Determining The Amounts To Be Recognized In Profit Or Loss of Superannuation Fund: The amount of the net defined benefit liability (asset) is affected by the present value of the defined benefit obligation and the fair value of plan assets. The present value of the defined benefit obligation is affected by the service cost, which comprises current service cost, past service cost and any gain or loss on settlement of the defined benefit.
Current service cost is ‘the increase in the present value of defined benefit obligation resulting from employee service in the current period’ (IAS 19 para 8). The service cost for each year is the increase in the present value of the defined benefit obligation attributed to employment services rendered during each year.
Past service cost is defined 19 as the change in the present value of the defined benefit obligation for employee service in prior periods, resulting from a plan amendment or a curtailment.
Net Interest On The Net Defined Benefit Liability (Asset)
The net interest on the net defined benefit liability (asset) as the change in the net defined benefit liability (asset) that arises from the passage of time. The net interest on net defined benefit liability (asset) is measured by multiplying the discount rate that is used to measure the defined benefit obligation at the beginning of the period by the net defined benefit liability (asset). The discount rate to be determined with reference to market yields on high-quality corporate bonds. In jurisdictions in which there is no deep market in such bonds, the market yield on government bonds should be used instead.
The standard requires contributions received by the fund and benefits paid to be taken into account when calculating interest. This would involve recalculating interest for part of the year each time the plan assets were increased by a contribution or where payment of benefits resulted in settlement gains or losses, giving rise to change in the net defined benefit liability or asset. Throughout this text, this process is simplified by applying the discount rate to the opening balance of the net defined benefit liability (asset), effectively assuming contributions and benefits are paid at the end of each year.
When the superannuation fund pays benefits to a member, both the plan assets and the defined benefit obligation are reduced. If, at the time of settlement, the carrying amount of the obligation to the member is equal to the amount actually payable, the settlement will have no effect on the surplus or deficit of the fund. However, the carrying amount of the defined benefit obligation results from numerous actuarial estimates, resulting in potential inaccuracy in measurement.
Differences between the carrying amount of the defined benefit obligation of the fund and the amount actually paid to a member give rise to a gain or loss on settlement, which is a service cost recognized in profit or loss.