Ias 19

Chapter 14
IAS 19 Employee Benefits

Objective
The objective of this Standard is to prescribe the accounting and disclosure for employee
benefits. The Standard requires an entity to recognize:
(a) a liability when an employee has provided service in exchange for employee
benefits to be paid in the future; and
(b) an expense when the entity consumes the economic benefit arising from service
provided by an employee in exchange for employee benefits.
Scope
This Standard shall be applied by an employer in accounting for all employee benefits,
except those to which IFRS 2 Share-based Payment applies.
This Standard does not deal with reporting by employee benefit plans.
The employee benefits to which this Standard applies include those provided:
(a) under formal plans or other formal agreements between an entity and individual
employees, groups of employees or their representatives;
(b) under legislative requirements, or through industry arrangements, whereby entities are
required to contribute to national, state, industry or other multi-employer plans; or
(c) by those informal practices that give rise to a constructive obligation. Informal
practices give rise to a constructive obligation where the entity has no realistic
alternative but to pay employee benefits. An example of a constructive obligation is
where a change in the entitys informal practices would cause unacceptable
damage to its relationship with employees.
Employee benefits include:
(a) short-term employee benefits, such as the following, if expected to be settled wholly
before twelve months after the end of the annual reporting period in which the
employees render the related services:
(i) wages, salaries and social security contributions;
(ii) paid annual leave and paid sick leave;
(iii) profit-sharing and bonuses; and
(iv) non-monetary benefits (such as medical care, housing, cars and free or
subsidized goods or services) for current employees;
(b) post-employment benefits, such as the following:
(i) Retirement benefits (eg pensions and lump sum payments on retirement); and
(ii) Other post-employment benefits, such as post-employment life insurance and
post-employment medical care;
(c) other long-term employee benefits, such as the following:
(i) long-term paid absences such as long-service leave or sabbatical leave;
(ii) jubilee or other long-service benefits; and
(iii) long-term disability benefits; and
(d) termination benefits.
Definitions of employee benefits
Employee benefits are all forms of consideration given by an entity in exchange for service
rendered by employees or for the termination of employment.
Short-term employee benefits are employee benefits (other than termination benefits) that
are expected to be settled wholly before twelve months after the end of the annual
reporting period in which the employees render the related service.
Post-employment benefits are employee benefits (other than termination benefits and short-
term employee benefits) that are payable after the completion of employment.
Other long-term employee benefits are all employee benefits other than short-term
employee benefits, post-employment benefits and termination benefits.
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Termination benefits are employee benefits provided in exchange for the termination of an
employees employment as a result of either:
(a) an entitys decision to terminate an employees employment before the normal
retirement date; or
(b) an employees decision to accept an offer of benefits in exchange for the
termination of employment.
Definitions relating to classification of plans
Post-employment benefit plans are formal or informal arrangements under which an entity
provides post-employment benefits for one or more employees.
Defined contribution plans are post-employment benefit plans under which an entity pays
fixed contributions into a separate entity (a fund) and will have no legal or constructive
obligation to pay further contributions if the fund does not hold sufficient assets to pay all
employee benefits relating to employee service in the current and prior periods.
Defined benefit plans are post-employment benefit plans other than defined contribution
plans.
Multi-employer plans are defined contribution plans (other than state plans) or defined
benefit plans (other than state plans) that:
(a) pool the assets contributed by various entities that are not under common control;
and
(b) use those assets to provide benefits to employees of more than one entity, on the
basis that contribution and benefit levels are determined without regard to the
identity of the entity that employs the employees.
Definitions relating to the net defined benefit liability (asset)
The net defined benefit liability (asset) is the deficit or surplus, adjusted for any effect of
limiting a net defined benefit asset to the asset ceiling.
The deficit or surplus is:
(a) the present value of the defined benefit obligation less
(b) the fair value of plan assets (if any).
The asset ceiling is the present value of any economic benefits available in the form of
refunds from the plan or reductions in future contributions to the plan.
The present value of a defined benefit obligation is the present value, without deducting any
plan assets, of expected future payments required to settle the obligation resulting from
employee service in the current and prior periods.
Plan assets comprise:
(a) assets held by a long-term employee benefit fund; and
(b) qualifying insurance policies.
Assets held by a long-term employee benefit fund are assets (other than non-transferable
financial instruments issued by the reporting entity) that:
(a) are held by an entity (a fund) that is legally separate from the reporting entity and
exists solely to pay or fund employee benefits; and
(b) are available to be used only to pay or fund employee benefits, are not available to
the reporting entitys own creditors (even in bankruptcy), and cannot be returned to
the reporting entity, unless either:
(i) the remaining assets of the fund are sufficient to meet all the related employee
benefit obligations of the plan or the reporting entity; or
(ii) the assets are returned to the reporting entity to reimburse it for employee
benefits already paid.
A qualifying insurance policy is an insurance policy* issued by an insurer that is not a related
party (as defined in IAS 24 Related Party Disclosures) of the reporting entity, if the proceeds
of the policy:
(a) can be used only to pay or fund employee benefits under a defined benefit plan;
and
(b) are not available to the reporting entitys own creditors (even in bankruptcy) and
cannot be paid to the reporting entity, unless either:
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(i) the proceeds represent surplus assets that are not needed for the policy to
meet all the related employee benefit obligations; or
(ii) the proceeds are returned to the reporting entity to reimburse it for employee
benefits already paid.
Fair value is the amount for which an asset could be exchanged or a liability settled
between knowledgeable, willing parties in an arms length transaction.
Definitions relating to defined benefit cost
Service cost comprises:
(a) current service cost, which is the increase in the present value of the defined benefit
obligation resulting from employee service in the current period;
(b) past service cost, which is the change in the present value of the defined benefit
obligation for employee service in prior periods, resulting from a plan amendment
(the introduction or withdrawal of, or changes to, a defined benefit plan) or a
curtailment (a significant reduction by the entity in the number of employees covered
by a plan); and
(c) any gain or loss on settlement.
Net interest on the net defined benefit liability (asset) is the change during the period in the
net defined benefit liability (asset) that arises from the passage of time.
Re-measurements of the net defined benefit liability (asset) comprise:
(a) actuarial gains and losses;
(b) the return on plan assets, excluding amounts included in net interest on the net
defined benefit liability (asset); and
(c) any change in the effect of the asset ceiling, excluding amounts included in net
interest on the net defined benefit liability (asset).
Actuarial gains and losses are changes in the present value of the defined benefit
obligation resulting from:
(a) experience adjustments (the effects of differences between the previous actuarial
assumptions and what has actually occurred); and
(b) the effects of changes in actuarial assumptions.
The return on plan assets is interest, dividends and other income derived from the plan
assets, together with realized and unrealized gains or losses on the plan assets, less:
(a) any costs of managing plan assets; and
(b) any tax payable by the plan itself, other than tax included in the actuarial
assumptions used to measure the present value of the defined benefit obligation.
A settlement is a transaction that eliminates all further legal or constructive obligations for
part or all of the benefits provided under a defined benefit plan, other than a payment of
benefits to, or on behalf of, employees that is set out in the terms of the plan and included in
the actuarial assumptions.
Short-term employee benefits
Short-term employee benefits include items such as the following, if expected to be settled
wholly before twelve months after the end of the annual reporting period in which the
employees render the related services:
(a) wages, salaries and social security contributions;
(b) paid annual leave and paid sick leave;
(c) profit-sharing and bonuses; and
(d) non-monetary benefits (such as medical care, housing, cars and free or subsidized
goods or services) for current employees.
Recognition and measurement
All short-term employee benefits
When an employee has rendered service to an entity during an accounting period, the
entity shall recognize the undiscounted amount of short-term employee benefits expected
to be paid in exchange for that service:
(a) as a liability (accrued expense), after deducting any amount already paid. If the
amount already paid exceeds the undiscounted amount of the benefits, an entity
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shall recognize that excess as an asset (prepaid expense) to the extent that the
prepayment will lead to, for example, a reduction in future payments or a cash
refund.
(b) as an expense, unless another IFRS requires or permits the inclusion of the benefits in
the cost of an asset (see, for example, IAS 2 Inventories and IAS 16 Property, Plant and
Equipment).
Short-term paid absences
An entity shall recognize the expected cost of short-term employee benefits in the form of
paid absences as follows:
(a) in the case of accumulating paid absences, when the employees render service that
increases their entitlement to future paid absences.
(b) in the case of non-accumulating paid absences, when the absences occur.
Profit-sharing and bonus plans
An entity shall recognize the expected cost of profit-sharing and bonus payments when and
only when:
(a) the entity has a present legal or constructive obligation to make such payments as a
result of past events; and
(b) a reliable estimate of the obligation can be made.
A present obligation exists when, and only when, the entity has no realistic alternative but to
make the payments.
Disclosure
Although this Standard does not require specific disclosures about short-term employee
benefits, other IFRSs may require disclosures. For example, IAS 24 requires disclosures about
employee benefits for key management personnel. IAS 1 Presentation of Financial
Statements requires disclosure of employee benefits expense.
Post-employment benefits
Distinction between defined contribution plans and defined benefit plans
Post-employment benefit plans are classified as either defined contribution plans or defined
benefit plans, depending on the economic substance of the plan as derived from its
principal terms and conditions.
Under defined contribution plans the entitys legal or constructive obligation is limited to the
amount that it agrees to contribute to the fund. Thus, the amount of the post-employment
benefits received by the employee is determined by the amount of contributions paid by an
entity (and perhaps also the employee) to a post-employment benefit plan or to an
insurance company, together with investment returns arising from the contributions. In
consequence, actuarial risk (that benefits will be less than expected) and investment risk
(that assets invested will be insufficient to meet expected benefits) fall, in substance, on the
employee.
Under defined benefit plans:
(a) the entitys obligation is to provide the agreed benefits to current and former
employees; and
(b) actuarial risk (that benefits will cost more than expected) and investment risk fall, in
substance, on the entity. If actuarial or investment experience are worse than
expected, the entitys obligation may be increased.
Multi-employer plans
An entity shall classify a multi-employer plan as a defined contribution plan or a defined
benefit plan under the terms of the plan (including any constructive obligation that goes
beyond the formal terms).
If an entity participates in a multi-employer defined benefit plan, it shall account for its
proportionate share of the defined benefit obligation, plan assets and cost associated with
the plan in the same way as for any other defined benefit plan.
However, when sufficient information is not available to use defined benefit accounting for a
multi-employer defined benefit plan, an entity shall:
(a) account for the as if it were a defined contribution plan; and
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(b) disclose the information required by this IAS.
State plans
An entity shall account for a state plan in the same way as for a multi-employer plan.
State plans are established by legislation to cover all entities (or all entities in a particular
category, for example, a specific industry) and are operated by national or local
government or by another body (for example, an autonomous agency created specifically
for this purpose) that is not subject to control or influence by the reporting entity. Some plans
established by an entity provide both compulsory benefits, as a substitute for benefits that
would otherwise be covered under a state plan, and additional voluntary benefits. Such
plans are not state plans.
State plans are characterized as defined benefit or defined contribution, depending on the
entitys obligation under the plan. Many state plans are funded on a pay-as-you-go basis:
contributions are set at a level that is expected to be sufficient to pay the required benefits
falling due in the same period; future benefits earned during the current period will be paid
out of future contributions. Nevertheless, in most state plans the entity has no legal or
constructive obligation to pay those future benefits:
its only obligation is to pay the contributions as they fall due and if the entity ceases to
employ members of the state plan, it will have no obligation to pay the benefits earned by
its own employees in previous years. For this reason, state plans are normally defined
contribution plans. However, when a state plan is a defined benefit plan an entity applies
accounting for defined benefit plans.
Insured benefits
An entity may pay insurance premiums to fund a post-employment benefit plan. The entity
shall treat such a plan as a defined contribution plan unless the entity will have (either
directly or indirectly through the plan) a legal or constructive obligation either:
(a) to pay the employee benefits directly when they fall due; or
(b) to pay further amounts if the insurer does not pay all future employee benefits relating
to employee service in the current and prior periods.
If the entity retains such a legal or constructive obligation, the entity shall treat the plan as a
defined benefit plan.
The benefits insured by an insurance policy need not have a direct or automatic relationship
with the entitys obligation for employee benefits.
Post-employment benefit plans involving insurance policies are subject to the same
distinction between accounting and funding as other funded plans.
Where an entity funds a post-employment benefit obligation by contributing to an insurance
policy under which the entity (either directly, indirectly through the plan, through the
mechanism for setting future premiums or through a related party relationship with the
insurer) retains a legal or constructive obligation, the payment of the premiums does not
amount to a defined contribution arrangement.
It follows that the entity:
(a) Accounts for a qualifying insurance policy as a plan asset; and
(b) Recognizes other insurance policies as reimbursement rights.
Where an insurance policy is in the name of a specified plan participant or a group of plan
participants and the entity does not have any legal or constructive obligation to cover any
loss on the policy, the entity has no obligation to pay benefits to the employees and the
insurer has sole responsibility for paying the benefits. The payment of fixed premiums under
such contracts is, in substance, the settlement of the employee benefit obligation, rather
than an investment to meet the obligation.
Consequently, the entity no longer has an asset or a liability. Therefore, an entity treats such
payments as contributions to a defined contribution plan.
Post-employment benefits: defined contribution plans
Accounting for defined contribution plans is straightforward because the reporting entitys
obligation for each period is determined by the amounts to be contributed for that period.
Consequently, no actuarial assumptions are required to measure the obligation or the
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expense and there is no possibility of any actuarial gain or loss. Moreover, the obligations are
measured on an undiscounted basis, except where they are not expected to be settled
wholly before twelve months after the end of the annual reporting period in which the
employees render the related service.
When an employee has rendered service to an entity during a period, the entity shall
recognize the contribution payable to a defined contribution plan in exchange for that
service:
(a) as a liability (accrued expense), after deducting any contribution already paid. If the
contribution already paid exceeds the contribution due for service before the end of
the reporting period, an entity shall recognize that excess as an asset (prepaid
expense) to the extent that the prepayment will lead to, for example, a reduction in
future payments or cash refund.
(b) as an expense, unless another IFRS requires or permits the inclusion of the contribution
in the cost of an asset.
When contributions to a defined contribution plan are not expected to be settled wholly
before twelve months after the end of the annual reporting period in which the employees
render the related service, they shall be discounted using the discount rate specified under
this IAS.
Disclosure
An entity shall disclose the amount recognized as an expense for defined contribution plans.
Where required by IAS 24 an entity discloses information about contributions to defined
contribution plans for key management personnel.
Post-employment benefits: defined benefit plans
Accounting for defined benefit plans is complex because actuarial assumptions are required
to measure the obligation and the expense and there is a possibility of actuarial gains and
losses. Moreover, the obligations are measured on a discounted basis because they may be
settled many years after the employees render the related service.
Defined benefit plans may be unfunded, or they may be wholly or partly funded by
contributions by an entity, and sometimes its employees, into an entity, or fund, that is legally
separate from the reporting entity and from which the employee benefits are paid. The
payment of funded benefits when they fall due depends not only on the financial position
and the investment performance of the fund but also on an entitys ability, and willingness,
to make good any shortfall in the funds assets.
Therefore, the entity is, in substance, underwriting the actuarial and investment risks
associated with the plan. Consequently, the expense recognized for a defined benefit plan
is not necessarily the amount of the contribution due for the period.
Accounting by an entity for defined benefit plans involves the following steps:
(a) determining the deficit or surplus. This involves:
(i) using an actuarial technique, the projected unit credit method, to make a
reliable estimate of the ultimate cost to the entity of the benefit that
employees have earned in return for their service in the current and prior
periods. This requires an entity to determine how much benefit is attributable
to the current and prior periods and to make estimates (actuarial
assumptions) about demographic variables (such as employee turnover and
mortality) and financial variables (such as future increases in salaries and
medical costs) that will affect the cost of the benefit.
(ii) discounting that benefit in order to determine the present value of the
defined benefit obligation and the current service cost.
(iii) deducting the fair value of any plan assets from the present value of the
defined benefit obligation.
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(b) determining the amount of the net defined benefit liability (asset) as the amount of
the deficit or surplus determined in (a), adjusted for any effect of limiting a net
defined benefit asset to the asset ceiling.
(c) determining amounts to be recognized in profit or loss:
(i) current service cost.
(ii) any past service cost and gain or loss on settlement.
(iii) net interest on the net defined benefit liability (asset).
(d) determining the re-measurements of the net defined benefit liability (asset), to be
recognized in other comprehensive income, comprising:
(i) actuarial gains and losses;
(ii) return on plan assets, excluding amounts included in net interest on the net
(iii) any change in the effect of the asset ceiling excluding amounts included in
net interest on the net defined benefit liability (asset).
Where an entity has more than one defined benefit plan, the entity applies these
procedures for each material plan separately.
An entity shall determine the net defined benefit liability (asset) with sufficient regularity that
the amounts recognized in the financial statements do not differ materially from the amounts
that would be determined at the end of the reporting period.
Accounting for the constructive obligation
An entity shall account not only for its legal obligation under the formal terms of a defined
benefit plan, but also for any constructive obligation that arises from the entitys informal
practices. Informal practices give rise to a constructive obligation where the entity has no
realistic alternative but to pay employee benefits. An example of a constructive obligation is
where a change in the entitys informal practices would cause unacceptable damage to its
relationship with employees.
Statement of financial position
An entity shall recognize the net defined benefit liability (asset) in the statement of financial
position.
When an entity has a surplus in a defined benefit plan, it shall measure the net defined
benefit asset at the lower of:
(a) the surplus in the defined benefit plan; and
(b) the asset ceiling, determined using the discount rate specified in this IAS.
A net defined benefit asset may arise where a defined benefit plan has been overfunded or
where actuarial gains have arisen. An entity recognizes a net defined benefit asset in such
cases because:
(a) the entity controls a resource, which is the ability to use the surplus to generate future
benefits;
(b) that control is a result of past events (contributions paid by the entity and service
rendered by the employee); and
(c) future economic benefits are available to the entity in the form of a reduction in
future contributions or a cash refund, either directly to the entity or indirectly to
another plan in deficit. The asset ceiling is the present value of those future benefits.
Recognition and measurement: present value of defined benefit obligations and current
service cost
The ultimate cost of a defined benefit plan may be influenced by many variables, such as
final salaries, employee turnover and mortality, employee contributions and medical cost
trends. The ultimate cost of the plan is uncertain and this uncertainty is likely to persist over a
long period of time. In order to measure the present value of the post-employment benefit
obligations and the related current service cost, it is necessary:
(a) to apply an actuarial valuation method;
(b) to attribute benefit to periods of service; and
(c) to make actuarial assumptions.
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Actuarial valuation method
An entity shall use the projected unit credit method to determine the present value of its
defined benefit obligations and the related current service cost and, where applicable, past
service cost.
The projected unit credit method (sometimes known as the accrued benefit method pro-
rated on service or as the benefit/years of service method) sees each period of service as
giving rise to an additional unit of benefit entitlement and measures each unit separately to
build up the final obligation.
An entity discounts the whole of a post-employment benefit obligation, even if part of the
obligation is expected to be settled before twelve months after the reporting period.
Attributing benefit to periods of service
In determining the present value of its defined benefit obligations and the related current
service cost and, where applicable, past service cost, an entity shall attribute benefit to
periods of service under the plans benefit formula. However, if an employees service in
later years will lead to a materially higher level of benefit than in earlier years, an entity shall
attribute benefit on a straight-line basis from:
(a) the date when service by the employee first leads to benefits under the plan
(whether or not the benefits are conditional on further service) until
(b) the date when further service by the employee will lead to no material amount of
further benefits under the plan, other than from further salary increases.
The projected unit credit method requires an entity to attribute benefit to the current period
(in order to determine current service cost) and the current and prior periods (in order to
determine the present value of defined benefit obligations). An entity attributes benefit to
periods in which the obligation to provide post-employment benefits arises. That obligation
arises as employees render services in return for post-employment benefits that an entity
expects to pay in future reporting periods. Actuarial techniques allow an entity to measure
that obligation with sufficient reliability to justify recognition of a liability.
Actuarial assumptions
Actuarial assumptions shall be unbiased and mutually compatible.
Actuarial assumptions are an entitys best estimates of the variables that will determine the
ultimate cost of providing post-employment benefits.
Actuarial assumptions comprise:
(a) demographic assumptions about the future characteristics of current and former
employees (and their dependants) who are eligible for benefits. Demographic
assumptions deal with matters such as:
(i) mortality (see paragraphs 81 and 82);
(ii) rates of employee turnover, disability and early retirement;
(iv) the proportion of plan members with dependants who will be eligible for
benefits;
(iv) the proportion of plan members who will select each form of payment option
available under the plan terms; and
(v) claim rates under medical plans.
(b) financial assumptions, dealing with items such as:
(i) the discount rate;
(ii) benefit levels, excluding any cost of the benefits to be met by employees, and
future salary;
(v) in the case of medical benefits, future medical costs, including claim handling
costs (ie the costs that will be incurred in processing and resolving claims,
including legal and adjusters fees); and
(vi) taxes payable by the plan on contributions relating to service before the
reporting date or on benefits resulting from that service.
Actuarial assumptions are unbiased if they are neither imprudent nor excessively
conservative.
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Actuarial assumptions are mutually compatible if they reflect the economic relationships
between factors such as inflation, rates of salary increase and discount rates. For example,
all assumptions that depend on a particular inflation level (such as assumptions about
interest rates and salary and benefit increases) in any given future period assume the same
inflation level in that period.
Actuarial assumptions: mortality
An entity shall determine its mortality assumptions by reference to its best estimate of the
mortality of plan members both during and after employment.
Actuarial assumptions: discount rate
The rate used to discount post-employment benefit obligations (both funded and unfunded)
shall be determined by reference to market yields at the end of the reporting period on high
quality corporate bonds. In countries where there is no deep market in such bonds, the
market yields (at the end of the reporting period) on government bonds shall be used. The
currency and term of the corporate bonds or government bonds shall be consistent with the
currency and estimated term of the post-employment benefit obligations.
Actuarial assumptions: salaries, benefits and medical costs
An entity shall measure its defined benefit obligations on a basis that
reflects:
(a) the benefits set out in the terms of the plan (or resulting from any constructive
obligation that goes beyond those terms) at the end of the reporting period;
(b) any estimated future salary increases that affect the benefits payable;
(c) the effect of any limit on the employers share of the cost of the future benefits;
(d) contributions from employees or third parties that reduce the ultimate cost to the
entity of those benefits; and
(e) estimated future changes in the level of any state benefits that affect the benefits
payable under a defined benefit plan, if, and only if, either:
(i) those changes were enacted before the end of the reporting period; or
(ii) historical data, or other reliable evidence, indicate that those state benefits will
change in some predictable manner, for example, in line with future changes
in general price levels or general salary levels.
Past service cost and gains and losses on settlement
Before determining past service cost, or a gain or loss on settlement, an entity shall re-
measure the net defined benefit liability (asset) using the current fair value of plan assets and
current actuarial assumptions (including current market interest rates and other current
market prices) reflecting the benefits offered under the plan before the plan amendment,
curtailment or settlement.
Past service cost
Past service cost is the change in the present value of the defined benefit obligation
resulting from a plan amendment or curtailment.
An entity shall recognize past service cost as an expense at the earlier of the following dates:
(a) when the plan amendment or curtailment occurs; and
(b) when the entity recognizes related restructuring costs or termination benefits.
An entity shall recognize a gain or loss on the settlement of a defined benefit plan when the
settlement occurs.
Recognition and measurement: plan assets
Fair value of plan assets
The fair value of any plan assets is deducted from the present value of the defined benefit
obligation in determining the deficit or surplus. When no market price is available, the fair
value of plan assets is estimated, for example, by discounting expected future cash flows
using a discount rate that reflects both the risk associated with the plan assets and the
maturity or expected disposal date of those assets (or, if they have no maturity, the
expected period until the settlement of the related obligation).
Plan assets exclude unpaid contributions due from the reporting entity to the fund, as well as
any non-transferable financial instruments issued by the entity and held by the fund. Plan
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assets are reduced by any liabilities of the fund that do not relate to employee benefits, for
example, trade and other payables and liabilities resulting from derivative financial
instruments.
Where plan assets include qualifying insurance policies that exactly match the amount and
timing of some or all of the benefits payable under the plan, the fair value of those insurance
policies is deemed to be the present value of the related obligations (subject to any
reduction required if the amounts receivable under the insurance policies are not
recoverable in full).
Reimbursements
When and only when, it is virtually certain that another party will reimburse some or all of the
expenditure required to settle a defined benefit obligation, an entity shall:
(a) recognize its right to reimbursement as a separate asset. The entity shall measure the
asset at fair value.
(b) disaggregate and recognize changes in the fair value of its right to reimbursement in
the same way as for changes in the fair value of plan assets. The components of
defined benefit cost recognized in accordance with paragraph 120 may be
recognized net of amounts relating to changes in the carrying amount of the right to
reimbursement.
Components of defined benefit cost
An entity shall recognize the components of defined benefit cost, except to the extent that
another IFRS requires or permits their inclusion in the cost of an asset, as follows:
(a) service cost in profit or loss;
(b) net interest on the net defined benefit liability (asset) in profit or loss; and
(c) re-measurements of the net defined benefit liability (asset) in other comprehensive
income.
Other IFRSs require the inclusion of some employee benefit costs within the cost of assets,
such as inventories and property, plant and equipment. Any post-employment benefit costs
included in the cost of such assets include the appropriate proportion of the components
listed above.
Re-measurements of the net defined benefit liability (asset) recognized in other
comprehensive income shall not be reclassified to profit or loss in a subsequent period.
However, the entity may transfer those amounts recognized in other comprehensive income
within equity.
Net interest on the net defined benefit liability (asset)
Net interest on the net defined benefit liability (asset) shall be determined by multiplying the
net defined benefit liability (asset) by the discount rate, both as determined at the start of
the annual reporting period, taking account of any changes in the net defined benefit
liability (asset) during the period as a result of contribution and benefit payments.
Net interest on the net defined benefit liability (asset) can be viewed as comprising interest
income on plan assets, interest cost on the defined benefit obligation and interest on the
effect of the asset ceiling
Interest income on plan assets is a component of the return on plan assets, and is
determined by multiplying the fair value of the plan assets by the discount rate, both as
determined at the start of the annual reporting period, taking account of any changes in
the plan assets held during the period as a result of contributions and benefit payments. The
difference between the interest income on plan assets and the return on plan assets is
included in the re-measurement of the net defined benefit liability (asset).
Interest on the effect of the asset ceiling is part of the total change in the effect of the asset
ceiling, and is determined by multiplying the effect of the asset ceiling by the discount rate,
both as determined at the start of the annual reporting period. The difference between that
amount and the total change in the effect of the asset ceiling is included in the re-
measurement of the net defined benefit liability (asset).
Re-measurements of the net defined benefit liability (asset)
Re-measurements of the net defined benefit liability (asset) comprise:
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(a) Actuarial gains and losses;
(b) The return on plan assets, excluding amounts included in net interest on the net
(c) Any change in the effect of the asset ceiling, excluding amounts included in net
interest on the net defined benefit liability (asset).
Actuarial gains and losses result from increases or decreases in the present value of the
defined benefit obligation because of changes in actuarial assumptions and experience
adjustments.
Causes of actuarial gains and losses include, for example:
(a) Unexpectedly high or low rates of employee turnover, early retirement or mortality or
of increases in salaries, benefits (if the formal or constructive terms of a plan provide
for inflationary benefit increases) or medical costs;
(b) The effect of changes to assumptions concerning benefit payment options;
(c) The effect of changes in estimates of future employee turnover, early retirement or
mortality or of increases in salaries, benefits (if the formal or constructive terms of a
plan provide for inflationary benefit increases) or medical costs; and
(d) The effect of changes in the discount rate.
Actuarial gains and losses do not include changes in the present value of the defined
benefit obligation because of the introduction, amendment, curtailment or settlement of the
defined benefit plan, or changes to the benefits payable under the defined benefit plan.
Such changes result in past service cost or gains or losses on settlement.
In determining the return on plan assets, an entity deducts the costs of managing the plan
assets and any tax payable by the plan itself, other than tax included in the actuarial
assumptions used to measure the defined benefit obligation. Other administration costs are
not deducted from the return on plan assets.
Presentation
Offset
An entity shall offset an asset relating to one plan against a liability relating to another plan
when, and only when, the entity:
(a) has a legally enforceable right to use a surplus in one plan to settle obligations under
the other plan; and
(b) intends either to settle the obligations on a net basis, or to realize the surplus in one
plan and settle its obligation under the other plan simultaneously.
Current/non-current distinction
Some entities distinguish current assets and liabilities from non-current assets and liabilities.
This Standard does not specify whether an entity should distinguish current and non-current
portions of assets and liabilities arising from post-employment benefits.
Components of defined benefit cost
IAS requires an entity to recognize service cost and net interest on the net defined benefit
liability (asset) in profit or loss. This Standard does not specify how an entity should present
service cost and net interest on the net defined benefit liability (asset). An entity presents
those components in accordance with IAS 1.
Disclosure
An entity shall disclose information that:
(a) explains the characteristics of its defined benefit plans and risks associated with them;
(b) identifies and explains the amounts in its financial statements arising from its defined
benefit plans; and
(c) describes how its defined benefit plans may affect the amount, timing and
uncertainty of the entitys future cash flows.
Explanation of amounts in the financial statements
An entity shall provide reconciliation from the opening balance to the closing balance for
each of the following, if applicable:
(a) the net defined benefit liability (asset), showing separate reconciliations for:
(i) plan assets.
Page 11 of 31
(ii) the present value of the defined benefit obligation.
(iii) the effect of the asset ceiling.
(b) any reimbursement rights. An entity shall also describe the relationship between any
reimbursement right and the related obligation.
Other long-term employee benefits
Other long-term employee benefits include items such as the following, if not expected to
be settled wholly before twelve months after the end of the annual reporting period in which
the employees render the related service:
(a) long-term paid absences such as long-service or sabbatical leave;
(b) jubilee or other long-service benefits;
(c) long-term disability benefits;
(d) profit-sharing and bonuses; and
(e) deferred remuneration.
The measurement of other long-term employee benefits is not usually subject to the same
degree of uncertainty as the measurement of post-employment benefits. For this reason, this
Standard requires a simplified method of accounting for other long-term employee benefits.
Unlike the accounting required for post-employment benefits, this method does not
recognize re-measurements in other comprehensive income.
For other long-term employee benefits, an entity shall recognize the net total of the following
amounts in profit or loss, except to the extent that another IFRS requires or permits their
inclusion in the cost of an asset:
(a) service cost;
(b) net interest on the net defined benefit liability (asset); and
(c) re-measurements of the net defined benefit liability (asset)
Disclosure
Although this Standard does not require specific disclosures about other long-term employee
benefits, other IFRSs may require disclosures.
For example, IAS 24 requires disclosures about employee benefits for key management
personnel. IAS 1 requires disclosure of employee benefits expense.
Termination benefits
This Standard deals with termination benefits separately from other employee benefits
because the event that gives rise to an obligation is the termination of employment rather
than employee service. Termination benefits result from either an entitys decision to
terminate the employment or an employees decision to accept an entitys offer of benefits
in exchange for termination of employment.
Termination benefits do not include employee benefits resulting from termination of
employment at the request of the employee without an entitys offer, or as a result of
mandatory retirement requirements, because those benefits are post-employment benefits.
Some entities provide a lower level of benefit for termination of employment at the request
of the employee (in substance, a post-employment benefit) than for termination of
employment at the request of the entity.
The difference between the benefit provided for termination of employment at the request
of the employee and a higher benefit provided at the request of the entity is a termination
benefit.
The form of the employee benefit does not determine whether it is provided in exchange for
service or in exchange for termination of the employees employment. Termination benefits
are typically lump sum payments, but sometimes also include:
(a) enhancement of post-employment benefits, either indirectly through an employee
benefit plan or directly.
(b) salary until the end of a specified notice period if the employee renders no further
service that provides economic benefits to the entity.
Indicators that an employee benefit is provided in exchange for services include the
following:
Page 12 of 31
(a) the benefit is conditional on future service being provided (including benefits that
increase if further service is provided).
(b) the benefit is provided in accordance with the terms of an employee benefit plan.
Recognition
An entity shall recognize a liability and expense for termination benefits at the earlier of the
following dates:
(a) when the entity can no longer withdraw the offer of those benefits; and
(b) when the entity recognizes costs for a restructuring that is within the scope of IAS 37
and involves the payment of termination benefits.
For termination benefits payable as a result of an employees decision to accept an offer of
benefits in exchange for the termination of employment, the time when an entity can no
longer withdraw the offer of termination benefits is the earlier of:
(a) when the employee accepts the offer; and
(b) when a restriction (eg a legal, regulatory or contractual requirement or other
restriction) on the entitys ability to withdraw the offer takes effect. This would be when
the offer is made, if the restriction existed at the time of the offer.
For termination benefits payable as a result of an entitys decision to terminate an
employees employment, the entity can no longer withdraw the offer when the entity has
communicated to the affected employees a plan of termination meeting all of the following
criteria:
(a) Actions required to complete the plan indicate that it is unlikely that significant
changes to the plan will be made.
(b) The plan identifies the number of employees whose employment is to be terminated,
their job classifications or functions and their locations (but the plan need not identify
each individual employee) and the expected completion date.
(c) The plan establishes the termination benefits that employees will receive in sufficient
detail that employees can determine the type and amount of benefits they will
receive when their employment is terminated.
Measurement
An entity shall measure termination benefits on initial recognition, and shall measure and
recognize subsequent changes, in accordance with the nature of the employee benefit,
provided that if the termination benefits are an enhancement to post-employment benefits,
the entity shall apply the requirements for post-employment benefits. Otherwise:
(a) if the termination benefits are expected to be settled wholly before twelve months
after the end of the annual reporting period in which the termination benefit is
recognized, the entity shall apply the requirements for short-term employee benefits.
(b) if the termination benefits are not expected to be settled wholly before twelve
months after the end of the annual reporting period, the entity shall apply the
requirements for other long-term employee benefits.
Disclosure
Although this Standard does not require specific disclosures about termination benefits, other
IFRSs may require disclosures. For example, IAS 24 requires disclosures about employee
benefits for key management personnel. IAS 1 requires disclosure of employee benefits
expense.
Transition and effective date
An entity shall apply this Standard for annual periods beginning on or after 1 January 2013.
Earlier application is permitted. If an entity applies this Standard for an earlier period, it shall
disclose that fact.
An entity shall apply this Standard retrospectively, in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors, except that:
(a) An entity need not adjust the carrying amount of assets outside the scope of this
Standard for changes in employee benefit costs that were included in the carrying
amount before the date of initial application. The date of initial application is the
Page 13 of 31
beginning of the earliest prior period presented in the first financial statements in
which the entity adopts this Standard.
(b) In financial statements for periods beginning before 1 January 2014, an entity need
not present comparative information.
Annexure
Current service cost x
Define benefit obligation x
Past service cost x
Defined Benefit obligation x
Plan asset x
Bank x
Net interest cost x
Defined Benefit obligation x
Plan asset x
Net interest cost x
Re-measurement loss x
Plan asset x
Re-measurement loss x
Defined benefit liability x
E-1
An entity has 100 employees, who are each entitled to five working days of paid sick leave
for each year. Unused sick leave may be carried forward for one calendar year. Sick leave
is taken first out of the current years entitlement and then out of any balance brought
forward from the previous. At 30 December 20X1, the average unused entitlement is two
days per employee. The entity expects, based on past experience, which is expected to
continue, that 92 employees will take no more than five days of paid sick leave in 20X2 and
that the remaining eight employees will take an average of six and a half days each. The
Page 14 of 31
entity expects that it will pay an additional 12 days of sick pay as a result of the unused
entitlement that has accumulated at 31 December 20X1 (one and a half days each, for
eight employees).
E-2
A profit-sharing plan requires an entity to pay a specified proportion of its net profit for the
year to employees who serve throughout the year. If no employees leave during the year,
the total profit-sharing payments for the year will be 3% of net profit. The entity estimates
that staff turnover will reduce the payments to 2.5% of net profit.
Post Employment Benefit Plans
E-1
A defined benefit plan has the following characteristics:
Rs.
Present value of the obligation 1,100
Fair value of plan assets 1,190
Present value of available future refunds and reductions in future 80
contributions
Required: - Determine the amount of asset to be recognized under IAS-19?
E-2
A lump sum benefit is payable on termination of service and equal to 1% of final salary for
each year of service. The salary in year 1 is 10,000 and is assumed to increase at 7%
(compound) each year. The discount rate used is 10% per annum.
Required: - Determine the amounts chargeable to each of years 1 to 5?
E-3
Comprehensive example
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.
20X1 20X2 20X3
Discount rate at start of year 10 % 9% 8%
Current 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
In 20X2, the plan was amended to provide additional benefits with effect from 1 January
20X2. The present value as at 1 January 20X2 was 80 for additional benefits for employee
service before 1 January 20X2. The pension benefits paid 200 for employees transferred to
another plan against total liability of 230.
Required: - Show how the entity will account for the plan in all its accounting years?
ANSWERS TO EXAMPLES
A1
CU
Present value of obligation 1,100
Fair value of plan assets (1,190)
Surplus (90)
As the refund available/reduction in future contribution is only CU 80 therefore , the
surplus is reduced to CU 80, the following entry will be passed at the end of the first
Page 15 of 31
year.
Other Comprehensive income /OCI Dr. 10
Plan assets Cr. 10
A2
10,000 10,000x1.07= 10,700x1.07= 11,449x1.07= 12,250x1.07=

10,700 11,449 12,250 13,107
131 131 131 131 131
(1- (1-10)^-3 (1-10)^-2 (1-10)^-1 (1-10)^-0

10)^-4
Pv Of -- 89 196 324 476
Liab
Current 89 98 108 119 131
Service
cost
Interest -- 9 20 33 48
cost
Pv Of 89 196 324 476 655
Liab
A3
Statement of financial position
Y-1 Y-2 Y-3
PV of liability 1,141 1,197 1,295
FV of plan assets (1,092) (1,109) (1,093)
Net liability 49 88 202
Statement of comprehensive income

Profit or Loss Y-1 Y-2 Y-3
Current service (130) (140) (150)
Past service -- (80) --
Net interest cost* -- (12) (8)
Settlement -- -- 30
Page 16 of 31
(130) (232) (128)
Other Comprehensive income
Re-measurements (9) 95 (96)
(139) (137) (224)
PAST PAPERS
Q- 1
A, a public limited company, operates a defined benefit plan. A full actuarial valuation by
an independent actuary revealed that the value of the liability at 31 May 2000 was Rs.1,500
million. This was updated to 31 May 2001 by the actuary and the value of the liability at that
date was Rs. 2,000 million. The scheme assets comprised mainly bonds and equities and the
fair value of these assets was as follows:
31 May 2000 31 May 2001
Rs.m Rs.m
Fixed interest and index linked bonds 0 380 600
Equities 1,300 1,900
Other investments 0, 290 450
1,970 2,950
The scheme had been altered during the year with improved benefits arising for the
employees and this had been taken into account by the actuaries. The increase in the
actuarial liability in respect of employee service in prior periods was Rs.25 million (past service
cost). The increase in the actuarial liability resulting from employee service in the current
period was Rs.70 million (current service cost).
The company had paid contributions of Rs.60 million to the scheme during the period. The
company expects its return on the scheme assets at 31 May 2001 to be Rs.295 million and the
interest on pension liabilities to be Rs.230 million.
Required:
Calculate the amount which will be shown as the net plan asset in the balance sheet of A as
at 31 May 2001, showing a reconciliation of the movement in the plan surplus during the year
and a statement of those amounts which would be charged to operating profit.
Q- 2
Marshal Fertilizer Company Limited, a listed company, operates a funded gratuity scheme
for its employees. Following relevant information has been extracted from the actuarial
reports:
June 30, 2007 June 30, 2006
Rs. million Rs. million
Present value of defined benefit 900 600
obligations
Fair value of plan assets 750 570
Current service cost for the year 25 22
Contributions paid during the year 15 14
Benefits paid during the year 17 15
Discount rate for plan liabilities 10% 10%
Required:
Page 17 of 31
(a) Compute the amounts which need to be reported in the Balance Sheet and the Profit
and Loss Account of Marshal Fertilizer Company Limited for the year ended June 30,
2007.
(b) Prepare the movement schedule of net cumulative unrecognized gains / (losses) for
the year ended June 30, 2007. (13)
Q- 3
Savage, a public limited company operates a funded defined benefit plan for its
employees. The plan provides a pension of 1% of the final salary for each year of service. The
cost for the year is determined is determined using the projected unit credit method. This
reflects service rendered to the dates of valuation of the plan and incorporates actuarial
assumptions primarily regarding discount rates, which are based on the market yields of high
quality corporate bonds. The expected average remaining working lives of the employees is
twelve years.
The directors have provided the following information about the defined benefit plan for the
current year (year ended October 31, 20X5)
a) The actuarial cost of providing benefits in respect of employees service for the year
to October 31, 20X5 was Rs. 40 million. This is the present value of the pension benefits
earned by the employees in the year.
b) The pension benefits paid to former employees in the year were Rs. 42 million.
c) Savage should have paid contribution to the fund of Rs. 28 million. Because of cash
flow problems Rs. 8 million of this amount has not been paid at the financial year end
of October 31, 20X5.
d) The present value of the obligation to provide benefits to current and former
employees was Rs. 3,000 million at October 31, 20X4 and Rs. 3,375 million at October
31, 20X5.
e) The fair value of the plan assets was Rs. 2,900 million at October 31, 20X4 and Rs. 3,170
million (including the contributions owed by Savage) at October 31, 20X5
With effect from November 01, 20X4, the company had amended the plan so that
the employees were now provided with an increased entitlement. The benefits
became vested and the actuarial computed that the present value of the cost of
these benefits at November 01, 20X4 was Rs. 125 million. The discount rates and
expected rates of return on the plan assets were as follows: -
31-10-X4 31-10-X5
% %
Discount rate 6 7
The company has recognized actuarial gains and losses in profit or loss up to October 31,
20X4 but now wishes to recognize such gains and losses outside profit and loss account in a
statement of recognized income and expense.
Required: -
a) Show the amounts which will be recognized in the balance sheet, income statement
and the statement of recognized income and expenses of Savage for the year
ended October 31, 20X5 under IAS -19 and the movement in the net liability in the
balance sheet. (Your calculations should show the changes in the present value of
the obligation and the fair value of the plan assets during the year. Ignore any
deferred taxation effects and assume that pension benefits and the contribution paid
were settled at October 31, 20X5.)
b) Explain how the non-payment of contributes and the change in the pension benefits
should be treated in the financial statements of Savage for the year ended October
31, 20X5.
Q-4
Galaxy Textiles Limited (GTL) operates a funded gratuity scheme for all its employees.
Contributions to the scheme are made on the basis of annual actuarial valuation. The
following relevant information has been extracted from the actuarial report pertaining to the
year ended March 31, 2011.
Page 18 of 31
Rs. in million
Present value of defined benefit obligations as of:
April 1, 2010 133
March 31, 2011 166
Fair value of plan assets as of:
April 1, 2010 114
March 31, 2011 120
Benefits paid by the plan to the employees 6
Current service cost 15
Interest cost 16
Expected return on plan assets 14
Required:
Prepare a note on retirement benefits for presentation in the financial statements for the
year ended March 31, 2011 in accordance with International Financial Reporting Standards.
(14 marks)
Q5
Tanzeem Limited (TL) operates a defined benefit pension plan for its employees. The
following details relate to the plan.
2014 2013
Discount rate 9% 8%
Expected return on plan asset 10% 9%
Rs. in millions
Present value of obligation at the year end 2,040 2,300
Fair value of plan assets 1,784 2,150
Current service cost 125 143
Benefits paid during the year 99 110
Contribution made during the year 105 108
Additional information: -
a) Present value of pension obligation and fair value of plan assets as on 01 January
2013 were Rs. 2,050 million and Rs. 1,995 million respectively.
b) During the year 2013, TL amended the scheme whereby the benefits available under
the plan have been increased. It resulted in an increase in present value of the
defined benefit pension obligation by Rs. 5 million and Rs. 8 million on account of
vested and non vested benefits respectively. The period to vest is 4 years.
c) On December 31, 2014 TL sold a business segment to Sachai Limited (SL). Accordingly
TL transferred the relevant component of its pension fund to SL. The present value of
the defined benefit pension obligation transferred was Rs. 280 million and the fair
value of plan assets transferred was Rs. 240 million. TL also made a cash payment of
Rs. 20 million to SL in respect of the plan.
d) Average remaining lives of employees is 10 years.
Required: -
i) Prepare relevant extracts to be reflected in the statement of financial position,
statement of comprehensive income and notes to the financial statements for the
year ended December 31, 2014 in accordance with the International Financial
Reporting Standards. (show comparative figures) (11)
ii) Prepare entries to record the pension obligation: - (03)
- On sale of business segment to SL
- At the year end.
Page 19 of 31
Solutions to IAS 19
A-1
Statement of financial position Rs. (m) Rs. (m)
Present value of defined benefit liability 2,000
Surplus (Net asset) (950)

Profit or loss account
Interest cost (Net) (230-295) (65)
Past service cost 25
30
Re-measurement gain (actuarial gain) (175-625) (450) (450)
Net effect in statement of comprehensive income (420)
W-1 Present value of defined benefit liability

Opening balance 1500
Interest cost 230
Actuarial loss 175
Closing balance 2,000
W-2 fair value of plan asset
Opening balance 1970
Contribution during the year 60
Expected return 295
Actuarial gain 625
A-2
Present value of defined benefit liability 900
Fair value of plan assets (750)
Deficit/Net liability 150

Interest cost (Net) (60-57) 3 28
Re-measurement gain (actuarial gain) (232-115) 117 117
Net effect in statement of comprehensive income 145

Opening balance 600
Benefit paid (17)
Interest cost 60
Page 20 of 31
Actuarial loss 232
Closing balance 900
Opening balance 570
Expected return 57
Benefit paid (17)
Actuarial gain 115
Closing balance 750
A-3
Present value of defined benefit liability 3,375
Deficit/net liability 213

Interest cost (Net) (187.5-174) 13.5
Past service cost 125 178.5

Re-measurement gain (actuarial gain) (64.5-110) (45.5) (45.5)

Opening balance 3,000
Benefits paid (42)
Interest cost 187.5
Actuarial loss 64.5
Opening balance 2,900
Benefits paid (42)
Expected return 174
Actuarial gain 110
Closing balance (3,170-8) 3,162
A-4
Present value of defined benefit liability 166
Fair value of plan assets (120)
Deficit/net liability 46

Interest cost (Net) (16-14) 2 17
Page 21 of 31
Re-measurement gain (actuarial gain) () 27

Opening balance 133
Past service cost
Benefits paid (6)
Interest cost 16
Actuarial loss 8
Closing balance 166
Opening balance 114
Contribution during the year (15+2) 17
Benefits paid (6)
Expected return 14
Actuarial loss (19)
Closing balance 120
A5
a) (i) Financial statement extracts
2014 2013
Extract to statement of financial position Rs. (m) Rs. (m)
Deferred liabilities
Net defined benefit liability 256 150
Extract to statement of comprehensive income
Operating expenses 118 160
Other comprehensive income

Re-measurement loss on defined pension plan (113) (53)
28 Staff retirement benefits
Extract of notes to the financial statements
28.1 Changes in present value of pension
obligations
Present value of obligation at beginning of the 2,300 2,050
year
Interest cost at 9% and 8% 207 164
Past service cost -- 13
Benefits paid (99) (110)
Settlement (Note 28.2.1) (280) --
Re-measurement (gain) / loss charged to other (213) 40
comprehensive income
2,040 2,300
28.2 Changes in fair value of plan assets
Fair value of plan assets at beginning of the 2,150 1,995
year
Interest at 9%, 8% 194 160
Page 22 of 31
Benefits paid (99) (110)
Contribution paid 105 118
Settlement (28.2.1) (240) --
Re-measurement losses charged to other (326) (13)
comprehensive income (balancing)
1,784 2,150
28.2.1 During 2014, the company sells one of its business segments
and transfers the relevant part of the pension obligation and plan
asset to the purchaser. This is a settlement. The overall gain on
settlement is calculated as follows: -
2014
Rs. (m)
Present value of obligation settled 280
Fair value of plan assets transferred (240)
Cash transferred (20)
Gain on settlement 20
28.3 amounts recognized in the profit or loss 2014 2013
account
Rs. (m) Rs. (m)
Past service cost -- 13
Interest cost 207 164
Interest income (194) (160)
Gain on settlement (20)
118 160
b) Journal entries
Debit Credit
Rs. (m) Rs. (m)
PV of pension obligation 280
Plan assets 240
Bank 20
Gain on settlement 20
Pension expenses 138

Other comprehensive income 113
Cash 105
PV of pension obligation 146
Page 23 of 31
Accounting and Reporting by Retirement Benefit
(IAS-26)
Scope
This Standard shall be applied in the financial statements of retirement benefit plans
(defined contribution or defined benefits) such as pension schemes, super-annuation
schemes, or retirement benefit schemes where such financial statements are prepared
and. This Standard applies regardless of whether such a fund is created and regardless
of whether there are trustees.
All other Standards apply to the financial statements of retirement benefit plans to the
extent that they are not superseded by this Standard.
IAS 19 Employee Benefits is concerned with the determination of the cost of retirement
benefits in the financial statements of employers having plans. Hence this Standard
complements IAS 19.
Retirement benefit plans with assets invested with insurance companies are subject to
the same accounting and funding requirements as privately invested arrangements.
Accordingly, they are within the scope of this Standard unless the contract with the
insurance company is in the name of a specified participant or a group of
participants and the retirement benefit obligation is solely the responsibility of the
insurance company.
This Standard does not deal with other forms of employment benefits such as
employment termination indemnities, deferred compensation arrangements, long-
service leave benefits, special early retirement or redundancy plans, health and
welfare plans or bonus plans. Government social security type arrangements are also
excluded from the scope of this Standard.
This IAS is applicable to formal and informal both types of plans and use the word
trustees for fund managers whether there exist any trust deed or not.
Definitions
Retirement benefit plans are arrangements whereby an entity provides benefits for
employees on or after termination of service (either in the form of an annual income or as a
lump sum) when such benefits, or the contributions towards them, can be determined or
estimated in advance of retirement from the provisions of a document or from the entitys
practices.
Defined contribution plans are retirement benefit plans under which amounts to be paid as
retirement benefits are determined by contributions to a fund together with investment
earnings thereon.
Defined benefit plans are retirement benefit plans under which amounts to be paid as
retirement benefits are determined by reference to a formula usually based on employees
earnings and/or years of service.
Where the plans have hybrid characteristics that will be classified as defined benefit plans.
Funding is the transfer of assets to an entity (the fund) separate from the employers entity
to meet future obligations for the payment of retirement benefits.
For the purposes of this Standard the following terms are also used:
Participants are the members of a retirement benefit plan and others who are entitled to
benefits under the plan.
Net assets available for benefits are the assets of a plan less liabilities other than the
actuarial present value of promised retirement benefits.
Actuarial present value of promised retirement benefits is the present value of the expected
payments by a retirement benefit plan to existing and past employees, attributable to the
service already rendered.
Vested benefits are benefits, the rights to which, under the conditions of a retirement
benefit plan, are not conditional on continued employment.
Page 24 of 31
Defined Contribution Plans
The financial statements of a defined contribution plan shall contain a statement of net
assets available for benefits and a description of the funding policy.
The objective of reporting by a defined contribution plan is periodically to provide
information about the plan and the performance of its investments. That objective is usually
achieved by providing financial statements including the following:
(a) A description of significant activities for the period and the effect of any changes
relating to the plan, and its membership and terms and conditions;
(b) Statements reporting on the transactions and investment performance for the period
and the financial position of the plan at the end of the period; and
(c) a description of the investment policies.
Defined Benefit Plans
The financial statements of a defined benefit plan shall contain either:
(a) A statement that shows:
i) The net assets available for benefits;
ii) The actuarial present value of promised retirement benefits, distinguishing
between vested benefits and non-vested benefits; and
iii) the resulting excess or deficit; or
(b) a statement of net assets available for benefits including either:
i) a note disclosing the actuarial present value of promised retirement benefits,
distinguishing between vested benefits and non-vested benefits; or
ii) a reference to this information in an accompanying actuarial report.
If an actuarial valuation has not been prepared at the date of the financial statements, the
most recent valuation shall be used as a base and the date of the valuation disclosed.
The actuarial present value of promised retirement benefits shall be based on the benefits
promised under the terms of the plan on service rendered to date using either current salary
levels or projected salary levels with disclosure of the basis used. The effect of any changes
in actuarial assumptions that have had a significant effect on the actuarial present value of
promised retirement benefits shall also be disclosed.
The financial statements shall explain the relationship between the actuarial present value
of promised retirement benefits and the net assets available for benefits, and the policy for
the funding of promised benefits.
Under a defined benefit plan, the payment of promised retirement benefits depends on the
financial position of the plan and the ability of contributors to make future contributions to
the plan as well as the investment performance and operating efficiency of the plan.
A defined benefit plan needs the periodic advice of an actuary to assess the financial
condition of the plan, review the assumptions and recommend future contribution levels.
The objective of reporting by a defined benefit plan is periodically to provide information
about the financial resources and activities of the plan that is useful in assessing the
relationships between the accumulation of resources and plan benefits over time. This
objective is usually achieved by providing financial statements including the following:
(a) A description of significant activities for the period and the effect of any changes
relating to the plan, and its membership and terms and conditions;
(b) Statements reporting on the transactions and investment performance for the period
and the financial position of the plan at the end of the period;
(c) Actuarial information either as part of the statements or by way of a separate report;
and
(d) a description of the investment policies.
Actuarial Present Value of Promised Retirement Benefits
The present value of the expected payments by a retirement benefit plan may be
calculated and reported using current salary levels or projected salary levels up to the time
of retirement of participants.
The reasons given for adopting a current salary approach include:
(a) the actuarial present value of promised retirement benefits, being the sum of the
Page 25 of 31
amounts presently attributable to each participant in the plan, can be calculated
more objectively than with projected salary levels because it involves fewer
assumptions;
(b) increases in benefits attributable to a salary increase become an obligation of the
plan at the time of the salary increase; and
(c) the amount of the actuarial present value of promised retirement benefits using
current salary levels is generally more closely related to the amount payable in the
event of termination or discontinuance of the plan.
Reasons given for adopting a projected salary approach include:
(a) Financial information should be prepared on a going concern basis, irrespective of
the assumptions and estimates that must be made;
(b) Under final pay plans, benefits are determined by reference to salaries at or near
retirement date; hence salaries, contribution levels and rates of return must be
projected; and
(c) Failure to incorporate salary projections, when most funding is based on salary
projections, may result in the reporting of an apparent over funding when the plan is
not over funded, or in reporting adequate funding when the plan is under funded.
The actuarial present value of promised retirement benefits based on current salaries are
disclosed in the financial statements of a plan to indicate the obligation for benefits earned
to the date of the financial statements. The actuarial present value of promised retirement
benefits based on projected salaries is disclosed to indicate the magnitude of the potential
obligation on a going concern basis which is generally the basis for funding. In addition to
disclosure of the actuarial present value of promised retirement benefits, sufficient
explanation may need to be given so as to indicate clearly the context in which the
actuarial present value of promised retirement benefits should be read. Such explanation
may be in the form of information about the adequacy of the planned future funding and
of the funding policy based on salary projections. This may be included in the financial
statements or in the actuarys report.
Frequency of Actuarial Valuations
In many countries, actuarial valuations are not obtained more frequently than every three
years. If an actuarial valuation has not been prepared at the date of the financial
statements, the most recent valuation is used as a base and the date of the valuation
disclosed.
Financial Statement Content
For defined benefit plans, information is presented in one of the following formats, which
reflect different practices in the disclosure, and presentation of actuarial information:
(a) A statement is included in the financial statements that show the net assets available
for benefits, the actuarial present value of promised retirement benefits, and the
resulting excess or deficit. The financial statements of the plan also contain
statements of changes in net assets available for benefits and changes in the
actuarial present value of promised retirement benefits. The financial statements
may be accompanied by a separate actuarys report supporting the actuarial
present value of promised retirement benefits;
(b) Financial statements that include a statement of net assets available for benefits and
a statement of changes in net assets available for benefits. The actuarial present
value of promised retirement benefits is disclosed in a note to the statements. The
financial statements may also be accompanied by a report from an actuary
supporting the actuarial present value of promised retirement benefits; and
(c) Financial statements that include a statement of net assets available for benefits and
a statement of changes in net assets available for benefits with the actuarial present
value of promised retirement benefits contained in a separate actuarial report.
In each format a trustees report in the nature of a management or directors report
and an investment report may also accompany the financial statements.
Page 26 of 31
Valuation of Plan Assets
Retirement benefit plan investments shall be carried at fair value. In the case of marketable
securities fair value is market value. Where plan investments are held for which an estimate
of fair value is not possible disclosure shall be made of the reason why fair value is not used.
Where plan investments are held for which an estimate of fair value is not possible,
disclosure is made of the reason why fair value is not used.
Disclosure
In addition to the statements and disclosures described above, the report of a retirement
benefit plan is required to contain the following information.
a) A statement of changes in net assets available for benefits.
b) A summary of significant accounting policies
c) A description / type of the plan and the effect of any changes in the plan during
the period
d) A description of the funding policy
e) For defined obligation plans, the actuarial present value of the promised retirement
benefits
f) For defined obligation plans a description of the significant actuarial assumptions
made
g) The participants and whether they contribute to the plan
h) Retirement benefits promised
i) Termination terms
PRACTICE QUESTIONS
Q1
SOGO Limited operates an approved funded gratuity scheme for all its employees. Benefits
under the scheme become vested after 5 years of service. No benefit is payable to an
employee if he leaves before 5 years of service. A total of 752 employees were eligible for
the benefits under the fund as of December 31, 2007.
Following is the trial balance of the Fund as of June 30, 2007:
Debit Credit
Amounts in Rupees
Cash at bank - current account 17,930,120
Receivable from SOGO Limited 1,147,150
Defence Savings Certificate 102,133,664
Term Finance Certificates 11,832,089
Term Deposits 6,414,058
Investment SUN Limited 17,594,893
Investment PEACE Company 587,169
Limited
Investment - NIT Units 16,911,510
Due to outgoing members 4,301,017
Accrued expenses 3,822
Withholding tax payable 61,251
Members Fund 142,472,122
Profit on investments 23,389,251
Dividend income 2,696,399
Contribution for the year 10,623,106
Transferred / paid to outgoing 12,432,973
members
Bank charges 3,342
Audit fee 10,000
Liabilities no more payable 3,450,000
186,996,968 186,996,968
Page 27 of 31
Following are the details of investments and income thereon:
Balance During the year 2007

as at Profit / Profit /
July 01, Addition interest Principal interest
2006 accrued realized realized
Government Securities
Defence Savings Certificate 87,812,855 - 21,376,809 (1,600,000) (5,456,000)
Unlisted Securities and deposits
Term Finance Certificates 19,943,656 5,000,000 1,655,223 (12,873,068) (1,893,722)
Term Deposits 11,584,631 - 357,219 (5,300,000) (227,792)
Listed Securities
SUN Limited 8,220,957 9,373,936 - - -
PEACE Limited 587,169 - - - -
NIT Units 16,911,510 - - - -
The following gains/(losses) on restatement of investments at their fair values, have not been
accounted for:
Rupees
SUN Limited (784,518)
PEACE Limited 317,728
NIT Units 4,026,551
Required:
Prepare the following in accordance with the requirements of International Accounting
Standards:
(a) Statement of Net Assets Available for Benefits along with the note on investments.
(b) Statement of changes in Net Assets Available for Benefits. (15)
Q2
Sigma Limited (SL) operates an approved and funded gratuity plan for its management staff
who have completed the minimum qualifying period of three years service. The plan is
administered by the trustees nominated under the trust deed. Trial balance of the fund as at
30 June 2014 is as under:
Debit Credit
Rs. (000) Rs. (000)
Balance with bank 500 --
Receivables from SL 800 --
Investment in shares available for sale-as at July 01, 2013 8,265
Defense saving certificates (DSCs), including accrued 14,235
interest
Opening balance of members fund 18,287
Amount payable to outgoing members 150
Accrued expenses 15
Profit on DSCs 1,698
Dividend from investment available for sale 1,380
Contribution for the year 3,000
Gratuity paid / payable to outgoing members 700
Audit fee payable 23
Bank charges 7
24,530 24,530
Page 28 of 31
The investments as shown above costed Rs. 8,450,000. The market value of these investments
as at 30 June 2014 amounted to Rs. 8,720,000.
Required:
For the year ended 30 June 2014, prepare the following in accordance with the
requirements of International Financial Reporting Standards.
(a) Statement of net assets available for benefits; and (05)
(b) Statement of changes in net assets available for benefits. (04)
Answers
A1
(a)
SOGO Limited
Staff Gratuity Fund
Statement of Net Assets Available for Benefits
As at December 31, 2007
Note 2007
Rupees
ASSETS
Investments 1 159,033,144
Receivable from SOGO Limited 1,147,150
Cash at bank in current accounts 17,930,120
178,110,414
LIABILITIES
Due to outgoing members 4,301,017
Accrued expenses 3,822
Withholding tax payable 61,251
4,366,090
NET ASSETS 173,744,324
REPRESENTED BY:
Members' Fund (Rs. 142,472,122 + Rs. 27,712,441) 170,184,563
Surplus on re-measurement of investments available for sale 3,559,761
173,744,324
(b)
SOGO Limited
Staff Gratuity Fund
Statement of Changes in Net Assets Available for Benefits
For the year ended December 31, 2007
2007
Rupees
Income
Contribution during the year 10,623,106
Profit from investments 23,389,251
Dividend income 2,696,399
Liabilities no more payable 3,450,000
40,158,756
Expenditure
Transferred / paid to outgoing members (12,432,973)
Page 29 of 31
Bank charges (3,342)
Audit fee (10,000)
(12,446,315)
Net Income for the year 27,712,441
Profit / Profit /
Principal Balance as
Addition interest Fair value interest
Balance as at realized at
W1 during the accrued gain / realized
July 01, 2006 during the June 30,
year during the (loss) during the
year 2007
year year
HELD TO
MATURITY
Government
Securities
Defense Saving
87,812,855 - 21,376,809 - (1,600,000) (5,456,000) 102,133,664
Certificates
Unlisted
Securities and
Deposits
Term Finance
19,943,656 5,000,000 1,655,223 - (12,873,068) (1,893,722) 11,832,089
Certificates
Term Deposit 11,584,631 - 357,219 - (5,300,000) (227,792) 6,414,058
119,341,142 5,000,000 23,389,251 - (19,773,068) (7,577,514) 120,379,811
AVAILABLE FOR
SALE
Listed
Securities
SUN Ltd. 8,220,957 9,373,936 (784,518) - 16,810,375
PEACE Ltd. 587,169 - 317,728 - 904,897
NIT Units 16,911,510 - 4,026,551 - - 20,938,061
25,719,636 9,373,936 - 3,559,761 - - 38,653,333
145,060,778 14,373,936 23,389,251 3,559,761 (19,773,068) (7,577,514) 159,033,144
A2
a) Sigma Limited-Management staff gratuity fund
Statement of net assets available for benefits as at June 30, 2014
Rs. (000) Rs. (000)
Assets
Investments (14,235+8,720) 22,955
Receivables from Sigma Limited 800
Balance with banks 500
Total assets available for benefits 24,255
Liabilities
Payable to outgoing members
Accrued expenses 150
15
165
Net assets 24,090
Page 30 of 31
Represented by: -
Members fund 23,820
Surplus on re-measurement of investments 270
available for sale (8,450-8,265)
24,090
b) Sigma Limited Management staff gratuity fund
Statement of changed in net assets available for benefits
For the year ended June 30, 2014
Rs. (000) Rs. (000)
General reserve fund
Balance at July 01, 2013 18,287
Contribution during the year 3,000
Gratuity paid/payable to outgoing (700)
members
20,587
Income
Profit from defense saving certificates 1,698
Dividend on investments 1,380
Reversal of previous years impairment (8,450-8,265) 185
3,263
Expenses
Audit fee 23
Bank charges 7
(30)
Balance at June 30, 2014 23,820
Page 31 of 31
XYZ ENERGY PAKISTAN (PRIVATE) LIMITED EMPLOYEES GRATUITY FUND
STATEMENT OF NET ASSETS AVAILABLE FOR DISTRIBUTION
AS AT JUNE 30, 2012
Note 2012 2011

(Rupees) (Rupees)
Investments
Held to maturity - at amortized cost
Defence saving certificates 10 28,000,000 58,000,000
Current assets
Interest receivable 11 521,964 1,663,439
Due from Sponsors 9,350,523 5,881,847
Balance with bank - current account 54,586,973 17,201,254
64,459,460 24,746,540
Total net assets 92,459,460 82,746,540
The annexed notes from 1 to 15 form an integral part of these financial statements.
TRUSTEE TRUSTEE
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR DISTRIBUTION
FOR THE HALF YEAR ENDED JUNE 30, 2012
Note 2012 2011

(Rupees) (Rupees)
Balance at beginning of the year 82,746,540 62,828,638
Contributions during the year 12 9,016,354 18,381,913

Income transferred from revenue account 13 3,968,222 7,282,521
12,984,576 25,664,434
Gratuity paid to outgoing members 3,271,656 5,160,702

Profit paid to outstanding members - 585,830
(3,271,656) (5,746,532)
Balance at end of the year 92,459,460 82,746,540
The annexed notes from 1 to 15 form an integral part of these financial statements.
1
TRUSTEE TRUSTEE
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR DISTRIBUTION
FOR THE HALF YEAR ENDED JUNE 30, 2012
1. INTRODUCTION
The gratuity fund was established on January 15, 2006, and has been accorded
approval under the Income Tax Ordinance 2001 on June 14, 2007. Funds consist of
contribution of company and income arising from investment thereof.
Payments are made to the employees on retirement, resignation and discharge as
specified in the rules of the trust.
2. FUNDING POLICY
Contribution is made by the company under the provisions of the scheme.
3. ACCOUNTING CONVENTION
These financial statements have been prepared under the historical cost convention
except for the certain investments that are carried at amortized cost.
4. TAXATION
The income of the fund is exempt from tax under clause 57(3) of the second schedule to
the income tax Ordinance 2001
5. EXPENSE
Expenses incurred for the administration of fund with the exception of bank charges are
borne by the company.
6. INVESTMENTS
The fund determines the appropriate classification of its investments in accordance with
the requirements of the International Accounting Standard 39; Financial Instruments;
Recognition and Measurement (IAS 39) at the time of purchase.
Investments are initially recognized at cost inclusive of transaction cost. Investments

categorized as held to maturity are stated at amortized cost using the effective interest
rate method. Investments are derecognized when the right to receive cash flows from
the investments have expired or have been transferred and the Fund has transferred
substantially all risks and rewards of ownership.
7. PROVISIONS
Provisions are recognized when fund has a legal or constructive obligation as a result of
past event and it is probable that an out flow of resources will be resulted to settle the
obligation and a reliable estimate of the amount can be made.
8. REVENUE RECOGNITION
Income from saving account is recognized on accrual basis.
Income from defence saving certificates is accrued using effective interest rate method.
9. PAYMENT OF BENEFITS
Gratuity is payable to every permanent employee of the company on leaving the
company's service. The benefits are assumed to be vested on end of each month of
completed service.
2012 2011
(Rupees) (Rupees)
10. Investments - Held to maturity Maturity Date Face Value

Defence saving certificates 3/14/2012 - 30,000,000
Defence saving certificates 11/18/2012 9,000,000 9,000,000
28,000,000 58,000,000
11. INTEREST RECEIVABLE

Opening balance 1,663,439 2,063,348
Add: Profit for the year 3,968,222 7,282,521
5,631,661 9,345,869
Less: Received during the year (5,109,697) (7,682,430)
521,964 1,663,439
12. CONTRIBUTION TO GRATUITY FUND 9,016,354 18,381,913
This represents amount contributed by the company on maturity basis.
13. REVENUE
Income on investments - Held to maturity 3,968,288 7,282,521
Less: Bank charges (66) -
3,968,222 7,282,521
14. DATE OF AUTHORIZATION

The financial statements were authorised for issue on __________________ by the Board of
Trustees of the fund.
15. GENERAL
Figures have been rounded off to the nearest Rupee.
Figures of previous years have been re-arranged and re-grouped wherever necessary for
the purpose of comparison.
TRUSTEE TRUSTEE
XYZ
STAFF PROVIDENT FUND TRUST
STATEMENT OF NET ASSETS AVAILABLE FOR DISTRIBUTION
AS AT JUNE 30, 2012
Note 2012 2011

(Rupees) (Rupees)
NON CURRENT ASSETS
Investments - Held to maturity 4 5,400,000 7,500,000
CURRENT ASSETS
Current portion of investments - Held to maturity 4 2,100,000 -
Investments at fair value through profit and loss 5 2,450,709 2,308,756
Accrued interest 2,454,169 1,865,549
Loan to members 6 418,225 487,775
Cash and bank balances 7 198,918 447,253
7,622,021 5,109,333
CURRENT LIABILITIES
Provident fund payable to outgoing members 8 - 137,977
Profit payable to ex-members 113,791 113,791
Accrued and other liabilities 15,000 11,000
128,791 262,768
Net current assets 7,493,230 4,846,565
Net assets available for distribution 12,893,230 12,346,565
The annexed notes 1 to 12 form an integral part of these financial statements.
TRUSTEE TRUSTEE
XYZ
ROVIDENT FUND TRUST
NET ASSETS AVAILABLE FOR DISTRIBUTION
EAR ENDED JUNE 30,2012
Note 2012 2011

(Rupees) (Rupees)
Balance at the beginning of the year 12,346,565 10,776,805
Contributions during the year 9 900,874 913,674

transferre 10 780,904 1,414,213
1,681,778 2,327,887
Payments made to out going members (1,135,113) (758,127)
Balance at the end of the year 12,893,230 12,346,565
annexed
TRUSTEE TRUSTEE
XYZ
STAFF PROVIDENT FUND TRUST
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2012
1. THE FUND AND ITS LEGAL STATUS

The fund was established on February 28, 1994 wide trust deed executed on February 28, 1994.
Fund consist of contribution from XYZ, the employees and income arising from investment thereof.
The official address of the trust is 111, Ferozpur Road, Lahore.
Payments are made to the employees on retirement, resignation and discharge as specified in the
rules of the trust.
2. FUNDING POLICY
Contribution is made by the PSRD and employees at the rate of 8% of the employees' basic salary
under the provisions of the scheme of the fund.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Accounting convention
These financial statements have been prepared under the historical cost convention except for
the certain investments that are carried at fair value.
3.2 Taxation
The fund has been recognized by the Directorate of Income Tax vide letter No. J/C-11/2002-03/843
under the provisions of Income Tax Ordinance 2001, hence no provision for the current tax has
been made according to the applicable tax rates.
3.3 Expenses
Expenses incurred for the administration of fund with the exception of bank charges are borne by
the PSRD.
3.4 Investments held to maturity

These are the investments with fixed maturity and the trust has a positive intent and ability to hold
till maturity. Held to maturity are initially measured at fair value plus transaction costs and
subsequently at amortized cost using effective interest rate method.
3.5 Investments at fair value through profit or loss

Investments which are acquired principally for the purpose of selling in the near term or
investments that are part of a portfolio of financial instruments exhibiting short term profit taking
are designated and classified as investments at fair value through profit or loss. These are stated at
fair value with any resulting gains or losses recognized directly in the revenue account.
Investments are derecognized when the right to receive cash flows from the investments have
expired or have been transferred and the Fund has transferred substantially all risks and rewards of
ownership.
3.6 Provisions
Provisions are recognized when fund has a legal or constructive obligation as a result of past event
and it is probable that an out flow of resources will be resulted to settle the obligation and a
reliable estimate of the amount can be made.
3.7 Revenue recognition
Income from saving certificates is accrued using effective interest rate method.
Income on term deposits and saving accounts with banks is proportionately accrued up to the
statement of net assets date.
3.8 Payment of benefits

Provident fund is payable to every permanent employee of the XYZ on leaving theXYZ's service.
The benefits are assumed to be vested on end of each month of completed service.
4. INVESTMENTS - HELD TO MATURITY

Certificate Date of
Note Face Value
Number Maturity
2012 2011
(Rupees) (Rupees)
NON CURRENT PORTION OF INVESTMENTS - HELD TO MATURITY:
Bank AL-Habib - Term Deposit Receipt 4.1 72084/7831 26-11-2013 2,000,000 2,000,000
0
Defence saving certificates 4.2 080028 29-08-2017 1,000,000 1,000,000
Defence saving certificates 4.3 251357 10-04-2019 500,000 500,000
Defence saving certificates 4.4 738919-23 26-12-2019 900,000 900,000
2,400,000 2,400,000
Engro Rupiya Certificate 4.5 02098 31-12-2014 1,000,000 1,000,000
Innovative Housing Finance Limited 4.6 0000000029 31-12-2012 - 840,000

0000000030 31-12-2012 - 1,260,000
- 2,100,000
5,400,000 7,500,000
CURRENT PORTION OF INVESTMENTS - HELD TO MATURITY:

Innovative Housing Finance Limited 4.6 0000000029 31-12-2012 840,000 -
0000000030 31-12-2012 1,260,000 -
2,100,000 -
Total investment - held to maturity 7,500,000 7,500,000
4.1 This represents the Term Deposit certificate issued by the Bank AL Habib Limited, Ichhra on
November 27, 2008 and is bearing profit @16% per annum
4.2 This represents the defence saving certificate of Rupees 1,000,000 purchased from National
Savings Centre, Ichhra on August 29, 2007.
4.3 This represents the defence saving certificate of Rupees 500,000 purchased from National Savings
Centre, Ichhra on April 10, 2009
4.4 This represents the defence saving certificates of Rupees 900,000 purchased from National Savings
Centre, Ichhra on April 10, 2009
4.5 These represent the 200 term Finance Certificates of Rs. 5000 each (Engro Rupiya Certificate)
bearing fixed Profit rate of 14.5% per year payable every 6 months for a tenor of 3 years.
4.6 This represents the certificates issued by the Innovative Housing Finance Limited (IHFL) after its
merger with Standard Chartered Investment Bank Limited (CSIBL) in accordance with payment
plan communicated vide CSIBL letter dated April 12, 2007 and are bearing profit @ 8% per annum.
Market value
5 INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS 2012 2011
Note (Rupees) (Rupees)
National Investment Trust (NIT) Units 5.1 2,450,709 2,308,756
5.1 This represents the investment in 71834 units @ Rupees 32.14 per unit (2011: 71,834 @ Rupees 32.14
per unit ) of National Investment Trust (NIT) measured at market value prevailing at the reporting
date.
6. LOANS TO MEMBERS
Opening balance 487,775 319,675
Loan granted during the year 238,400 429,000
726,175 748,675
Loan recovered during the year (307,950) (260,900)
418,225 487,775
7. CASH AND BANK BALANCES

Balances with banks:
- current account 37,021 37,021
- saving account 161,897 410,232
198,918 447,253
8. PROVIDENT FUND PAYABLE TO MEMBERS

Out going members:
Contributions - 65,208
Profit - 62,639
- 127,847
Deceased members:
Contributions - 9,836
Profit - 294
- 10,130
- 137,977
9. CONTRIBUTIONS TO PROVIDENT FUND 9.1 900,874 913,674

9.1 This represents the amount contributed by the employees and by the PSRD on monthly basis.
2012 2011
Note (Rupees) (Rupees)
10. REVENUE ACCOUNT
Income:
Interest on held to maturity investments 725,297 665,127
Gain on investment at fair value through profit and loss account - 536,148
Dividend 284,358 287,337
Profit on PLS saving account 18,381 25,271
1,028,036 1,513,883
Expenditure:
Honorarium to staff 75,012 62,508
Loss on investment at fair value through profit and loss account 145,384 -
Bank charges 2,736 5,162
Printing and stationery 5,400 -
Audit Fee 18,600 32,000
247,132 99,670
780,904 1,414,213
11. DATE OF AUTHORIZATION

The financial statements were authorized for issue on _________________ by the Board of Trustees of
the fund.
12. GENERAL
Figures have been rounded off to the nearest Rupee.
TRUSTEE TRUSTEE

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Chapter 14

IAS 19 Employee Benefits

Define benefit obligation x

Past service cost x

Defined Benefit obligation x

Net interest cost x

Defined Benefit obligation x

Net interest cost x

Defined benefit liability x

Current cost 130 140 150

Present value of obligation 1,100

Fair value of plan assets (1,190)

Plan assets Cr. 10

10,000 10,000x1.07= 10,700x1.07= 11,449x1.07= 12,250x1.07=

131 131 131 131 131

(1- (1-10)^-3 (1-10)^-2 (1-10)^-1 (1-10)^-0

PV of liability 1,141 1,197 1,295

FV of plan assets (1,092) (1,109) (1,093)

Net liability 49 88 202

Statement of comprehensive income

Past service -- (80) --

Net interest cost* -- (12) (8)

Other Comprehensive income

Re-measurements (9) 95 (96)

(139) (137) (224)

Statement of comprehensive income

W-1 Present value of defined benefit liability

Statement of comprehensive income

W-1 Present value of defined benefit liability

Statement of comprehensive income

Statement of comprehensive income

W-1 Present value of defined benefit liability

Statement of comprehensive income

W-1 Present value of defined benefit liability

Other comprehensive income

Pension expenses 138

Balance During the year 2007

Note 2012 2011

Total net assets 92,459,460 82,746,540

Note 2012 2011

Balance at beginning of the year 82,746,540 62,828,638

Contributions during the year 12 9,016,354 18,381,913

Gratuity paid to outgoing members 3,271,656 5,160,702

Balance at end of the year 92,459,460 82,746,540

Investments are initially recognized at cost inclusive of transaction cost. Investments

10. Investments - Held to maturity Maturity Date Face Value

11. INTEREST RECEIVABLE

12. CONTRIBUTION TO GRATUITY FUND 9,016,354 18,381,913

This represents amount contributed by the company on maturity basis.

14. DATE OF AUTHORIZATION

Note 2012 2011

Net current assets 7,493,230 4,846,565

Net assets available for distribution 12,893,230 12,346,565

The annexed notes 1 to 12 form an integral part of these financial statements.

Note 2012 2011

Balance at the beginning of the year 12,346,565 10,776,805

Contributions during the year 9 900,874 913,674

Payments made to out going members (1,135,113) (758,127)

Balance at the end of the year 12,893,230 12,346,565

1. THE FUND AND ITS LEGAL STATUS

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.4 Investments held to maturity

3.5 Investments at fair value through profit or loss