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Accounting Treatment for Pension Plans: IAS 19 - Term Paper Example

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The author examines IAS 19, the objective of which is to establish accounting standards for the treatment of employee benefits. The basic principle underlying the principle of IAS 19 is that it should be made mandatory for the entities to recognize the cost of providing benefits to the employees. …
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Accounting Treatment for Pension Plans: IAS 19
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Download file to see previous pages The defined contribution plans which include multi-employer plans, state plans, and other insurance schemes. Under these plans, since the liability of the employer is similar to the liabilities arising under defined contribution plans, the cost of the contribution plan should be accounted for in the income statement of the same period in which the contribution becomes payable by the employer in consideration for the services rendered by the employee during that period. (IAS 19.44)
"If contributions to a defined contribution plan do not fall due within 12 months after the end of the period in which the employee renders the service, they should be discounted to their present value". [IAS 19.45]
Any plan meant to provide post-employment benefits to the employees other than a defined contribution plan shall be construed as a defined benefit plan. Such plans include both formal and informal plans which create a constructive obligation to the employees of a firm with respect to the post-employment benefits. ...
In order to account for the defined benefit plan the cost that would be recognized for the balance sheet purposes would be the present value of the defined benefit obligation. The present value, in this case, represents the present value of the anticipated future payments that may be needed to settle the obligations of the employees, post-employment benefits. The benefits might have accrued to the employees by reason of his/her service during the current or prior periods. "This value is to be adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, and reduced by the fair value of plan assets at the balance sheet date". [IAS 19.54]
The accounting treatment of defined contribution plan poses no problem as the employer/employee contributions to the fund have to be written off immediately to the income statement, as there is no further obligation for the employer to contribute to the fund in case there is any shortfall in the employer's provision.  ...Download file to see next pagesRead More
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