Objective Type – IAS 19

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 the 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 the employees
taking early retirement.
(b) Changes in the estimated salaries of 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 the 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 the 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 10 years. How
should the increase in pension liability by $10 million be treated in the financial
statements?
(a) The past service cost should be charged against retained profits.
(b) The past service cost should be charged against profit of 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 the account when determining the
discount rate to be used?
(a) Market yields at the balance sheet date on high quality-corporate
bonds.
(b) Investment or actuarial risk.
(c) Specific risk associated with the entity’s business.
(d) Risk that the future experience may differ from actuarial
assumptions.
 Objective Type – IAS 19

5. An entity operates a defined benefit plan that pays employees an annual benefit
based on their number of tears 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 employee’s pensions by current growth in earnings per
share. How will employee’s 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 existing plan rules plus the current rate of
growth of the 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) Investment 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 is a qualifying insurance policy that will be included in the 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 the
assumptions that are different from IFRS. The financial statements of the entity
also do not take into the 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 fair
value of the plan assets.
(b) The net present value of the defined benefit obligation less fair
value of the plan assets less the unrecognized past service costs.
(c) The net present value of the defined benefit obligation less fair
value of the plan assets less the unrecognized past service costs.
In addition, a review of the assumption should be undertaken to
remeasure the obligation.
(d) The value in the entity’s balance sheet will simply be used in the
consolidated financial statements.
 Objective Type – IAS 19

9. An entity operates a defined benefit pension plan and changes it on January1,

2004, to a defined contribution plan. The defined benefit plan still relates to past
service but not to future service. The net pension liability after the plan
amendment is $70 million, and the net pension liability before the amendment
was $100 million. How should the entity account for this change?
(a) The entity recognizes a gain of $30 million.
(b) The entity does not recognize a gain.
(c) The entity recognizes a gain of $30 million over the remaining
service lives of the employees.
(d) The entity recognizes a gain but applies the 10% corridor
approach to it.

10. An entity on December31, 2005, changes its defined benefit pension plan to a
defined contribution plan. The entity agrees with employees to pay them $9
million in total on the introduction of the defined contribution plan. The employees
forfeit any pension entitlement for the defined benefit plan. The pension liability
recognized in the balance sheet at December31, 2004, was $10 million. How
should this curtailment be accounted for in the balance sheet at December31,
2005?
(a) A settlement gain of $1 million should be shown.
(b) The pension liability should be credited to reserves and a cash
payment of $9 million should be shown as an expense in the
income statement.
(c) The cash payment should go to reserves and the pension liability
should be shown as a credit to the income statement.
(d) A credit to reserves should be made of $1 million.
 Objective Type – IAS 19

Answers:

1 (a)
2 (e)
3 (b)
4 (a)
5 (b)
6 (d)
7 (b)
8 (c)
9 (a)
10 (a)