Employees are paid in more ways than a monthly salary. They earn paid leave, bonuses, medical cover and, above all, pensions. A pension promise is the hardest to account for. The cost is incurred while the employee works. But the cash may not leave the company for thirty years, and nobody knows today how long the pensioner will live or what the final salary will be.
International Accounting Standard (IAS) 19, Employee Benefits, tells the company how to measure that promise, when to charge the cost and where to show the changes.
This topic covers the four categories of employee benefit, short-term benefits, termination benefits, other long-term benefits, defined contribution plans, defined benefit plans, the projected unit credit method, net interest, past service cost, curtailments and settlements, remeasurements, the asset ceiling, multi-employer and group plans, and disclosure. The next topic covers share-based payment. May 2026 Question 4 tested this area, including an ethical issue on past service cost.
In 30 seconds
IAS 19 matches the cost of a benefit to the period in which the employee earns it. Short-term benefits (settled within 12 months) are accrued at the undiscounted amount. In a defined contribution plan the expense is the contribution due.
In a defined benefit plan the employer bears the risk, so it recognises the net defined benefit liability or asset: the present value of the obligation less the fair value of plan assets. Profit or loss gets service cost (current, past, gains or losses on settlement) and net interest (opening net balance × discount rate).
Remeasurements (actuarial gains and losses, return on plan assets above interest, and changes in the asset ceiling effect) go to other comprehensive income and are never recycled to profit or loss. A surplus is recognised only up to the asset ceiling. The discount rate is based on high-quality corporate bond yields at the reporting date (or government bonds where there is no deep corporate market).
Key terms in plain English
| Term | What it means |
|---|---|
| Short-term employee benefits | Benefits due to be settled wholly within 12 months after the end of the period in which the service is given |
| Post-employment benefits | Benefits payable after the employee stops working, such as pensions |
| Defined contribution plan | The employer pays fixed contributions and has no further obligation. The employee bears the investment risk |
| Defined benefit plan | The employer promises a specified benefit, often linked to final salary and years of service. The employer bears the risk |
| Defined benefit obligation | The present value of the benefits earned so far |
| Plan assets | Assets held by a separate fund to pay benefits, measured at fair value |
| Current service cost | The increase in the obligation from employee service in the current period |
| Past service cost | The change in the obligation for past service from a plan amendment or curtailment |
| Remeasurements | Actuarial gains and losses, the return on plan assets above the interest income, and changes in the effect of the asset ceiling |
| Settlement | A transaction that removes the obligation for some benefits, other than normal benefit payments |
| Curtailment | A significant reduction in the number of employees covered, or a change in the plan that reduces future benefits |
| Asset ceiling | The limit on a surplus: the present value of refunds or reductions in future contributions that are available |
Syllabus check
IAS 19 is examinable under syllabus area B (reporting of performance and position, non-financial liabilities). This topic covers:
- classification of employee benefits and the accounting for short-term, termination and other long-term benefits;
- defined contribution and defined benefit plans, including the measurement of the obligation and the plan assets;
- current and past service cost, net interest, curtailments, settlements and remeasurements;
- the asset ceiling, multi-employer and group plans, and disclosure.
CAMA 2020 and employee benefits
The Companies and Allied Matters Act 2020 (CAMA 2020) requires statements that follow International Financial Reporting Standards (IFRS) and give a true and fair view.
| Section | What it says | Link to IAS 19 |
|---|---|---|
| s. 377(1) and s. 378 | Directors prepare statements that follow IFRS and give a true and fair view | Pension and other benefit costs and obligations follow IAS 19 |
| s. 374(1) | The company keeps accounting records | Actuarial reports, plan asset valuations and benefit data support the figures |
| s. 385 | The directors’ report covers performance and risk | A large deficit or actuarial risk may need comment |
| s. 404(7) | The audit committee reviews policies and internal control | It can review the actuary’s assumptions and any plan amendment |
The four categories
| Category | Examples |
|---|---|
| Short-term benefits | Wages, salaries, social security contributions, paid annual leave, paid sick leave, profit-sharing and bonuses, non-monetary benefits for current staff |
| Post-employment benefits | Pensions, lump sums at retirement, post-employment medical cover or life insurance |
| Other long-term benefits | Long-service leave, sabbaticals, long-term disability, jubilee awards, bonuses paid after 12 months |
| Termination benefits | Redundancy and early retirement payments |
Share-based payments are covered by IFRS 2, not IAS 19.
Short-term benefits
Recognise an expense for the service in the period, and a liability for any amount unpaid (or a prepayment for any amount paid in advance), at the undiscounted amount expected to be paid.
- Accumulating paid absences (unused leave carried forward): recognise a liability for the additional amount the entity expects to pay because of unused entitlement at the reporting date.
- Non-accumulating absences: no liability until the absence occurs.
- Profit-sharing and bonuses: recognise when there is a present legal or constructive obligation from past events and a reliable estimate can be made. A constructive obligation exists when past practice or announcement creates a valid expectation and the entity has no realistic alternative but to pay. Measure at the best estimate, allowing for staff who will leave.
Termination benefits
Recognise a liability and expense at the earlier of the date the entity can no longer withdraw the offer and the date it recognises restructuring costs under IAS 37 that include termination payments. Measure them by their nature: short-term rules if due within 12 months, otherwise the long-term rules, or the post-employment rules if they enhance a post-employment benefit.
Other long-term benefits
These are measured like a defined benefit plan (present value of the obligation less plan assets), except that all the movements, including remeasurements, go to profit or loss. There is no split into other comprehensive income.
Defined contribution plans
The expense is the contribution due for the period. A liability is shown for any unpaid contribution and a prepayment for any paid in advance. There are no actuarial assumptions and no discounting because the employer has no further obligation once the contribution is paid.
Defined benefit plans
The net position
Net defined benefit liability (asset) = present value of the defined benefit obligation − fair value of plan assets. A deficit is a liability. A surplus is an asset, limited by the asset ceiling.
The projected unit credit method
Each year of service earns a further unit of benefit. The actuary projects the final salary, works out the total benefit, attributes a unit to each year of service and discounts it to present value. The units add up to the obligation. In the exam you are given the actuary’s figures. The method matters for understanding, not for calculation.
Discount rate
The discount rate is set by reference to market yields at the reporting date on high-quality corporate bonds in the currency of the benefits, with a maturity that matches the term of the obligation. Where there is no deep market in such bonds, use market yields on government bonds. In Nigeria the depth of the corporate bond market is a judgement that the preparer must support.
Note: ICAN’s notes give the order in both ways in different places: government bonds first in one table and corporate bonds first in another. IAS 19 puts corporate bonds first. We teach IAS 19. In the exam, state the rule and say which market you have used and why.
Components of the cost
| Component | Where it goes |
|---|---|
| Current service cost | Profit or loss (staff costs) |
| Past service cost (plan amendment or curtailment) | Profit or loss, immediately |
| Gain or loss on settlement | Profit or loss |
| Net interest on the net liability (asset) | Profit or loss (finance cost or income) |
| Remeasurements: actuarial gains and losses, return on plan assets less interest income, change in the asset ceiling effect | Other comprehensive income, never reclassified to profit or loss |
Net interest
Net interest = opening net liability (or asset) × discount rate. In practice, calculate interest cost on the opening obligation and interest income on the opening plan assets at the same discount rate, and take the difference. Contributions and benefits paid during the year bring their own interest effect if they were paid mid-year. Questions normally assume year-end payments.
Benefits paid
Benefits paid reduce both the obligation and the plan assets, so they do not change the net position or profit or loss.
Past service cost, curtailments and settlements
- Past service cost arises when the plan is amended and benefits for past service change. It is recognised in profit or loss at the earlier of the date of the amendment or curtailment and the date the entity recognises related restructuring or termination costs. It is never spread over future periods. A benefit improvement is an expense. A reduction is a credit.
- Curtailment (for example a plant closure) is treated as part of past service cost.
- Settlement (for example paying a lump sum to transfer obligations to an insurer): the gain or loss is the difference between the present value of the obligation settled and the price paid (cash and assets transferred), and goes to profit or loss when the settlement occurs.
The asset ceiling
If the plan is in surplus, the net asset recognised is the lower of the surplus and the asset ceiling: the present value of the economic benefits available as refunds from the plan or reductions in future contributions. Any excess is a remeasurement loss in other comprehensive income. Net interest is calculated on the net asset after the ceiling.
Multi-employer plans and group plans
- A multi-employer plan pools contributions from unrelated employers. It is classified as defined contribution or defined benefit according to its terms. If it is a defined benefit plan, the entity accounts for its proportionate share. If there is not enough information to do that, it accounts for the plan as defined contribution and discloses that fact.
- A group plan that shares risk among entities under common control is not a multi-employer plan. Each entity discloses how the cost is charged to it and the method used.
Presentation and disclosure
Disclosures describe the plan, the risks, the assumptions (discount rate, salary growth, mortality), a reconciliation of the opening and closing obligation and plan assets, the amounts in profit or loss and other comprehensive income, the composition of plan assets, and the effect on future cash flows, so that users can understand the plan’s effect on the entity.
The rules in more depth
Why remeasurements go to other comprehensive income
Actuarial gains and losses and investment returns are volatile and outside management’s control. Showing them in other comprehensive income keeps the profit or loss line to the cost of service and the financing cost.
Why net interest, not expected return
IAS 19 no longer lets an entity assume that its plan assets will earn a high return. Plan assets earn interest at the same rate as the obligation is discounted. Any actual return above or below that is a remeasurement.
Why past service cost is immediate
A benefit improvement for past service has already been earned by employees. There is no future service to spread it over.
Ethics
Past service cost and the discount rate offer scope for manipulation. A small rise in the discount rate cuts the obligation. Making a plan change just before or after the year end moves the cost between years. Accountants must apply the standard faithfully and not let management pressure drive an assumption.
Effect on analysis
A large deficit is a debt-like claim. Analysts add it to net debt and look at the sensitivity of the obligation to the discount rate and to longevity.
Worked examples
Example 1: short-term benefits. (a) At the year end an entity carries forward 50 days of unused accumulating leave. The daily wage is ₦100. (b) A profit-sharing scheme pays 3% of net profit if no employee leaves, but turnover is expected to reduce the payout to 2.5%. Net profit is ₦80m.
- (a) Liability = 50 × ₦100 = ₦5,000.
Dr staff costs; Cr leave accrual. - (b) Expense and liability = 2.5% × ₦80m = ₦2m.
Dr staff costs; Cr bonus payable.
Example 2: a full defined benefit calculation. Bold Ltd (₦’000). Opening plan assets 18,400 and obligation 20,100. Discount rate 8%. Current service cost 3,000. Contributions 2,700 and benefits paid 1,900 (both at the year end). The actual return on plan assets was 1,950. The closing obligation per the actuary is 24,000.
- Interest cost.
20,100 × 8% = 1,608.
Interest income = 18,400 × 8% = 1,472. - Expected closing assets.
18,400 + 1,472 + 2,700 − 1,900 = 20,672.
Actual closing assets = 18,400 + 2,700 + 1,950 − 1,900 = 21,150.
Gain on assets = 21,150 − 20,672 = 478. - Expected closing obligation.
20,100 + 3,000 + 1,608 − 1,900 = 22,808.
Actual 24,000.
Loss on obligation = 1,192. - Profit or loss.
3,000 + (1,608 − 1,472) = 3,136.
Other comprehensive income = 478 − 1,192 = net loss 714. - Statement of financial position.
24,000 − 21,150 = net liability 2,850. - Proof.
opening deficit 1,700 + profit or loss 3,136 − contributions 2,700 + other comprehensive income loss 714 = 2,850.
Example 3: three years with a settlement and a past service cost. BCD Co (₦’000). Discount rate 10%. Opening obligation and assets both 1,000 at the start of 2022. All transactions at the year end.
| 2022 | 2023 | 2024 | |
|---|---|---|---|
| Current service cost | 140 | 150 | 150 |
| Benefits paid | 120 | 140 | 160 |
| Contributions | 100 | 120 | 120 |
| Actuary: obligation at year end | 1,200 | 1,650 (1,600 after settlement) | 1,700 |
| Fair value of plan assets at year end | 1,250 | 1,450 (1,402 after settlement) | 1,610 |
In 2023 a division was sold and a settlement transferred assets of 48 against a reduction in the obligation of 50. In 2024 a one-off pension increase added a past service cost of 40.
- 2022.
Expected assets = 1,000 + 100 + 100 − 120 = 1,080.
Gain = 1,250 − 1,080 = 170.
Expected obligation = 1,000 + 100 + 140 − 120 = 1,120.
Loss = 1,200 − 1,120 = 80.
Profit or loss = 140 (net interest nil).
Other comprehensive income = net gain 90.
Net asset = 50. - 2023.
Expected assets = 1,250 + 125 + 120 − 140 − 48 = 1,307.
Actual 1,402.
Gain = 95.
Expected obligation = 1,200 + 120 + 150 − 140 − 50 = 1,280.
Actual 1,600.
Loss = 320.
Profit or loss = 150 + (120 − 125) − 2 settlement gain = 143.
Other comprehensive income = net loss 225.
Net liability = 198. - 2024.
Expected assets = 1,402 + 140.2 + 120 − 160 = 1,502.2.
Gain = 107.8.
Expected obligation = 1,600 + 160 + 150 + 40 − 160 = 1,790.
Gain = 90.
Profit or loss = 150 + (160 − 140.2) + 40 = 209.8.
Other comprehensive income = net gain 197.8.
Net liability = 90. - Check each year.
2023: −50 + 143 − 120 + 225 = 198.
2024: 198 + 209.8 − 120 − 197.8 = 90.
Example 4: past service cost. A gratuity plan pays 10% × years of service × final salary. An employee has 12 years of service and a salary of ₦13m. Management raises the rate to 12% and applies it to past service.
- Increase in obligation.
2% × 12 × ₦13m = ₦3,120,000. - Dr staff costs (past service cost) ₦3,120,000; Cr defined benefit obligation ₦3,120,000, immediately.
- If the rate were cut to 8%, the same amount would be a credit.
Example 5: asset ceiling. Company X (₦’000). Opening assets 1,150, obligation 1,100, economic benefits available 40. Discount rate 10%. Current service cost 125, contributions 80, benefits paid 130. Closing assets 1,395, obligation 1,315, economic benefits available 65.
- Opening surplus 50, limited to the ceiling of 40, so the net asset is 40.
- Net interest income.
10% × 40 = 4.
Profit or loss = 125 − 4 = expense 121. - Closing surplus.
1,395 − 1,315 = 80, limited to 65.
Net asset = 65. - Movement before remeasurement.
40 + 4 − 125 + 80 = −1.
To reach 65, the remeasurement gain in other comprehensive income = 66. - Entry: Dr profit or loss 121; Dr net defined benefit asset 25; Cr cash 80; Cr other comprehensive income 66.
Note: the table of entries printed in ICAN’s notes appears to show the debit and credit columns the wrong way round. The expense is a debit and cash paid is a credit, as above.
Example 6: May 2026 Question 4(a) (Omolewa Nigeria Plc). At 1 January 2024 the obligation was ₦180m and plan assets were ₦160m. Past service cost was ₦10m and current service cost ₦25m. Interest cost was 6% and interest income 5%. Contributions were ₦20m and benefits paid ₦15m. At 31 December 2024 the obligation was ₦210m and plan assets ₦175m.
- Net defined benefit liability.
₦210m − ₦175m = ₦35m. - Profit or loss.
current service cost ₦25m + past service cost ₦10m + interest cost (6% × ₦180m) ₦10.8m − interest income (5% × ₦160m) ₦8.0m = ₦37.8m. - Expected obligation.
180 + 10.8 + 25 + 10 − 15 = ₦210.8m.
Actual ₦210m, so a gain of ₦0.8m.
Expected assets = 160 + 8 + 20 − 15 = ₦173m.
Actual ₦175m, so a gain of ₦2.0m.
Remeasurement gain = ₦2.8m in other comprehensive income.
It is never recycled to profit or loss. - Proof.
opening net liability ₦20m + profit or loss ₦37.8m − contributions ₦20m − gain ₦2.8m = ₦35m.
Note: the Pathfinder solution is slightly different from ours. It shows the net liability as ₦15m, which does not agree with ₦210m less ₦175m, and it labels current service cost ₦10m and past service cost ₦25m, the other way round from the question. Its total cost of ₦37.8m and remeasurement gain of ₦2.8m agree with ours.
In the exam, take the net liability from the closing figures and show the proof.
Example 7: November 2025 Question 1(d) (a long-term bonus). From 1 January 2024 employees receive a cumulative bonus after five years of service. The bonus is 2% of the total annual salary of the employees. Salaries were ₦60m in 2024 and are expected to rise by 5% a year. The discount rate is 8%. All employees are expected to qualify.
- Bonus earned each year: ₦1.20m, ₦1.26m, ₦1.323m, ₦1.389m, ₦1.458m. Expected total = ₦6.63m.
- Later years give a higher benefit, so attribute the total evenly: ₦6.63m ÷ 5 = ₦1.326m a year.
- The bonus is paid at the end of year 5.
The year 1 charge is the present value of ₦1.326m over four years: ₦1.326m ÷ 1.08⁴ = ₦0.975m. - Dr staff costs ₦0.975m; Cr non-current liability ₦0.975m.
- This is an other long-term benefit, so all later movements, including remeasurements, go to profit or loss and none to other comprehensive income.
How to score full marks
- Classify first: short-term, post-employment, other long-term or termination.
- Lay out two reconciliations: obligation and plan assets, each with opening, interest, service cost, contributions, benefits, expected closing, actual closing and remeasurement.
- Use opening balances for interest and the same discount rate for both.
- Put each item in the right place: profit or loss for service cost, past service cost, settlement and net interest. Other comprehensive income for remeasurements.
- Apply the asset ceiling if there is a surplus.
- Prove the closing balance with a roll-forward.
- Add the ethics point where a question hints at manipulation.
Common mistakes in the exam
- Taking actuarial gains and losses to profit or loss.
- Spreading past service cost over future years.
- Using closing balances for interest.
- Using different discount rates for the obligation and the plan assets.
- Forgetting that benefits paid reduce both the obligation and the assets.
- Recognising the whole surplus without testing the asset ceiling.
- Putting the remeasurements of other long-term benefits in other comprehensive income.
- Discounting short-term benefits.
- Missing the constructive obligation for a bonus.
Quick revision
- Short-term: accrue undiscounted. Termination: earlier of no withdrawal and restructuring recognition.
- Defined contribution: expense the contribution. Defined benefit: obligation less plan assets.
- Profit or loss: service cost, past service cost, settlement gain or loss, net interest. Other comprehensive income: remeasurements, never recycled.
- Past service cost is immediate. Settlement gain or loss is in profit or loss.
- Asset ceiling: lower of surplus and the present value of refunds or reduced contributions.
- Discount rate: high-quality corporate bonds, or government bonds if no deep market.
- CAMA 2020: ss. 377(1), 378, 374(1), 385, 404(7).
Practice questions
These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.
Recall check: multiple choice
The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.
Question 1. In a defined contribution plan, the employer’s expense is:
- The projected pension
- The contribution due for the period
- The actuarial deficit
- Nil
Show the answer
B. The employee bears the investment risk.
Question 2. Actuarial gains and losses on a defined benefit plan are recognised in:
- Profit or loss
- Other comprehensive income
- Retained earnings through profit or loss
- Deferred income
Show the answer
B. They are never recycled to profit or loss.
Question 3. Past service cost from a plan improvement is recognised:
- Over the future working lives
- Immediately in profit or loss
- In other comprehensive income
- At retirement
Show the answer
B. At the earlier of the amendment and the related restructuring.
Question 4. Net interest is calculated on:
- The closing net liability
- The opening net liability (asset) at the discount rate
- The expected return on assets
- The contributions
Show the answer
B. Interest cost and interest income use the same rate.
Question 5. Benefits paid to retirees:
- Increase profit or loss
- Reduce both the obligation and plan assets
- Go to other comprehensive income
- Reduce only the obligation
Show the answer
B. The net position is unchanged.
Question 6. A pension surplus is recognised at:
- Its full amount
- The lower of the surplus and the asset ceiling
- Fair value
- Nil
Show the answer
B. The ceiling is the present value of refunds or lower contributions.
Question 7. The discount rate is based on yields on:
- Equity returns
- High-quality corporate bonds, or government bonds if no deep market
- The entity’s borrowing rate
- Treasury bills only
Show the answer
B. Matching the term of the obligation.
Question 8. Remeasurements of other long-term employee benefits go to:
- Other comprehensive income
- Profit or loss
- Equity
- Not recognised
Show the answer
B. There is no split into other comprehensive income.
Question 9. A multi-employer plan with insufficient information is accounted for as:
- Defined benefit
- Defined contribution, with disclosure
- Not recognised
- A provision
Show the answer
B. The reason is disclosed.
Question 10. Which section of CAMA 2020 requires the statements to follow IFRS and give a true and fair view?
- Section 378
- Section 400
- Section 405
- Section 409
Show the answer
A. IAS 19 is part of IFRS.
Written questions
Question 11 (10 marks). (a) Distinguish a defined contribution plan from a defined benefit plan, and state the accounting for each. (5 marks) (b) Explain the recognition of accumulating paid absences and of a profit-sharing bonus. (5 marks)
Question 12 (20 marks). (a) State where each component of defined benefit cost is recognised. (5 marks) (b) At the start of the year a plan had an obligation of ₦2,000m and assets of ₦1,800m. The discount rate is 5%. Current service cost is ₦300m. Contributions of ₦250m and benefits of ₦200m were paid at the year end.
At the year end the actuary values the obligation at ₦2,350m and the assets are ₦1,980m. Calculate the profit or loss charge, the other comprehensive income amount and the net liability. (10 marks) (c) Explain the asset ceiling. (3 marks) (d) Explain the accounting for past service cost. (2 marks)
Question 13 (10 marks). Ebony Plc has a final-salary plan in surplus of ₦500m. Refunds are not permitted. The present value of reductions in future contributions is ₦320m. It also participates in a multi-employer plan for which no actuarial information is available. (a) State the amount recognised for the surplus and the treatment of the excess. (4 marks) (b) Explain the accounting for the multi-employer plan.
(3 marks) (c) State how the discount rate is chosen and one disclosure for the multi-employer plan. (3 marks)
Model answers
Show the model answer to Question 11
(a) Plans (5 marks). In a defined contribution plan the employer pays fixed contributions and has no further obligation, so the employee bears the risk. (1.5) The expense is the contribution due, with a liability for unpaid or a prepayment for early contributions. No actuarial assumptions or discounting are needed. (1) In a defined benefit plan the employer promises a benefit and bears the risk.
(1) It recognises the net liability (obligation less plan assets), service cost and net interest in profit or loss and remeasurements in other comprehensive income. (1.5)
(b) Absences and bonus (5 marks). For accumulating paid absences the entity recognises a liability for the additional amount it expects to pay for unused entitlement at the reporting date, undiscounted. (2) Non-accumulating absences are recognised when they occur. (1) A profit-sharing bonus is recognised when there is a present legal or constructive obligation from past events and a reliable estimate, measured at the best estimate allowing for expected leavers. (2)
Show the model answer to Question 12
(a) Components (5 marks). Current service cost, past service cost, gains and losses on settlement and net interest go to profit or loss. (3) Remeasurements (actuarial gains and losses, return on plan assets above the interest income, and the effect of the asset ceiling) go to other comprehensive income and are not reclassified. (2)
(b) Calculation (10 marks).
- Interest cost.
₦2,000m × 5% = ₦100m. - Interest income.
₦1,800m × 5% = ₦90m. (2) - Expected obligation.
2,000 + 100 + 300 − 200 = ₦2,200m. - Loss = 2,350 − 2,200 = ₦150m. (2)
- Expected assets.
1,800 + 90 + 250 − 200 = ₦1,940m. - Gain = 1,980 − 1,940 = ₦40m. (2)
- Profit or loss.
300 + (100 − 90) = ₦310m. (2) - Other comprehensive income = net loss of ₦110m. (1)
- Net liability.
2,350 − 1,980 = ₦370m (check: 200 + 310 − 250 + 110 = 370). (1)
(c) Asset ceiling (3 marks). A surplus is recognised at the lower of the surplus and the asset ceiling. (1) The ceiling is the present value of economic benefits available as refunds or reductions in future contributions. (1) Any excess is a remeasurement loss in other comprehensive income. (1)
(d) Past service cost (2 marks). It is the change in the obligation from a plan amendment or curtailment. (1) It is recognised in profit or loss immediately, at the earlier of the amendment and the related restructuring recognition. (1)
Show the model answer to Question 13
(a) Surplus (4 marks). The asset is the lower of the surplus and the asset ceiling. (1) Because refunds are not allowed, the ceiling is the present value of the contribution reductions, ₦320m. (1.5) Recognise ₦320m. The excess of ₦180m is a remeasurement loss in other comprehensive income. (1.5)
(b) Multi-employer plan (3 marks). The plan must be classified as defined contribution or defined benefit. (1) Without adequate information to account for a defined benefit share, Ebony accounts for it as defined contribution, expensing the contributions for the period. (2)
(c) Discount rate and disclosure (3 marks). The rate is the yield at the reporting date on high-quality corporate bonds in the currency of the benefits with a matching term, or government bonds if there is no deep corporate market. (2) Disclose that it is a multi-employer plan treated as defined contribution because of insufficient information (or the contributions expensed). (1)
Pathfinder on IAS 19 employee benefits
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Part (a) carries 4 marks for the net liability, 2 for the cost in profit or loss and 2 for remeasurements. Part (b) carries 4 marks each for the accounting treatment of past service cost, the ethical issues and the effect on users. Worked example 6 follows part (a). Note: the Pathfinder solution is slightly different from ours on the net liability (₦15m shown, ₦35m correct) and on which of the ₦10m and ₦25m is current service cost.
Revise first: Worked examples
The bonus is an other long-term employee benefit, with the service cost at the present value of the amount attributed to the year. Worked example 7 follows the solution.
Revise first: Other long-term benefits
The Elite scenario tests why past service cost cannot be spread. See the section on past service cost.
Revise first: Past service cost, curtailments and settlements
Source: ICAN Pathfinder, Strategic Business Reporting. Diets covered: May Diet, 2026.
Spotted a mistake? Tell us and we will check it.
