise to an increase in the superannuation liability recognized by the employer. The net capitalization method is unpopular with some preparers of financial statements who would prefer less volatility of earnings.
There is ongoing debate as to how an employer should account for post-employment benefits, including pension funds, and the adequacy of disclosures in corporate financial statements.