IAS 19 Employee Benefits - Professionals' Academy of ... 1 of 31 Chapter 14 IAS 19 Employee Benefits...

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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 entity’s 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

employee’s employment as a result of either:

(a) an entity’s decision to terminate an employee’s employment before the normal

retirement date; or

(b) an employee’s 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 entity’s 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 entity’s 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 arm’s 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 entity’s 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 entity’s 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 entity’s 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

entity’s 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 entity’s 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 entity’s

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 entity’s ability, and willingness,

to make good any shortfall in the fund’s 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 entity’s 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 entity’s 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 plan’s benefit formula. However, if an employee’s 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 entity’s 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 adjuster’s 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 employer’s 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 entity’s 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.

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(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 entity’s decision to

terminate the employment or an employee’s decision to accept an entity’s 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 entity’s 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 employee’s 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:

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(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 employee’s 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 entity’s 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 entity’s decision to terminate an

employee’s 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

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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 year’s 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

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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

contributions

80

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

A – 1

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

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year.

Other Comprehensive income /OCI Dr. 10

Plan assets Cr. 10

A – 2

10,000 10,000x1.07=

10,700

10,700x1.07=

11,449

11,449x1.07=

12,250

12,250x1.07=

13,107

131 131 131 131 131

(1-

10)^-4

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

Pv Of

Liab

-- 89 196 324 476

Current

Service

cost

89 98 108 119 131

Interest

cost

-- 9 20 33 48

Pv Of

Liab

89 196 324 476 655

A – 3

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

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(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

obligations

900 600

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:

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(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.

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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)

Q – 5

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.

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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

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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

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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

A – 5

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

year

2,300 2,050

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

comprehensive income

(213) 40

2,040 2,300

28.2 Changes in fair value of plan assets

Fair value of plan assets at beginning of the

year

2,150 1,995

Interest at 9%, 8% 194 160

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Benefits paid (99) (110)

Contribution paid 105 118

Settlement (28.2.1) (240) --

Re-measurement losses charged to other

comprehensive income (balancing)

(326) (13)

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

account

2014 2013

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

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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 entity’s

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 employer’s 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.

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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

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 actuary’s 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 actuary’s 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.

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

Q – 1

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

Limited

587,169

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

members

12,432,973

Bank charges 3,342

Audit fee 10,000

Liabilities no more payable 3,450,000

186,996,968 186,996,968

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Following are the details of investments and income thereon:

Balance

as at

July 01,

2006

During the year 2007

Addition

Profit /

Profit /

interest

realized interest

accrued

Principal

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)

Q – 2

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 (DSC’s), including accrued

interest

14,235

Opening balance of member’s fund 18,287

Amount payable to outgoing members 150

Accrued expenses 15

Profit on DSC’s 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

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

A – 1 (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)

of 31

Bank charges (3,342)

Audit fee (10,000)

(12,446,315)

Net Income for the year 27,712,441

W – 1

Balance as at

July 01, 2006

Addition

during the

year

Profit /

interest

accrued

during the

year

Fair value

gain /

(loss)

Principal

realized

during the

year

Profit /

interest

realized

during the

year

Balance as

at

June 30,

2007

HELD TO

MATURITY

Government

Securities

Defense Saving

Certificates 87,812,855 - 21,376,809 - (1,600,000) (5,456,000) 102,133,664

Unlisted

Securities and

Deposits

Term Finance

Certificates 19,943,656 5,000,000 1,655,223 - (12,873,068) (1,893,722) 11,832,089

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

A – 2

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

of 31

Represented by: -

Member’s fund 23,820

Surplus on re-measurement of investments

available for sale (8,450-8,265)

270

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

members

(700)

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

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

AS AT JUNE 30, 2012

STATEMENT OF NET ASSETS AVAILABLE FOR DISTRIBUTION

XYZ ENERGY PAKISTAN (PRIVATE) LIMITED EMPLOYEES GRATUITY FUND

TRUSTEE

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

FOR THE HALF YEAR ENDED JUNE 30, 2012

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR DISTRIBUTION


TRUSTEE

1. INTRODUCTION

2. FUNDING POLICY

Contribution is made by the company under the provisions of the scheme.

3. ACCOUNTING CONVENTION

4. TAXATION

5. EXPENSE

6. INVESTMENTS

7. PROVISIONS

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

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.

Expenses incurred for the administration of fund with the exception of bank charges are

borne by the company.

The income of the fund is exempt from tax under clause 57(3) of the second schedule to

the income tax Ordinance 2001

These financial statements have been prepared under the historical cost convention

except for the certain investments that are carried at amortized cost.

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.

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.


STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR DISTRIBUTION

FOR THE HALF YEAR ENDED JUNE 30, 2012

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.

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.

2012 2011

(Rupees) (Rupees)

10. Investments - Held to maturity Maturity Date

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

15. GENERAL

Figures have been rounded off to the nearest Rupee.

TRUSTEETRUSTEE

Face Value

Figures of previous years have been re-arranged and re-grouped wherever necessary for

the purpose of comparison.

The financial statements were authorised for issue on __________________ by the Board of

Trustees of the fund.

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

TRUSTEE TRUSTEE

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

XYZ

STAFF PROVIDENT FUND TRUST

STATEMENT OF NET ASSETS AVAILABLE FOR DISTRIBUTION

AS AT JUNE 30, 2012

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

1. THE FUND AND ITS LEGAL STATUS

2. FUNDING POLICY

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Accounting convention

3.2 Taxation

3.3 Expenses

3.4 Investments held to maturity

3.5 Investments at fair value through profit or loss

3.6 Provisions

NOTES TO THE FINANCIAL STATEMENTS

XYZ

STAFF PROVIDENT FUND TRUST

FOR THE YEAR ENDED JUNE 30, 2012

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.

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.

Payments are made to the employees on retirement, resignation and discharge as specified in the

rules of the trust.

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.

These financial statements have been prepared under the historical cost convention except for

the certain investments that are carried at fair value.

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.

Expenses incurred for the administration of fund with the exception of bank charges are borne by

the PSRD.

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.

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.

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.

3.7 Revenue recognition

3.8 Payment of benefits

4. INVESTMENTS - HELD TO MATURITY

NoteCertificate

Number

Date of

Maturity

2012 2011

(Rupees) (Rupees)

NON CURRENT PORTION OF INVESTMENTS - HELD TO MATURITY:

Bank AL-Habib - Term Deposit Receipt 4.1 72084/7831

026-11-2013 2,000,000 2,000,000

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

4.2

4.3

4.4

4.5

Face Value

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

This represents the defence saving certificate of Rupees 500,000 purchased from National Savings

Centre, Ichhra on April 10, 2009

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.

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.

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.

This represents the defence saving certificates of Rupees 900,000 purchased from National Savings

Centre, Ichhra on April 10, 2009

This represents the defence saving certificate of Rupees 1,000,000 purchased from National

Savings Centre, Ichhra on August 29, 2007.

4.6

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

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

Market value

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.

This represents the amount contributed by the employees and by the PSRD on monthly basis.

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.

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

12. GENERAL

Figures have been rounded off to the nearest Rupee.

TRUSTEE TRUSTEE

The financial statements were authorized for issue on _________________ by the Board of Trustees of

the fund.

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