Annual Report 2012 - IOI Group

5. SIGNIFICANT ACCOUNTING POLICIES (Continued)5.19 Employee Benefits (Continued)5.19.2 Retirement benefits (Continued)5.19.2.2 Defined benefit plans (Continued)The present value of the defined benefit obligations and the related current service cost and past servicecost are determined using the projected unit credit method by an actuary. The rate used to discount theobligations is based on market yields at the reporting period for high quality corporate bonds orgovernment bonds.Actuarial gains and losses resulting from changes in the present value of the plan assets are recognisedas income or expense over the expected average remaining working lives of the employees participatingin that plan when the net cumulative unrecognised actuarial gains and losses at the end of the previousreporting period exceed the higher of:i. 10% of the present value of the defined benefit obligations at that date (before deducting planassets); andii.10% of the fair value of any plan assets at that date.In measuring its defined benefit liability, the Group recognises past service cost as an expense on astraight-line basis over the average period until the benefits become vested. To the extent that thebenefits are already vested immediately following the introduction of, or changes to, the defined benefitplan, the Group recognises past service cost immediately in profit or loss.Where the calculation results in a benefit to the Group, the recognised asset is limited to the net total ofany unrecognised actuarial losses and past service costs and the present value of any future refunds fromthe plan or reduction in future contributions to the plan.5.19.3 Equity compensation benefitsThe Group operates equity-settled share-based compensation plans, allowing certain employees of the Group toacquire ordinary share of the Company at pre-determined prices. The compensation expense relating to shareoptions is now recognised within staff costs in profit or loss over the vesting periods of the grants with acorresponding increase in equity.The total amount to be recognised as compensation expense is determined by reference to the fair value of theshare options at the date of the grant and the number of share options to be vested by the vesting date. The fairvalue of the share options is computed using a binomial options pricing model performed by an actuary.At the end of each reporting period, the Group revises its estimates of the number of options that are expected tobecome exercisable on vesting date. It recognises the impact of the revision of original estimates, if any, in profit orloss, and a corresponding adjustment to equity over the remaining vesting period. The equity amount is recognisedin capital reserve until the option is exercised, upon which it will be transferred to share premium, or until theoption expires, upon which it will be transferred directly to retained earnings.The proceeds received net of any directly attributable transaction costs are credited to equity when the options areexercised.Annual Report 2012IOI CORPORATION BERHAD 151