Question

QUESTION 3

1. Bright Bhd is a public limited company and would like advice in relation to the following transactions. Bright Bhd operates a defined benefit scheme for its employees. At June 2020, the net pension liability recognised in the statement of financial position was $15 million, excluding an unrecognised actuarial gain of $10 million which Bright Bhd wishes to spread over the remaining working lives of the employees. The scheme was revised on 1 June 2020.

            This resulted in the benefits being enhanced for some members of the plan and because benefits do not vest for these members for five years, Bright Bhd wishes to spread the increased cost over that period. However, part of the scheme was to be closed, without any redundancy of employees. Bright Bhd requires advice on how to account for the above scheme including the presentation and measurement of the pension expense.

REQUIRED:

Discuss on the above event and justify the appropriate accounting treatment that should be apply by Bright Bhd. Appropriate examples and quotes from the relevant standard is expected to support your arguments.                                                                                 

                                                                                                                             (25 marks)

(b)      Agricultural activities are distinguished by the fact that management facilitates and manages biological transformation and is capable of measuring the change in the quality and quantity of biological assets. Management of biological transformation normally takes the form of activity to enhance, or at least stabilise, the conditions necessary for the

process of growth, degeneration, production and procreation that cause qualitative or quantitative changes in a biological asset to take place.

REQUIRED:

Discuss on the principles of IAS 41 Agriculture with regard to the rationale and how the biological assets are measured using fair value, also on the circumstances where an entity can depart from using fair value.                                                                                                                                                                                                                                              (25 marks)

Answer 1

a) Actuarial gain refers to an increase in the projections used to value a corporation’s defined benefit pension plan obligations.

Acturial gains create volatility in results.

As per US GAAP, these adjustments are recorded through other comprehensive income in shareholders' equity and are amortized into the income statement over time.

under GAAP in US, net pension expense is comprised of service cost, interest cost, return on plan assets for the period , gain or loss, prior service cost, transition amount.

The amount of pension expense for the year is recorded in the income statment.

Measurement of pension expense : Pension expense reported in the income statement is related to how much the pension liability increased during the year compared with the return on the plan's assets.

b) IAS41 agriculture sets out the accounting for agricultural activity – the transformation of biological assets (living plants and animals) into agricultural produce (harvested product of the entity's biological assets). The standard generally requires biological assets to be measured at fair value less costs to sell.

IAS 41 applies to biological assets with the exception of bearer plants, agricultural produce at the point of harvest, and government grants related to these biological assets. It does not apply to land related to agricultural activity, intangible assets related to agricultural activity, government grants related to bearer plants, and bearer plants. However, it does apply to produce growing on bearer plants.

An entity recognises a biological asset or agriculture produce only when the entity controls the asset as a result of past events, it is probable that future economic benefits will flow to the entity, and the fair value or cost of the asset can be measured reliably.

Biological assets within the scope of IAS 41 are measured on initial recognition and at subsequent reporting dates at fair value less estimated costs to sell, unless fair value cannot be reliably measured.

The gain on initial recognition of biological assets at fair value less costs to sell, and changes in fair value less costs to sell of biological assets during a period, are included in profit or loss.