The appendix accompanies, but is not part of, FRS 119.

Extracts from income statements and balance sheets are provided to show the effects of the transactions described below. These extracts do not necessarily conform with all the disclosure and presentation requirements of other Standards.


Background information

The following information is given about a funded defined benefit plan. To keep interest computations simple, all transactions are assumed to occur at the year-end. The present value of the obligation and the fair value of the plan assets were both 1,000 at 1 January 20X1. Net cumulative unrecognised actuarial gains at that date were 140.

20X1

20X2

20X3

Discount rate at start of year

10.0%

9.0%

8.0%

Expected rate of return on plan assets at start of year

12.0%

11.1%

10.3%

Current service cost

130

140

150

Benefits paid

150

180

190

Contributions paid

90

100

110

Present value of obligation at 31 December

1,141

1,197

1,295

Fair value of plan assets at 31 December

1,092

1,109

1,093

Expected average remaining working lives of employees (years)

10

10

10

In 20X2, the plan was amended to provide additional benefits with effect from 1 January 20X2. The present value as at 1 January 20X2 of additional benefits for employee service before 1 January 20X2 was 50 for vested benefits and 30 for non-vested benefits. As at 1 January 20X2, the entity estimated that the average period until the non-vested benefits would become vested was three years; the past service cost arising from additional non-vested benefits is therefore recognised on a straight-line basis over three years. The past service cost arising from additional vested benefits is recognised immediately (paragraph 96 of the Standard). The entity has adopted a policy of recognising actuarial gains and losses under the minimum requirements of paragraph 93.

Changes in the present value of the obligation and in the fair value of the plan assets

The first step is to summarise the changes in the present value of the obligation and in the fair value of the plan assets and use this to determine the amount of the actuarial gains or losses for the period. These are as follows:

20X1

20X2

20X3

Present value of obligation, 1 January

1,000

1,141

1,197

Interest cost

100

103

96

Current service cost

130

140

150

Past service cost - non-vested benefits

-

30

-

Past service cost - vested benefits

-

50

-

Benefits paid

(150)

(180)

(190)

Actuarial (gain) loss on obligation (balancing figure)

61

(87)

42

Present value of obligation, 31 December

1,141

1,197

1,295

Fair value of plan assets, 1 January

1,000

1,092

1,109

Expected return on plan assets

120

121

114

Contributions

90

100

110

Benefits paid

(150)

(180)

(190)

Actuarial gain (loss) on plan assets (balancing figure)

32

(24)

(50)

Fair value of plan assets, 31 December

1,092

1,109

1,093

The next step is to determine the limits of the corridor and then compare these with the cumulative unrecognised actuarial gains and losses in order to determine the net actuarial gain or loss to be recognised in the following period. Under paragraph 92 of the Standard, the limits of the 'corridor' are set at the greater of:

These limits, and the recognised and unrecognised actuarial gains and losses, are as follows:

20X1

20X2

20X3

Net cumulative unrecognised actuarial gains (losses) at 1 January

140

107

170

Limits of 'corridor' at 1 January

100

114

120

Excess [A]

40

-

50

Average expected remaining working lives (years) [B]

10

10

10

Actuarial gain (loss) to be recognised [A/B]

4

-

5

Unrecognised actuarial gains (losses) at 1 January

140

107

170

Actuarial gain (loss) for year - obligation

(61)

87

(42)

Actuarial gain (loss) for year - plan assets

32

(24)

(50)

Subtotal

111

170

78

Actuarial (gain) loss recognised

(4)

-

(5)

Unrecognised actuarial gains (losses) at 31 December

107

170

73

Amounts recognised in the balance sheet and profit or loss, and related analyses

The final step is to determine the amounts to be recognised in the balance sheet and profit or loss, and the related analyses to be disclosed in accordance with paragraph 120A(f), (g) and (m) of the Standard (the analyses required to be disclosed in accordance with paragraph 120A(c) and (e) are given in the section of this Appendix 'Changes in the present value of the obligation and in the fair value of the plan assets'). These are as follows.

20X1

20X2

20X3

Present value of the obligation

1,141

1,197

1,295

Fair value of plan assets

(1,092)

(1,109)

(1,093)

49

88

202

Unrecognised actuarial gains (losses)

107

170

73

Unrecognised past service cost - non-vested benefits

-

(20)

(10)

Liability recognised in balance sheet

156

238

265

Current service cost

130

140

150

Interest cost

100

103

96

Expected return on plan assets

(120)

(121)

(114)

Net actuarial (gain) loss recognised in year

(4)

-

(5)

Past service cost - non-vested benefits

-

10

10

Past service cost - vested benefits

-

50

-

Expense recognised in profit or loss

106

182

137

Actual return on plan assets

Expected return on plan assets

120

121

114

Actuarial gain (loss) on plan assets

32

(24)

(50)

Actual return on plan assets

152

97

64

Note: see example illustrating paragraphs 104A-104C for presentation of reimbursements.