Accounting questions

[Bay]

Please can someone help with the following questions relating to the Accounting chapter.

1. Past service cost is mentioned specifically in IAS but not in FRS 102. In FRS does it go in the Pension Cost element under "plan introductions, benefit changes, curtailments and setttlements"?

2. On the top of p34 the current service cost is explained but then it says "Do note however that this is not how the pension cost would be presented in the accounts". However in the e.g. on p37 the pension cost is the same as the pension cost in the Balance Sheet on p39 and is calculated how it is explained.

3. A rule of thumb of 1% pa decrease in the net interest rate post-retirement results in
- 16% increase in non-pensioner liabilities
- 14% increase in pensioner liabilities
Please can you explain how exactly these calculations are arrived at.

I hope to do the tutorial in August but would like to get these queries out of the way.

Thank in advance!

 

[Stuart Underwood]

1. Yes, past service cost is the cost of a benefit change
2. I wouldn't worry about this too much ... I think all it's saying is if you picked up a copy of a company's accounts, it may look different presentationally, even if the numbers are the same.
3. It can't be explained 'exactly', as it isn't exact, it's an approximate rule of thumb.
All it's saying is if you run off two annuities that are identical, other than the discount rates being 1% pa different, then you'd find the answers would be approximately 14%-16% different, typically the higher the retirement age, the less the difference. And it really is approximate. It will depend on the assumptions chosen. Test this for yourself by running two annuities at age 65 where the discount rates are 1% different, and see if the percentage change between the two is in this ball park.

 

[Bay]

Thanks Stuart!