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January-May 2016 Training Session

Corporate Reporting

IAS 19:Employee Benefits

Question One: De Vries Ltd

De Vries Ltd (“Dc Vnes”) has the following details relating to employment costs in the year to 3OJune 2006:

(i) wages and salaries totalled £2.lm. Employer’s national insurance (Ni) was an additional £260,000. Total PAYE and
employ NI deductions from wages and salaries equalled £470,000. All amounts had been paid to the Revenue by the
year-end except for those for June 2006;

(ii) De Vries operates a profit sharing scheme whereby employees receive 4% of profit before tax. The share is paid
in December 2006 to those employees still with the company at that date. The profit before tax for the year to 30
June 2006 is £7.8m (before taking account of the profit sharing scheme). Staff turnover reduces the cost of the
scheme to the company to 3.5% of profits.

Required:

(a) Calculate the total employment cost of De Vries for the year to 30 June 2006;

(b) Calculate any liability as at 30 June 2006.

Note: employer’s NI 12.8%.

Question Two:Fuller Ltd

Fuller Ltd operates a defined contribution pension scheme. Under the scheme employees pay 3% of pensionable
salary and the employer 2%. Fuller Ltd pays the monthly pension contribution to the pension scheme on the 19th of
the following month.

In the year to 31 December 2006 pensionable salaries totaled £ 36m payable in equal monthly instalments.

RequIred:

(a) calculate the employer’s pension cost for the year to 31 December 2006;
(b) indicate any balance relating to the pension scheme in the balance sheet of Fuller Ltd as at 31 December 2006;

(c) produce a disclosure note regarding pensions for inclusion in the accounts of Fuller Ltd for the year to 31
December 2006.

Question Three:Webster Ltd

(a) Webster Ltd (Webster operates a defined benefit pension plan. The plan had assets of £ 15.5m at 31 December
2005 and liabilities of £ 16.8m at that date. The expected rate of return on pension assets is 5.5% and liabilities are
discounted at 6%.

Required:

Calculate the expected return on pension scheme assets and interest cost for the year to 31 December 2006 and
prepare necessary journal entries.

(b) The pensionable payroll of Webster for the year to 31 December 2006 is £ 8.7m and the current service cost is
17%. The scheme is non- contributory for employees. Contributions equal to the current service cost were paid by
the company at the end of the year.

Required:

Calculate the current service cost for the year to 31 December 2006 and prepare necessary journal entries.

(c) During 2006 Webster sold a business segment. As a result a group of employees transferred out of the plan. A
payment of £700,000 was paid to their new employer’s pension plan on the transfer. The reduction in the Webster
pension liabilities as a result of the transfer was £670,000.

Required:

Prepare necessary journal entries.

(d) At 31 December 2006 pension scheme assets equalled £16.7m and liabilities £18.5m. The average remaining
working lives of employees in the plan is ten years.

There were unrecognised losses of £1.1 m at 3-1-Deçpiber 2005 and a pension liability of £200,000 at that date ie
the total difference between pension assets and liabilities at 31 December 2005 was £1.3m (£16.8m less £15.5m —
see (a) above).

Webster uses the corridor approach to deal with actuarial gains and losses.

Required:

(i) CaIculate any actuarial gain or loss to be recognised in the year to 31 December 2006 and prepare any necessary
journal entries.

(ii) Based on the opening balance and the effect of the journal entries for the year, calculate the pension asset or
liability as at 31 December 2006.
Question Four: Stamp Ltd

Stamp Ltd (“Stamp”) operates two pension plans. The following information is available.

Plan A

This is a defined contribution plan with employees paying 5% of salary and Stamp 6%. At 1 January 2006 there were
200 members in the plan. Their salary for the year to 31 December 2006 equalled £5.6m.

On 1 July 2006, 150 members transferred from Plan B to Plan A. Their salaries for the year to 31 December 2006
totalled £4.05m.

Plan B

This is a defined benefit plan with Stamp paying the full current service cost of 10% of pensionable salary. The plan
assets had a fair value of L25m at 1 January

2006 and the expected return on assets is 6.2% per annum (3.04% half yearly).

The pensionable salaries for 2006 of those in the scheme at 1 january 2004 was £11m.

Benefits paid to plan members during the year equalled £1m.They were paid on 30 June 2006.

On the transfer of the 150 employees to Plan A (see above) a payment of £ 9.2m was paid into Plan A. The reduction
in the obligations of Plan B as a result of the transfer was £8.9m.

Stamp pays contributions to the pension plan half yearly in arrears on 30 june and 31 December. Contributions
equalled the current service cost.

The interest cost for the year to 31 December 2006 has been calculated at £945,000.

Required: (a) Calculate the net expense to be charged to the profit and loss account of Stamp for the year to 31
December 2006 in respect of pensions and redundancy payments (ignore actuarial gains and losses); and

(b) calculate the expected value of the assets in Plan B as at 31 December 2006.

Question Five: Gronlund plc

Gronlund plc (‘Gronlund’) has operated a defined benefit pension scheme for a number of years. Relevant
information is as follows:

1. At 1 April 2005 pension scheme assets had a market value of £245m and the present value of the pension scheme
liabilities equalled £298m. There were £42m of unrecognised losses at 31 March 2005 and a pension liability of £11m
at that date.
2. The actuary has advised that the current service cost is 9% of the payroll. Payroll for the year to 31 March 2006
equalled £28m. A contribution of £2,000,000 was paid to the scheme by Gronlund at the year-end.

3. The discount rate applied to the pension scheme liabilities is 6% and the expected return on pension scheme
assets is 6.5%

4. The directors decided to enhance the benefits available to dependant relatives under the terms of the scheme. The
cost of meeting this in the future is reflected in the current service cost (see note 2 above). The benefit was
backdated and on the advice of the actuary the company paid £ 5.2m into the pension scheme on 31 March 2006 to
cover the additional liability arising.

5. The value of the scheme assets and liabilities at 31 March 2006 were £299.9m and £327.3m respectively. The
operatmg profit of the company (before taking account of any pension costs) is £19,500,000. The average remaining
service lives of employees in the scheme is 12 years at 1 April 2005. Gronlund’s accounting policy is to recognise
actuarial gains and losses outwith the corridor over the average remaining service lives of employees.

Required:

(i) prepare extracts from the profit and loss account of Gronlund for the year to 31 March 2006 and the balance sheet
as at that date.

(ii) prepare relevant disclosure notes.