Calculation of the actuarial gain and losses, Financial Accounting

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Calculation of the actuarial gain/losses in year to 31 December 2010

FV of plan assets

PV of plan liabilities

$000

$000

Opening balance

2,600

2,900

Service cost

450

Interest cost (8% x $2,900,000)

232

Expected return (5% x $2,600,000)

130

Past service cost

90

Benefits paid

(240)

(240)

Contributions

730

3,220

3,432

Actuarial gain on assets

180

Actuarial loss on liabilities

68

Closing balance

3,400

3,500





 

(b) SARs are an example of a cash-settled share-based transaction and, in accordance with IFRS 2 Share-based payments, are primarily measured at fair worth at the grant date and consequently premeasured to fair value at each year-end. The liability is premeasured and any difference is charged to the income statement as an expense. (This description is not a required part of the answer but is included to aid understanding.)

2009

Eligible employees (300-32-35) = 233

Equivalent cost of SARs = 233 employees x 1,000 rights x FV$8 = $1,864,000

Allocate over 3 year vesting period $1,864,000/3 = $621,333 equivalent charge to the income statement in the first year.

2010

Eligible employees (300-32-28-10) = 230

Equivalent cost of SARs = 230 employees x 1,000 rights x FV$12 = $2,760,000

Cumulative amount to be recognised as a liability = $2,760,000 x 2/3 years = $1,840,000

Less amount previously recognised = $1,840,000-621,333 = $1,218,667

The expense will be recorded as:

Dr staff costs $1,218,667

Cr liability $1,218,667


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