Your document headline

projected unit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using an interest rate
equal to the yield on high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have a term to maturity
approximating to the term of the related pension liability.
Actuarial gains and losses that arise are recognized in shareholders’ equity and presented in the statement of other comprehensive income in the period they
arise. Past service costs are recognized immediately to the extent that benefits are vested and are otherwise recognized over the average period until benefits are
vested on a straight-line basis. Current service costs and any past service costs, together with the unwinding of the discount on plan liabilities, offset by the
expected return on plan assets where applicable, are charged to operating expenses.
Source: Standard Chartered PLC annual report 2009 © Standard Chartered PLC
MULTIPLE-CHOICE QUESTIONS
1. An entity contributes to an industrial pension plan that provides a pension arrangement for its employees. A large number of other employers also contribute to the
pension plan, and the entity makes contributions in respect of each employee. These contributions are kept separate from corporate assets and are used together with
any investment income to purchase annuities for retired employees. The only obligation of the entity is to pay the annual contributions. This pension scheme is a
a. Multiemployer plan and a defined contribution scheme.
b. Multiemployer plan and a defined benefit scheme.
c. Defined contribution plan only.
d. Defined benefit plan only.
2. Which of these events will cause a change in a defined benefit obligation?
a. Changes in mortality rates or the proportion of employees taking early retirement.
b. Changes in the estimated salaries or benefits that will occur in the future.
c. Changes in the estimated employee turnover.
d. Changes in the discount rate used to calculate defined benefit liabilities and the value of assets.
e. All of the above.
3. An entity has decided to improve its defined benefit pension scheme. The benefit payable will be determined by reference to 60 years service rather than 80 years
service. As a result, the defined benefit pension liability will increase by $10 million. The average remaining service lives of the employees is ten years. How should
the increase in the pension liability by $10 million be treated in the financial statements?
a. The past service cost should be charged against retained profit.
b. The past service cost should be charged against profit or loss for the year.
c. The past service cost should be spread over the remaining working lives of the employees.
d. The past service cost should not be recognized.
4. Which of these elements are taken into account when determining the discount rate to be used?
a. Market yields at the statement of financial position date on high-quality corporate bonds.
b. Investment or actuarial risk.
c. Specific risk associated with the entity’s business.
d. Risk that future experiences may differ from actuarial assumptions.
5. An entity operates a defined benefit plan that pays employees an annual benefit based on their number of years of service. The annual payment does allow the
employer to vary the final benefit. Over the last five years the entity has used this flexibility to increase employees’ pensions by the current growth in earnings per
share. How will employees’ benefit be calculated if they retire in the current period?
a. It will be based on the existing plan rules with no additional award.
b. It will be based on the existing plan rules plus the current rate of growth of earnings per share.
c. It will be based on the plan rules plus the current rate of inflation.
d. It will be based on the plan rules plus the increase in earnings per share anticipated over the remaining working lives of the employees.
6. Which of these assets should be included within the valuation of plan assets?
a. Unpaid contributions.
b. Unlisted corporate bonds that are redeemable but not transferable without the entity’s permission.
c. A loan to the entity that cannot be assigned to a third party.
d. Investments in listed companies.
7. An entity has decided to protect its pension obligation with an insurance policy. The insurance policy permits the entity to cash in the insurance policy. Is this
insurance policy a qualifying insurance policy that will be included in plan assets?
a. Yes.
b. No.
8. An entity uses International Financial Reporting Standards to prepare its financial statements, but the defined benefit obligation has been calculated using
assumptions that are different from IFRS. The financial statements of the entity also do not take into account unrecognized past service costs. How should the entity
measure its net pension liability?
a. The net present value of the defined benefit obligation less the fair value of the plan assets.
b. The net present value of the defined benefit obligation less the fair value of plan assets less the unrecognized past service costs.
c. The net present value of the defined benefit obligation less the fair value of the plan assets less the unrecognized past service costs. In addition, a review of the
assumptions should be undertaken to remeasure the obligation.
d. The value in the entity’s statement of financial position will simply be used in the consolidated financial statements.