Deegan5e Sm Ch23

8/20/2019 Deegan5e Sm Ch23

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Chapter 23

Accounting for superannuation plans

23.1 AAS 25 defines a superannuation plan as an arrangement whereby it is agreed, betweentrustees and employers, employees or self-employed persons, that benefits be provided uponthe retirement of plan members or upon their resignation, death, disablement or other specified events!. Superannuation plans are typically defined as being either defined benefitsuperannuation plans, or defined contribution superannuation plans.

23.2 A defined benefit plan is one in which the amounts to be paid to members at normalretirement age are specified or are determined, at least in part, by reference to members"years of membership and#or salary levels. $or a defined contribution plan, the amounts to be

paid to members at normal retirement age are determined by reference to the accumulatedcontributions made by, and#or on behalf of, members together with investment earnings

thereon.%he accrued benefits of a defined benefit plan would be determined by using numerousactuarial assumptions to determine the present value of e&pected future payments arisingfrom membership of the plan. 'ecessary assumptions would include those pertaining tofuture salaries, mortality rates, employee turnover, periodic member withdrawals, and theappropriate discount rates.

(f a fund is not deemed to be a reporting entity then it does not need to follow AAS 25.AAS 25 provides e&amples of situations in which a fund may not be deemed to be a reportingentity. %hese include)

a! single member plans* and,

b! plans where plan members are employed by entities other than public companies, andthe plan members and the owners of the employer entity are an identical group.

%he types of plans identified above would probably not be considered to be reporting entities because it is li+ely that members of these plans will have access to, or be able to commandthe disclosure of, the information they reuire.

23.3 aragraph 3 of AAS 25 states) Assets of a defined contribution plan and a defined benefit plan shall be measured atnet market values as at the reporting date.

(t would be e&pected that adopting mar+et values would enable an account user to be better able to assess the performance of the entity in terms of its decisions regarding investmentchoices. (mportantly, it should also provide a better assessment of the ability of the entity tomeet its superannuation commitments when they fall due. /n the down-side, however, it may

be argued that ta+ing the changes in the mar+et value of the assets to the income statementwill introduce an unacceptable level of volatility into the accounts. $urther, it is possible thatthe value of the assets at balance date may not be reflective of the value either shortly before,or after, balance date.

0sing mar+et values may also be argued to introduce an element of subectivity into theaccounts, particularly when the assets are thinly traded or uniue in nature.

23. A defined benefit plan is one in which the amounts to be paid to members at normalretirement age are specified or are determined, at least in part, by reference to members"

Solutions anual t#a Australian Financial Accounting 5#e by 4raig eegan 2361


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years of membership and#or salary levels. %he accrued benefits of a defined benefit planwould be determined by using numerous actuarial assumptions to determine the present valueof e&pected future payments arising from membership of the plan. 'ecessary assumptionswould include those pertaining to future salaries, mortality rates, employee turnover, periodicmember withdrawals, and the appropriate discount rates. (t would be useful for users to be

able to review such assumptions.An actuarial report will enable the fund to present information about its present obligation to

pay members and beneficiaries. %he accrued benefits will be determined on the basis of the present value of e&pected future payments which arise from membership of the fund up untilthe reporting date. (t will be determined by reference to e&pected future salary levels and byapplication of a mar+et-based, ris+-adusted discount rate and other relevant actuarialassumptions.

7y providing information about accrued benefits, account users will be able to determinewhether the fund currently has sufficient funds to enable it to meet the obligation. $or adefined benefit plan that presents a statement of net assets, a statement of changes in net

assets and notes thereto, the liability for accrued benefits would be disclosed in the notes tothe accounts.

$or a defined benefit fund that uses the alternative presentation format of providing astatement of financial position, an operating statement, and a statement of cash flows andnotes thereto, the liability for accrued benefits would be shown within the statement of financial position see the Appendi&es to AAS 25!.

%he election to choose between the two alternative presentation formats is only available todefined benefit plans that elect to measure their accrued benefits at each balance date. $or those defined benefit funds which do not underta+e a detailed actuarial review at balancedate, they must provide a statement of net assets, a statement of changes in net assets, andnotes thereto.

23.5 AAS 25 reuires that the financial statements of a defined benefit plan shall have appendedthereto a copy, or summary, of the most recent actuarial report prepared for the plan. %hecopy or summary shall include)

a! the effective date of the actuarial report*

b! the name and ualifications of the actuary*

c! the relationship of the mar+et value of the net assets available to meet accrued benefits to the aggregate vested benefits of the plan at the date of valuation of the plan"s assets* and,

d! the opinion of the actuary as to the financial condition of the plan at the valuationdate.

%he commentary to the Standard also states that although AAS 25 does not reuire it, it isrecommended that the copy or summary of the most recent actuarial report include disclosureof the actuarial assumptions which have had a significant effect on the measurement of accrued benefits, changes in those assumptions since the previous actuarial report and anyrelevant actuarial ratios.

An actuarial report will enable the fund to present information about its present obligation to pay members and beneficiaries. 7y providing information about accrued benefits, account



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users will be able to determine whether the fund currently has sufficient funds to enable it tomeet its obligations.

23.8 Accrued benefits are defined in AAS 25 as 9benefits the plan is presently obliged to transfer inthe future to members and beneficiaries as a result of membership of the plan up to the

reporting date and, in the case of defined contribution plans, encompasses benefits whichhave been allocated to individual members" accounts and benefits not yet so allocated".

23. $or a defined benefit fund, the accrued benefits are independent of the assets and liabilitiesheld by the trust:they are determined by the contents of the superannuation plan trust deed.%hat is, they are tied to agreed payment formulas. %hey will be based on actuarialassumptions made to determine the present value of e&pected claims arising as a result of membership of the fund up to the measurement date. %he measurement date must be at leastevery three years.

23.; $or a defined contribution plan the accrued benefits will be represented by the difference

between the carrying amount of the assets, and the sum of the sundry liabilities and incometa& liabilities. (f the defined benefit plan elects to provide a balance sheet, the liability for accrued benefitsdetermined through up-to-date actuarial assessments! is typically deducted from the other

net assets of the entity to provide a summary figure showing the e&cess of the entity"s assetsover liabilities, or liabilities over assets. See Appendi& of AAS 25 for the suggested format.

23.11 ?es, a defined benefit plan can have a choice in its reporting format, that is, defined benefit plans have an option in relation to the reports they provide. %hey can elect between providing)

a! a statement of net assets, a statement of changes in net assets and notes thereto* or,b! a balance sheet, an operating statement, a statement of cash flows and notes thereto.

%he election to choose between the two alternative presentation formats is only available to

defined benefit plans that elect to measure their accrued benefits at each balance date.

$or those defined benefit funds which do not underta+e a detailed actuarial review at balancedate, the option to select between alternative reporting formats is lost. %hese funds are to

provide a statement of net assets, a statement of changes in net assets, and notes thereto.



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23.12 (ncrease decreases! in mar+et values of assets held continuously since 3> @une 2>>;

and B8> >>>!7uildings B15 >>>(nvestments in listed securities B8> >>>

otor vehicles B15 >>>!$urniture and fittings B5 >>>! B5 >>>!

(ncreases decreases! in mar+et value of assets acuired during the year

and acuired in @anuary 2>>= B1> >>>!7uildings acuired in @anuary 2>>= B1> >>>

(ncreases decreases! in mar+et value of assets disposed during the year

lant and euipment B2> >>>!Cevenue e&pense! for the year B25 >>>!

?ou will note from the above calculations that there are no depreciation e&penses. %his is because all assets are restated at their mar+et values at year end with the change in value being treated as part of the period"s profit or loss. Any wear and tear, and technical or commercial obsolescence of the assets would be reflected in the reduced mar+et values.

23.13 As the fund did not have a detailed actuarial review underta+en at reporting date, it does nothave an option as to how it is to present its financial data. (t must prepare a statement of changes in net assets, and a statement of net assets as at 3> @une 2>>=.

lease note, that although AAS 25 reuires comparative amounts for the preceding year, wehave not included these amounts in this solution.

ying on a ilo efined 7enefit Superannuation lan

Statement of 4hanges in 'et Assets

for the Ceporting eriod Dnded 3> @une 2>>=

2>>=

B>>> B>>>

'et assets available to pay benefits

beginning of period! 5 ;

(nvestment revenue

(nterest 33>

ividends 2

roperty rentals 132

4hanges in net mar+et values 'ote 1! 22; 82



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4hanges in net mar+et values

of other assets 'ote 2! 2!

Eeneral administration e&pense 1!

4ontributions

Dmployer 5>

embers ;> 1 >5>

roceeds from term insurance policies ;

7enefits aid ;>!

'et assets available to pay benefitsend of period! 8 82

'ote) 7ecause the above assets are measured at mar+et values, it can be considered that if the asset valuations have been done accurately, then B8 82 >>> could hypothetically be madeavailable at balance date to pay the members of the plan.

ying on a ilo efined 7enefit Superannuation lanStatement of 'et Assets

as at 3> @une 2>>=

2>>=B>>> B>>>

(nvestments

Eovernment securities 1 28>/ther fi&ed interest securities 1 >=2ortgage loans 132Shares in listed companies Ceal estate properties 1 122(nsurance policies 82 ;12

/ther assets

4ash =>>4ontributions receivable 15>(nterest receivable 32$i&tures and fittings 3; 1 =2>

%otal assets 8 32

ess) sundry liabilities

Accounts payable =>



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'et assets available to pay benefits 8 82

Note 1: 4hanges in net mar+et values of investments

(nvestments held at the reporting date)

Eovernment securities 3>!Shares in listed companies 2Ceal estate 8>/ther fi&ed interest securities 2(nsurance policies 12

1>;

(nvestment realised during the period

Shares in listed companies 12>

%otal increase in the mar+et value of investments 22;

Note 2:4hanges in mar+et values of other assets

$urniture and fittings 2!

Workings

%o calculate some of the above amounts, the following calculations were underta+en.

4hange in the net mar+et values of investments

(nvestments held at the reporting date)

(ncrease#decrease! inmar+et valueB>>> B>>>

Eovernment securities/pening mar+et value 15>urchased during the year cost! 1 1>

1 2=>ar+et value at balance date 1 28> 3>!

Shares in listed companies/pening mar+et value 1 ;8>4ost of shares sold during the year 1 1>

2>ar+et value at balance date 2

Ceal estate

/pening mar+et value 5;2urchased during the year cost! ;>

1 >824losing mar+et value 1 122 8>

/ther fi&ed interest securities



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/pening mar+et value =>>urchased during the year cost! 15>

1 >5>ar+et value at balance date 1 >=2 2

(nsurance policies

/pening mar+et value 3=>urchased during the year cost! 8>

5>ar+et value at balance date 82 12

1>;(nvestment realised during the period

Shares in listed companies

Sale price 1 28>4ost 1 1> 12>%otal increase in mar+et value 22;

4hanges in mar+et values of other assets

$urniture and fittings/pening mar+et value 51>4losing mar+et value 3;%otal increase in the mar+et value of other assets 2!

%o calculate the closing balance of cash)

B>>> B>>>7alance at 1 @uly 2>>; =2

ividends received 2

roperty rental received 132

(nterest revenue earned during the period 33>/pening interest receivable 3;

14losing receivable 32(nterest revenue received 2;2

Administrative e&penses incurred during the period 1/pening accounts payable 1>2

284losing accounts payable =>Administrative e&penses paid 158!

7enefits paid during the year ;>!



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roceeds received from term insurance ;

4ontribution revenue:employer 5>/pening contributions receivable:employer =>

88>4losing contributions receivable:employer 24ontributions received:employer 5;;

4ontribution revenue:member ;>/pening contributions receivable:member =>

5>4losing contributions receivable:member ;4ontributions received:member =2

Acuisitions of government securities 1 1>!

Acuisition of insurance policies 8>!

Acuisition of real estate ;>!Acuisition of other fi&ed interest securities

roceeds from sale of shares 1 28>4losing balance of cash =>>

23.1

ying on a ilo efined 4ontribution Superannuation lan

7alance Sheetas at 3> @une 2>>=

2>>=

B>>> B>>>

(nvestments

Eovernment securities 1 28>

/ther fi&ed interest securities 1 >=2

ortgage loans 132

Shares in listed companies Ceal estate properties 1 122

(nsurance policies 82 ;12

/ther assets

4ash =>>

4ontributions receivable 15>

(nterest receivable 32

$i&tures and fittings 3; 1 =2>

Solutions anual t#a Australian Financial Accounting 5#e by 4raig eegan 236;


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%otal assets 8 32

ess)

Sundry liabilities

Accounts payable => =>

'et assets available to pay benefits 8 82

Cepresented by)

iability for accrued benefits allocated to members" accounts 8 82

Ceconciliation of members" accounts

/pening balance as at 1 @uly 2>>; 5 ;

7enefits accrued as a result of operations for the year to 3> @une 2>>= 1 ;2

1227enefits paid to members during the year to 3> @une 2>>= ;>

4losing balance of members accounts as at 3> @une 2>>= 8 82

ying on a ilo efined 4ontribution Superannuation lan/perating Statement

for the year ended 3> @une 2>>=

2>>=B>>> B>>>

(nvestment revenue(nterest 33>

ividends 2roperty rentals 1324hanges in net mar+et values 22; 82

4ontributions revenueDmployer contributions 5>embers" contributions ;> 1 >5>

/ther revenueroceeds from term insurance policies ;4hanges in net mar+et values of other assets 2! 2!

Eeneral administration e&pense 1!

7enefits accrued as a result of operations 1 8

ying on a ilo efined 4ontribution Superannuation lanStatement of 4ash $lows

for the year ended 3> @une 2>>=

2>>=B>>> B>>>

4ash flows from operating activities

4ontributions receivedDmployer 5;;

Solutions anual t#a Australian Financial Accounting 5#e by 4raig eegan 236=


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ember =2 1 >;>

(nterest received 2;2ividends received 2Cents received 132

roceeds from term insurance ; 53

7enefits paid ;>!Eeneral e&penses paid 158!

'et cash flows from operating activities =;

4ash flows from investing activitiesroceeds from sale of shares 1 28>Eovernment securities purchased 1 1>!/ther securities purchased 15>!(nsurance policies purchased 8>!

Ceal estate purchased ;>! 'et cash used in investing activities 5>!

'et increase in cash held >;4ash at the beginning of the reporting period =24ash at the end of the reporting period =>>

23.15 a! 7alance Sheet of %idal Fave Superannuation lan as at 3> @une 2>>3

Investments

Eovernment securities 1>>>

/ther investments 31> 1 31>Other assets

4ash 5

4ontributions receivable from employers

4ontributions receivable from members

1>

1>

2>

$i&tures and fittings 18> 23

%otal assets 1 5

ess Sundry liabilities

Accounts payable 5!

Net assets available to pay benefits 1 53=

Cepresented by

iability for accrued benefits allocated to members"accounts 1 53=

Ceconciliation/pening balance as at 1 @uly 2>>; 1 857enefits accrued as a result of operations for the yearended 3> @une 2>>= 327enefits paid to members during the year 15>!

4losing balance of members" accounts 3>#8#>= 1 53=

Solutions anual t#a Australian Financial Accounting 5#e by 4raig eegan 2361>


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/perating Statement of %idal Fave Superannuation lan for the year ended 3> @une 2>>=

Investment revenue

(nterest revenue for the year ended 3> @une 2>>= 8>

ividend revenue for the year ended 3> @une 2>>= >

4hanges in net mar+et values 1! 5> 1;>Contributions revenue

Dmployers 12>

embers 1>> 22>Other revenue

4hanges in net mar+et value of other assets >! >!Eeneral administration e&pense 38!7enefits accrued as a result of operations 32

1! Eovernment securities) 1>>> 6 2;> G ;>>! H ;>!

4hanges in the mar+et value of assets realised H 2>(nvestments I31> 6 >> 6 1>>!J H 1>5>!

4ash $low Statement of %idal Fave Superannuation lan for the year ended 3> @une 2>>=

Cash flows from operating activities

4ontributions received 1! 21;

(nterest 8>

ividends >Administration e&penses 2! 3!

7enefits paid to members 15>! 18Cash flows from investing activities

roceeds from sale of investments 12>urchase of government securities 2;>! 18>!

'et increase in cash held 4ash at the beginning of the reporting period 5>4ash at the end of the reporting period 5

For+ings1! 4alculation of cash received Dmployers embers %otal/pening balance of receivables 1##>; 1> ; 1;4ontributions for the year ended 3>#8#>= 12> 1>> 22>4losing balance of receivables 3>#8#>= 1>! 1>! 2>!4ash received during y#e 3>#8#>= 21;

2! 4ash paid for administration e&penses) opening accounts payable 3 G e&penses 38 6 closingaccounts payable 5 H 3

b! Statement of 'et Assets 3> @une 2>>=

B>>> B>>>ar+et value of plan assetsEovernment securities 1>>>



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/ther investments 31>$i&tures and fittings 18>4ash 54ontributions receivable from employers4ontributions receivable from members

1>1> 2>

15Accounts payable 5!

'et assets 153=4ontributions for the year ended 3> @une2>>=

Statement of changes in net assets4hanges in the mar+et value of assets held3>#8#>=Eovernment securities I1>>> 6 ;>>G2;>!J ;>!(nvestments I31> 6 >> 6 1>>!J 1>

$i&tures and fittings >! 11>!4hanges in mar+et value of assets realised 2>4ontributions revenueDmployers 12>embers 1>> 22>(nterest revenue for the year ended3> @une 2>>= 8>ividend revenue for the year ended3> @une 2>>= >Administration e&penses 38!7enefits paid 15>!4hange in net assets



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Ceconciliation of cash

/pening balance 5> 7enefits paid 15>4ontributions 1; G 22> 6 2>! 21; Admin e&penses 3 G 38 6 5! 3(nterest 8> urchase of ES 2;>

ividends >roceeds of sale of investments 12> 4losing balance 5

51; 51;

23.18

Statement of financial position for E(E efined 4ontribution Superannuation lan at 3> @une 2>>=.

B

Eovernment bonds 8>>

Shares in listed companies ;5>

roperty 3;

4ash > G 5> G 8>> 6 > G 8> 6 12> 6 3> G 8> 6 1>>! 1;>

4ontributions receivable >

Accounts payable 8>!

'et assets 1 ==


Deegan5e Sm Ch23

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