IAS 19 – ICAP past exams [Questions]

QUESTIONS
Question 1
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.

Rs. million
Present value of defined benefit obligation:
- April 1, 2010 133
- March 31, 2011 166
Fair value of plan assets:
- April 1, 2010 114
- March 31, 2011 120
Benefits paid by the plan to employees 6
Current service cost 15
Interest cost on DBO 16
Interest income 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)
[Q-5 Jun-11]
Question 2
Lion Engineering Limited (LEL) operates an approved pension scheme (defined benefit plan) for all its permanent
employees who have completed one year’s service. The details for the year ended 30 June 2012 relating to the
pension scheme are as follows:

Rs. million
Present value of pension scheme obligation at June 30, 2011 100
Fair value of scheme’s assets at June 30, 2011 70
Current service cost 29
Contributions made during the year 30
Benefits paid during the year 45
Present value of pension scheme obligation at June 30, 2012 110
Fair value of scheme’s assets at June 30, 2012 80

Additional information:
(i) With effect from 1 July 2011, LEL had amended the scheme whereby the employees’ pension entitlement
had been increased. The benefits would become vested after three years. According to actuarial valuation
the present value of the cost of additional benefits at 1 July 2011 was Rs. 15 million.
(ii) The relevant discount rate was 13%.
(iii) LEL was required to pay Rs. 40 million to the scheme, during the year ended 30 June 2012. Because of cash
flow constraints, LEL was able to contribute Rs. 30 million only.
Required:
Prepare the relevant extracts from the statement of financial position and the related notes to the financial
statements for the year ended 30 June 2012. Show all necessary workings.
(Accounting policy note is not required. Deferred tax may be ignored) (18)
[Q-5 Dec-12]

Nasir Abbas FCA 3.3.1

Question 3
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%
-------- Rs. million ------
Present value of obligation at year end 2,040 2,300
Fair value of plan assets at year end 1,784 2,150
Current service cost 125 143
Benefits paid during the year 99 110
Contributions made during the year 105 118

Additional information:
 Present value of pension obligation and fair value of plan assets as on 1 January 2013 were Rs. 2,050 million
and Rs. 1,995 million respectively.

 During the year 2013, TL amended the scheme whereby the benefits available under the plan had been
increased. It resulted in an increase in the present value of the defined benefit pension obligation by Rs. 13
million.

 On 31 December 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.

Required:
(a) 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 31 December 2014 in accordance with
International Financial Reporting Standards. (Show comparative figures) (11)
(b) Prepare entries to record the pension obligation:
- on sale of business segment to SL
- at the year-end. (03)
[Q-3(a) Jun-15]

Question 4
Mehran Industries Limited (MIL) operates a funded gratuity scheme for all employees. The following relevant
information has been extracted from the actuarial reports/records for the year ended 31 December 2015:

2015 2014
Discount rate 9% 8%
-------- Rs. million ------
Present value of obligation at year end 482 438
Fair value of plan assets at year end 491 449
Current service cost 19 15
Benefits paid during the year 23 16
Contributions made during the year 37 21

Nasir Abbas FCA 3.3.2

Additional information:
(i) Present value of defined benefit obligations and fair value of plan assets as on 1 January 2014 were Rs. 380
million and Rs. 351 million respectively.
(ii) On 28 December 2014, MIL sold one of its divisions and transferred the relevant portion of defined benefit
plan to the buyer. The present value of defined benefit obligation and plan assets transferred was Rs. 21
million and Rs. 19 million respectively.
(iii) On 1 January 2015, MIL changed the terms of the scheme for employees who had completed 4 years of
service. As a result, present value of defined benefit obligation increased by Rs. 30 million.
(iv) Based on the advice received from the actuary, the contribution for the year 2016 will be Rs. 23 million.
(v) The plan assets comprise of 65% debt securities (2014: 66%), 15% mutual fund units (2014: 10%), 10% equity
(2014: 14%) and the balance in bank deposits.

Required:
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 31 December 2015 in accordance with
International Financial Reporting Standards. (Show comparative figures) (11)
[Q-2 Jun-16]

Nasir Abbas FCA 3.3.3